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The first week of June 2011 may be looked back on as the week Groupon and Google (NASDAQ:GOOG) reached pivotal points in their paths toward contextual discovery.
Groupon filed for a $750 million initial public offering and is making investors pull their hair out over the fact that the company owes $230 million and is burning through $100 million a quarter.
With 83.1 million subscribers snapping up over 70 million discounts since March, Groupon is the unquestioned leader in contextual discovery. That is, bringing consumers what they want based on preferences and tastes, rather than making them type search queries to find goods and services.
This is a burgeoning market without a barrier to entry that scares financial pros. Throw a rock, and it seems you’ll hit a local deals service. There are even hyper-local deals that focus on specific niches.
Google, which coined the contextual-discovery phrase to describe its local search efforts, tried to buy Groupon for $6 billion last winter. Having failed that, it launched Google Offers in Portland, Ore., June 1. Its first customer was Floyd’s Coffee Shop, for which it cut a deal to give buyers in that city $10 worth of drinks for $3.
Google expects to launch Offers in New York and San Francisco this summer, ostensibly pairing it with its new Google Wallet mobile-payment service. As the latest Groupon clone, Google Offers is a far cry from Groupon’s 57,000 local merchants in 43 countries.
Unlike Groupon, which butters its bread solely with local deals, Google sees Offers as another means to the same end. That is, drawing more users into its desktop search ad and mobile search ad Webs, according to BIA/Kelsey analyst Michael Boland.
“Google clearly has massive search traffic to distribute deals where commercial intent is high,” Boland said. “It also has existing campaigns and relationships with millions of large and small advertisers.”
If Google Offers builds even a fraction of Groupon’s vaunted traction-and without the massive debt its rival is incurring-Google will show how finished transactions stemmed from paid search campaigns. That has a value Groupon, which has no search infrastructure, might not be able to touch.
Google Offers should over time be better served in mobile, where Google has said 40 percent of its local searches come via smartphones and can leverage Google Wallet to reduce the payment friction.
Google Leverages Groupon Model for Search Gains
Google can copy Groupon again by offering its own version of Groupon Now, bringing deals to smartphone-owning consumers based on their preferences and locations.
For example, a shopper checks in to a store with Google Latitude and gets pinged with a coupon for that store. Alternatively, a consumer could be walking down the street and receive discount alerts via their phones. This potential is unbridled and untapped, even by Groupon.
“What we’re talking about here is the holy grail of search. And Google-relying on search for the vast majority of its revenue-just took a step closer to finding it,” Boland said.
Sure, Google Offers is just starting while Groupon has a three-year head start, 7,000-plus feet-on-the-steet salespeople and millions of users. But it’s low barrier to entry makes Groupon’s local-deals model easier to compete with than Google in search or Facebook in social.
“When all is said and done, it is just a coupon service, and there are already over 300 Groupon knockoffs,” Gartner analyst Van Baker told eWEEK. “Consumers will sign up for several of these and cherry pick the deals that they want. I can’t comment on the likelihood that Google will succeed as there are a lot of considerations, including how much Google invests in the effort, but Groupon certainly does not own the social-coupon space.”
Baker’s colleague, Gartner analyst Ray Valdes, said Groupon’s brand has an aura of novelty that could wear off over time. Price-sensitive consumers are usually not steadfast when it comes to brand loyalty, he noted.
The hype around Groupon underscores that there is “overheated demand for tech stocks among investors hungry for quick returns in an otherwise dark economic landscape,” Valdes said. “I think Google has fortuitously dodged a bullet in terms of saving $5 billion or $6 billion that would have been consumed by the Groupon acquisition.”
Google, meanwhile, can sit back and watch Offers grow, or not grow if too many rivals dilute the market. The giant can still savor its $30 billion a year in online advertising from search, mobile and display, and take comfort in its $36 billion in cash reserves.