Groupon, Google on Different Paths to Contextual Discovery

Groupon prepares for its initial public offering in the same week Google Offers rolls out in Portland, Ore., to piggyback on Groupon's success after failing to buy it last year.

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.