Rumors have been flying for the past couple weeks that Google is in the works to buy the social buying site Groupon (group + coupon), which offers its members daily discounts at local businesses, oftentimes related to bikini waxes and fancy dinners — you know, the stuff you want to get cheap, if you can. Although the buyout, which has yet to be finalized, was initially pegged at $2.5 billion, AllThingsD’s Kara Swisher is reporting that Google offered Groupon $5.3 billion, with a $700 million earnout (future compensation based on earnings). If it doesn’t fall apart, it will be Google’s largest acquisition yet — more than the $3.1 billion Google paid for DoubleClick or the $1.65 billion for YouTube. Google’s attraction to Groupon is clear: The search giant has been trying, unsuccessfully, to break into online advertising from local businesses — something companies have been salivating over for years. Google tried the same thing with its failed acquisition of Yelp last year. Groupon is at the head of the pack, with copycats at its heels. And as the CEO of a local commerce company told TechCrunch, “I think the way Google will evolve is they will want to control everything significant on the Internet.” Total Internet domination — yeah, that sounds about right.
Everyone isn’t as optimistic about the outcome. Over at Broadstuff, new-media entrepreneur Alan Patrick thinks the deal reeks of the “dumb money” Union Square Ventures’s Fred Wilson has been warning us about: the kind of hyper, easy cash that starts to flow freely just before a bubble — sort of like the venture-capital equivalent of Wall Street’s chasing unsupported returns before the financial crisis. Patrick points out that a “shoe-leather sweatware” business like Groupon, which self-reports its revenue, is typically worth one times its revenue run-rate at most, where Google is paying ten times the amount. “So there you have it — a heady cocktail of dumb money, analytical optimists, desperate Olde Web companies paying over the odds, and a bunch of investors desperate to cash out.”
But the situation might not be all that cut-and-dry. A couple weeks ago, in a post entitled “Hell, Yes, Google Should Buy Groupon. And Twitter. And Foursquare…,” Business Insider’s Henry Blodget suggested that Google should do just that. After all, the $34 billion Google has in its bank account — remind us why we don’t work there again — isn’t doing it any good just sitting there. What’s more, as Google’s core business, online search, matures, it will need to diversify. Though perhaps not as recklessly as it has been. Yes, self-driving-car division, we’re talking to you. Google’s plans for a social network, which announced further delays today, sounds perhaps more like a privacy nightmare than a bad business plan.
As for the Groupon deal as bellwether for an impending bubble, it’s certainly true that with the IPO market still faltering, investors are looking for a way out. If it’s not IPOs or the secondary market, which recently helped Facebook grow $9 billion theoretical dollars bigger in two weeks, then maybe it could be a buying spree from new tech behemoths trying to outsource innovation by buying start-ups, without proof of a payoff. As Fred Wilson pointed out in a recent post about acquisition finance, in addition to Google’s $34 billion, Apple has $50 billion, Microsoft has $44 billion, and eBay and Amazon each have more than $5 billion. “The numbers add up to a lot of buying power out there. But just because they have the cash doesn’t mean they will use it.” For now, it looks like the bubble, like the Groupon deal, might still be more of a possibility than a sure thing.
Google’s Groupon Offer: $5.3 Billion, With $700 Million Earnout [BoomTown/AllThingsD]
Google, Groupon and calling Technology Bubbles [Broadstuff]
Acquisition Finance [Fred Wilson/AVC]