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Google is reportedly set to pay $5.3 billion for Groupon, a spectacular investment that would give The Big G a compelling way to get close to local businesses, leverage Gmail and really rev up a social media paradigm (as opposed to search).

The big price, if it is consummated, clearly is not based on the limited scope of services that Groupon has today: it’s two or three deals-a-day, banner ads and e-mail list. These are all susceptible to commoditization.

Rather, the price is based on the idea that Groupon has established an unparalleled brand for pure pay for performance — advertisers don’t pay unless they make a sale — and that it could be extended to managing a range of small-business promotional activities. These include SMB-managed deals, contact management, landing pages, SEO and everything else. In short, it is a disruptive take on traditional media sales — a major revolution in itself.

It is also based on Groupon’s ability to land national and international deals with national marketers. The recent Gap promotion clearly was just the tip of the iceberg.

What plays a huge factor here is Groupon’s ability to leverage personalization, and social media such as Facebook and Twitter. An increasing number of companies, ranging from YellowBook to EventBrite, are saying that the social media leads have much more impact for them than search leads. Groupon positions Google very well in this regard.

Groupon’s ability to leverage Gmail and its millions of users is also intriguing — e-mail lists are the currency of deal a day. AOL is already pushing on that with AOL Wow, a deals site that it recently launched.

None of this is a given. Deal a day isn’t especially sustainable “as is.” If they are going to have any longevity, providers will need to latch on to a broader mix of SMB marketing services (see LivingSocial‘s Urban Escapes). That’s why we are so intrigued by the emerging aggregator space that includes deal a day, as well as coupons, gift certificates and weekly specials. The Dealmap, 8coupons, Dealradar and Yipit are among those playing in this space. Yahoo, Bing and AOL are also pushing on it.

Moreover, as Groupon becomes a bigger media company with a wider reach, it inevitably becomes less efficient. The 66 percent open rate that CEO Andrew Mason referenced at our March Marketplaces conference is bound to sharply fall as deals get repetitive and boring (how often do you get deals that even amuse you at this point?). Competitors take their share; aggregators act as a disruptive intermediary; and the audience branches out from highly social, college educated women to average Joes.

We also don’t know yet whether SMBs will extend their non-billing, 100 percent pay-for-performance model relationship with Groupon to a model that includes paid services. It didn’t work very well for Entertainment Publications.

Ultimately, however, we see a lot of valuable synergy for Google and Groupon. And Google certainly has the money with a $30 billion stash of cash. Is Groupon worth $5.3 billion — or double the $2.5 billion gossiped about yesterday? We’ll soon see whether it can be leveraged to the point of earning the money back. Will there be a clear win? Years after the fact, people are still arguing whether YouTube was worth it (it was).

Groupon VP Sean Smyth is speaking at the Deal a Day SuperForum at ILM:10 next week in Santa Clara. Google is represented throughout the conference by Carter Maslan, Wesley Chan, Todd Rowe and Surojit Chatterjee.

This Post Has One Comment

  1. So, will the Groupon sales force become Google’s local sales force? According to public sources, about one-half of Groupon’s 3,000 employees work in sales — about 1,500 people. This is a large sales force by any standard, comparable to that of a national Yellow Pages publisher. (Of course, there are huge differences between the Groupon sales force and a more seasoned one capable of cross-selling multiple products). Nonetheless, a Groupon acquisition would vault Google into the major leagues in terms of local sales presence.

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