Groupon Turn Down Google, So Should Businesses Take It Up?

Perhaps the biggest story this week is that Groupon - the social commerce phenomena - have turned down an acquisition bid from Google reported to be worth between $6 -$9billion (depending which blogs you read).

Mashable recently reported that Groupon currently has an $800 million annual gross revenue run rate, however no recent figures have been released regarding profitability.

Groupon is so attractive to Google because they have appeared to have "cracked the code" for getting local businesses to spend marketing money online. Despite the dozens of copycat services that have sprung up, Groupon is the major brand associated with this new form of social commerce and currently receives 10X the traffic of its nearest competitors LivingSocial and Buy With Me.

Groupon allows local businesses to offer a discounted product to consumers, but the offer will only become active as long as a certain number of people (the actual number is decided between Groupon and the local business) commit to buying the offer, ensuring that the local business can sell enough of these offers to giving such discounts worth their while.

This means that for those interested in receiving their discount have to encourage as many people as they can to commit to buying the coupon, which they can do via Facebook, Twitter or email. This can help to create a real buzz around an offer, which can result in more and more people buying the coupon.

By committing to buy a coupon customers must actually pay for it on Groupon, and then print off their coupon to redeem in-store. If not enough people commit to buy the coupon to make the deal active, then those who did commit to buy the coupon are not charged. An upper cap on the total number of people allowed to redeem the offer can be added so companies can protect themselves from the promotion being too successful. Discounts usually range somewhere between 30-50% off a selected product.

Some companies, such as Gap, have had fantastic success with Groupon. In the first ever national Groupon deal Gap offered to sell $50 worth of clothes and accessories for $25 if enough people committed to buy the coupon. The campaign was a huge success in terms of number of coupons bought; over the course of the day 441,000 coupons were sold, generating just over $11 million.

However, it should also be noted that Groupon usually takes 50% of the sale of Groupon coupons. This means that for each of the 441,000 $50 coupons redeemed in-store, Gap will have only taken $12.50. It could be argued that although expensive for Gap, this campaign brought almost half a million customers through their doors, but for smaller businesses this could be disastrous - some American businesses have come close to bankruptcy after the unprecedented success of their Groupons.

If Groupon truly has "cracked the code" of local marketing online, then we can be sure that "Groupons" will become much more popular (than they already are!) in the UK in the coming months. Groupon presents a fantastic opportunity for local marketing, however, as has been seen, that opportunity can come at price.

Paul Shepherd

I've worked in digital communications for around 15 years, and specialised in social media for the past three. Passionate about new technologies, media, and the impact it has on businesses bottom line, I try to bring that passion to every campaign for every brand we work with.