Google Gearing Up to Take On Groupon?

Friday Jan 21st 2011 by David Needle
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After offering upwards of $6 billion to buy the popular deal site, the search giant appears ready to compete with Groupon directly with Google Offers.

If you can't buy them, beat them.

That appears to be the tact Google (NASDAQ: GOOG) is taking with Google Offers, which will be compete with the popular Groupon service -- which itself already has several established competitors.

Google, according to numerous reports late last year, tried to buy Chicago-based Groupon for upwards of $6 billion, but the offer was rebuffed. Instead, the privately held Groupon raised almost a billion dollars on its own in private equity and reportedly is planning to make a public offering. One of its biggest competitors, LivingSocial, raised recently announced new financing of $175 million from ecommerce giant Amazon (NASDAQ: AMZN).

Like Groupon, LivingSocial and others, the new Google Offers works by sending consumers a daily email with limited-time offers (often just 24 hours). Mashable first reported the news, later confirmed by Google -- at least that the company is testing such a service.

"Google is communicating with small businesses to enlist their support and participation in a test of a pre-paid offers/vouchers program," a Google spokesperson said in an email to InternetNews.com. "This initiative is part of an ongoing effort at Google to make new products, such as the recent Offer Ads beta, that connect businesses with customers in new ways. We do not have more details to share at this time, but will keep you posted."

Google Offers will be powered by Google Checkout and include links to share offers on Facebook, Twitter, Google Reader, Google Buzz and email sharing options, according to Mashable.

Groupon and LivingSocial essentially operate the same way, though they offer a different daily mix of deals based on what vendors they happen to be working with. LivingSocial has a twist where a buyer can get a service for free if they get three friends to sign up for it too.

Typically the deals are for big discounts on services like dining, spas and vacation retreats. From the vendor's point of view, the main reason to use one of these services would seem to as a marketing vehicle to gain new customers since a big part of the profit is eaten by the discount and the cut Groupon or LivingSocial gets (reportedly as much as 50 percent of the deal price).

Writing in SearchEngineLand, analyst Greg Sterling said that despite Google's massive reach across many of its products, the company would have to acquire email addresses (via an opt-in sign up) to build significant distribution for participating vendors. Groupon is the largest of the many daily deal competitors with 50 million email subscribers around the world, according to Sterling.

"Google flubbed its opportunity with coupons a few years ago," said Sterling. "This appears to be a more focused effort to crack the market and could represent both a successful consumer offering and a new local business revenue stream. A shrewd maneuver by Google would be to take less than the traditional 50 percent commission that Groupon takes off the price of the deals."

David Needle is the West Coast bureau chief at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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