Groupon Is No Google And Here’s Why

The comparisons are at times not hard to make, especially for those of us who spend too much time thinking about companies in the advertising / technology space. That they both start with G doesn’t hurt and that the original G looked as though they might purchase G2 only makes a discussion of their potential similarities all that much more likely. Not surprisingly, there are quite a few articles already with titles such as “Why Groupon Is The Next Google,” “Is Groupon The Next Google?,” “Groupon Is The Next Google,” and so on. Lately, the easier view to take is the opposite, namely why Groupon is not going to be the next Google. That argument has less to do with any new discovery and more to do with the growing bearishness building around Groupon fueled by a steady stream of minor pin pricks – potentially declining traffic, questionable accounting, negative cash flow, too much Kool-Aid, etc.

The bull case for Groupon becoming like the next Google goes like this:

• Fastest growing company ever – the fastest to hit $1 billion dollar revenue run rate

• Barriers to scale – anyone can enter but few can scale across multiple markets

• The company has a subscriber base north of 80 million worldwide

• They service more than 58,000 local merchants

• They ONLY work with 58,000

• The next biggest competitor is half the size

• The third largest is half the size of the second largest

• More companies have tried and failed than have succeeded, and no one that has begun in the last year has come close to the overall size

• They don’t need to grow organically; they can buy their way into new markets and not worry if they aren’t number one in all markets

• Local is a huge market, even on the low end of the projections it dwarfs online media

• They unlocked the formula for local businesses to reach big audiences in their market

• Their solution is stupid simple for merchants – not technology, no site maintenance

• Everybody likes a discount, so it will work in good times as well as bad

• LinkedIn is worth $8billion or so and Groupon makes more money in months than LinkedIn does each year

Unlike the bull scenario above, the bear case is a little more nuanced, and many of the negative points can be explained. Our “bear” scenario is not claiming Groupon to be a horrible business and product of some bubble. It’s an amazing business, but the question isn’t about it being a killer business. It’s whether Groupon is a “Google.” Here are they key issues we have.

• Groupon is about people not code

• It is not a technology company

• We repeat, it is not a technology company so don’t value it like one

• The company is a direct marketing business

• It does not own the pipes into a market

• You do not have to use it to be successful

• Deals are a tool in a companies arsenal

• They are trying to grab market share of a known quantity as opposed to creating an entirely new category

• There is little organic growth

• No share of mind; easy to forget about them

• Self-selecting customer base

• Having to sell versus having to buy

• Growth will always be erratic

Of all the reasons why Groupon can be a great business but not Google, the most important to in my mind is the concept of selling versus buying. It’s a phrase we heard Luma Partners CEO Terry Kawaja say as to why his businesses tend to have better exits. He gets businesses bought instead of a company having to sell itself. When you want something, it has more value than when you are being pitched.

Google has no shortage of shortcomings. The company often comes across having a better than thou attitude, that its stuff doesn’t stink, and imposes monopolistic practice on the market. Unless, you spend a ton of money (and sometimes not even then), you will struggle to speak with the same person more than once or feel as though someone actually wants to help you. They seem to treat many of their customers in an almost adversarial manner. The company also has very little soul, i.e. they lack true personality and a personal experience. They don’t inspire. They just beat you over the head with competence and make sure you can never escape. Not only that, they almost insure compliance with them because so much of ones life resides on their servers. The governments will eventually come after Google, but for everyone else, it’s rather meek protests. That is something Groupon will never have.

People love to bash on Groupon. It’s easy to do, especially for a small business who feels they got cheated. It may be entirely the companies fault and not an overly aggressive sales rep’s. It almost doesn’t matter. Groupon will be seen as the villain. That same company could lose even more on Google, and were they to complain, most people would assume that it was the merchant’s fault and not Google’s. When you go to Vegas and blow money, it’s not Vegas’ fault but some fault of the person. Vegas is complicit, but they assumption is that you did have a choice. No one thinks that about Groupon. It’s always Groupon did something wrong versus the merchant doing something that didn’t make sense. Just like Google, it’s not Groupon’s place to talk people out of spending. They want informed users, but as far as policing goes, their job is just to insure integrity of the offer not competence of the business owner.

A person choosing to spend versus a person being sold into spending is a small distinction, but more than any other factor, that is the biggest reason why Groupon will always be Groupon, but it cannot be Google. Google on the other hand could very well be the next Groupon.