Groupon Aims to Emulate Facebook, Not Yahoo, After Walking Away From Deal

Groupon Inc., which rejected a Google Inc. takeover last week, is betting it can keep increasing its valuation after walking away from a deep-pocketed suitor, something Facebook Inc. pulled off and Yahoo! Inc. failed to do.

Groupon, the Chicago-based provider of online coupons, spurned an offer of as much as $6 billion that included performance incentives, a person familiar with the matter said last week. The startup will decide next year whether to go the route of an initial public offering instead, the person said.

Internet executives have had mixed results in refusing billion-dollar takeover offers. Yahoo co-founder Jerry Yang was head of the Web-portal company when Microsoft Corp. tried to buy it for $47.5 billion in 2008. After rejecting the deal, Yahoo saw its valuation cut in half and Yang was replaced as CEO. At Facebook, founder Mark Zuckerberg turned down a $1 billion offer from Yahoo in 2006. Less than five years later, the social- networking service is valued at more than 40 times that.

“It is very common for all executives -- entrepreneurs or executives of public companies, to drink their own Kool-Aid and believe their own hype,” said Lou Kerner, a social-media analyst at Wedbush Securities Inc. in New York. “When everything is going up and to the right, it’s hard to have appreciation for the risks that are apparent in any business.”

Strategic Differences

Groupon Chief Executive Officer Andrew Mason, who started the company in 2008, had concerns about the strategic direction it would take under new management and what could happen to his employees if he sold to Google, according to a person familiar with the matter, who declined to be identified because the discussions were private.

Groupon has attracted 35 million users in more than 300 global markets by offering discounts of as much as 90 percent on everything from massages to ski tickets. The company makes money by keeping part of the revenue raised by the coupons. Groupon’s sales may top $500 million this year, two people familiar with the matter have said.

When Facebook declined Yahoo’s offer, Zuckerberg’s site had fewer than 12 million users. It now boasts more than 500 million. The Palo Alto, California-based company is worth more than $43 billion, according to SharesPost Inc., which tracks privately held businesses.

Yahoo, by contrast, has gone in the other direction. Even under a turnaround effort by Carol Bartz, the Sunnyvale, California-based company has struggled to revive growth and keep users from defecting to Google and social-networking sites. Its market value is now $21.3 billion.

Apple and Sun

Apple Inc., the world’s most valuable technology company, had its own near-miss takeover. The company held merger talks with Sun Microsystems Inc. in the 1990s, before CEO Steve Jobs returned to Apple and revamped its product line.

Twitter Inc., the microblogging site that lets users send messages of 140 characters, was in talks to be acquired by Google in 2009, the technology blog TechCrunch reported at the time. Twitter had recently raised funding valuing it at $250 million. The company is now considering a new investment round that would put its worth at more than $3 billion, according to three people familiar with the matter.

Other technology startups have opted not to sell in the past year, turning instead to outside investors. Small-business review site Yelp Inc. declined a $500 million offer from Google and took an investment of $100 million from private-equity firm Elevation Partners LP.

Foursquare Offer

Foursquare Labs Inc. turned down a $100 million bid from Yahoo, according to the All Things Digital blog. Instead, it raised $20 million in June from investors led by Andreessen Horowitz LLC.

In contrast, MySpace and Bebo, two of Facebook’s rivals in the social-networking market, both sold out to larger companies -- earning big paydays before their value declined.

News Corp. bought MySpace as part of its $580 million acquisition of Intermix in 2005. It later had to write down the value of the investment amid an exodus of users to Facebook. AOL Inc. bought Bebo for $850 million in 2008, and then sold it for less than $10 million this year.

“Life is all about timing and it’s hard to pick the perfect point to sell,” Kerner said. “Sometimes it’s better to sell too early than too late.”

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

http://www.bloomberg.com/news/2010-12-06/groupon-aims-to-emulate-facebook-not-yahoo-after-walking-away-from-deal.html

A Growing Part Of Google's Revenues Now Depend On Facebook

Google is about to buy Groupon for $6 billion – and that's great news for Facebook.

There are two main reasons.

One is that Groupon – already a huge Facebook advertiser – will now have Google's billions fueling a marketing budget that no longer needs to spend a dime on search ads.

The second reason is that while Groupon isn't as dependent on Facebook for customer-acquisition as Zynga is, it's closer than you might think. From sources familiar with Groupon's business, we understand that much of Groupon's rapid growth has been thanks to the way its subscribers will share coupons through Facebook. Remember, a Groupon discount doesn't go into effect until a threshold of buyers is met.

As Groupon grows, a growing part of Google's revenues will depend on Facebook remaining a very healthy platform. That's new.

Some other ways the Groupon-Google deal effects Facebook:

Groupon solves Google's social problem. It doesn't give Google a consumer-facing social product – but it does give Google huge exposure to group-buying, one of the two inherently social industries making hundreds of millions of dollars off of Facebook's success. (The other industry is social games, where Zynga is a leader.) After buying Groupon, Google will finally be making money in social. (This means it has less reason to dedicate resources to killing Facebook.)

Groupon–Google is great news for the developing SEM-for-Facebook industry. Thanks to Facebook's Ads API – only truly opened wide enough for businesses to depend on this year – marketing firms like Toronto's AdParlor can, with the ability to test thousands of ads at once, reduce the cost of customer-acquisition for Facebook advertisers by 20% to 50%. With Google pouring money in the Facebook ad ecosystem – and potentially driving up prices – that kind of efficiency becomes more important then ever. Expect a flowering in this industry.

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/12/01/businessinsider-google-buying-groupon-is-great-news-for-facebook-2010-12.DTL

Groupon: More Anti-Facebook Armor for Google

What if Google’s hunger to buy Groupon isn’t really about Groupon? Let’s think of the rumored deal as a $6 billion weapon for Google’s current and future war against Facebook.

Increasingly the two giants are fishing in the same ponds. Google recently started to offer local businesses an opportunity to pitch deals to users of Google search. Facebook this month launched an initiative it calls “Deals,” to offer discounts to Facebook users in the vicinity of local stores. (Sound familiar? Yup, these are just like Groupon.)

Everett Collection

Google v. Facebook: Who will land the knockout punch?

Facebook just weeks ago launched a messaging service –- don’t call it email, Mark Zuckerberg says –- that competes with Google’s Gmail. Google is working on its own social-networking features and games that could rival how Facebook users spend their downtime. And increasingly, Facebook and Google are competing in the same talent pool. The New York Times reported in recent days that at least 142 Facebook employees (out of 1,700) are ex-Googlers.

The battle is over how people spend time on the Web – on Google sites such as YouTube, Gmail and Google News, or on Facebook? Google’s websites in October lured 181 million unique visitors, according to comScore, good for the No. 1 ranking in the country. Facebook was fourth at 151 million, behind Yahoo and Microsoft but closing quickly. While more people visit Google, people are spending more time on Facebook than on Google’s sites. Think of how much time you waste playing Scrabble or scouring your friends’ profiles for the latest baby photos.

With every click on Google or alternatively on Facebook, the companies get a chance to grab a bigger slice of the $26 billion annual pie for online advertising. Google for now is king of search ads, but Facebook is responsible for one out of every four graphical display ads across the Web. Google’s share is 2.7% in display ads.

Mobile advertising and the local arena are the next battle fronts. Research firm Borrell Associates estimates U.S. local businesses will spend $13.6 billion this year on online ads. Facebook encourages local businesses to set up Facebook pages and target ads – for example, wedding photographers can direct ads at young women who recently changed their relationship status on Facebook to “engaged.” Groupon and its ties with merchants may give Google a leg up with local businesses, at least until the next round of armaments.

“We believe that Google and Facebook will be battling for Web supremacy for years to come,” Wedbush said in a research note this week. “The purchase of Groupon would be another major piece of artillery for Google to use in this battle.”

The Google-Facebook war at its core isn’t about ad money, eyeballs or the rights to the King of Silicon Valley throne. It’s about bytes. The magic of Google’s $180 billion market value is its mastery of the reams of information about what people are looking for across the Web. The more clicks Google gets on its blue links, the smarter and more powerful the Google machine becomes. Facebook’s machine is grabbing at user data directly –- by inducing people to list their friends, hobbies, favorite movies and hometowns.

There’s even a precedent for Google using acquisitions as battle gear. Last year, Google announced a deal for AdMob, to help seed ads on cell phones and other mobile devices. That deal, of course, was a broadside against Google’s other BFFN (Best Friend Forever. Not): Apple.

http://blogs.wsj.com/deals/2010/11/30/groupon-more-anti-facebook-armor-for-google/

Groupon Could Mark Record Buy For Google

Google Inc.'s (GOOG) reported interest in closely held Groupon Inc. could lead to the most expensive acquisition yet for the Internet giant, which has been in the midst of a buying spree.

While most of Google's recent acquisitions have been relatively small, online coupon provider Groupon could spur Google to pay as much or more than the $3.1 billion it paid for online display-advertising firm DoubleClick in 2007, in what was the biggest purchase ever for the Mountain View, Calif.-based company.

The AllThingsD blog reported early Friday that Google is considering paying "well above" $3 billion for Chicago-based Groupon, which has garnered a wide following for its daily online offers of heavily-discounted local deals on everything from cheese steaks to theater tickets.

According to SharesPost, which provides an exchange for equity in private firms, investors have been seeking shares of Groupon for roughly $38 apiece, implying a valuation of about $1.6 billion.

An acquisition of Groupon would represent a significant foray for Google further into the market for locally focused online services and information.

A Google spokesman declined to comment. A Groupon spokeswoman also declined to comment, referring to the reported merger talks with Google as "just speculation."

Google, which emerged from the recession relatively unscathed, began the year by announcing it intended to buy at least one company per month.

The company disclosed last month that it spent roughly $1.6 billion on acquisitions during the first three quarters of 2010--which included $681 million paid for mobile phone advertising firm AdMob, $179 million for social-networking software developer Slide, and $626 million spread across 37 smaller purchases.

In addition to DoubleClick, other significant Google acquisitions have included YouTube, the popular video service bought for $1.65 billion in 2006.

Google recently disclosed that it is now pulling in revenue from over 2 billion video views on YouTube per week.

Google's M&A activity has drawn increasing scrutiny from antitrust regulators. Google's purchase of AdMob, for example, was delayed several months before receiving approval from the U.S. Federal Trade Commission.

Google currently intends to purchase travel software developer ITA Software for $700 million. The company said in August that the U.S. Justice Department would be conducting an extended antitrust review of the deal.

Groupon, which was launched in late 2008, says it now offers daily deals in over 300 different markets around the world. The company announced earlier this week that it signed a distribution agreement to make its offers available on Yahoo Inc.'s (YHOO) websites.

 -By John Letzing, 415-439-6400; AskNewswires@dowjones.com

http://online.wsj.com/article/BT-CO-20101119-712884.html