Google usually acquires tech companies. Groupon is a marketing company with a good business model. What would Google want to do with this? Integrate into Gmail/Google Checkout?
One possible strategy for Google is to stop messing around with the seven-pack on queries like "Houston Pizza" and start selling the AdWordsGroupon among Houston Pizza shops at the top of that search result. This takes the AdWords learning cliff out of the local retail sales equation, because retailers grok "Check this out: you give us a big discount, we will sell your stuff, then we give you a check for this much and you service people who come in with a coupon -- no money down and no risk!" much more than they do "OK, so you front us a couple thousand dollars for CPC ads and if your QS outperforms competitors in the local auction for the query string, match options dependent, then as long as your CTR is decent we'll send the user to your landing page and you might achieve a conversion which if it has a CPA less than your LTV is a win for you. P.S. If you don't understand that, Pizza Shop Owner Guy, Google Customer Service says to FOAD."
For example, "Houston Pizza" has an average CPC of around $1.55 according to Google's Keyword Tool. If instead, they are able to sell a Groupon for a $30 pizza at the low price of $15, they are at $7.50 revenue. They've just increased their revenue per search 2-5x, depending on how many ads a person used click on before. This doesn't even take into account the increase in click through rate when you can see a ad that basically says you get half off the pizza you already want.
If Google is able to get this kind of increase with just 10% of it's advertising revenue ($15.7 billion from just Adwords on Google websites in 2009 according to http://investor.google.com/financial/tables.html), this deal would pay for itself in about 19 months.
Effectively, they are moving higher in the food chain, similar to what they did in the lending market. Instead of selling ad space, they will be taking a commission on the sales they bring you.
Money. Hats.
What we're both talking about are just two sides of the same coin. The goal is maximizing the total lifetime value of the customer. One approach is by increasing the revenue per transaction and the second is increasing the number of transactions per customer. (Third would be increasing referrals per customer but that probably won't factor in as much, I suspect.)
There are some things you can't automate. Putting a personalized, humorous face on offers is a major value of Groupon, and Google can't automate that.
Although there might be some privacy laws that are in conflict here, Googs could probably sell the overall data (aka 58% of registered users bought this in West LA, 24% in OC), without giving away customer specifics (aka Bill Smith bought this)
I'm sure there are other ways too Google could capitalize on this.
* As a basic building block, it gives them an established competitive advantage (mostly branding & engaged vendors) against Facebook Places/Local Deals, meaning Facebook would have less leverage over them in the future. They might be interested in the local aspect of Groupon, specifically with the self service they launched recently. Integrating Groupon into Google Places would give their Places section a lot more meat.
* They might be liking the pure revenue that the business could produce. You have to remember that during stockholder conference calls, they get questions like "what is the next billion dollar product for Google?" from analysts and Groupon is printing money right now (according the hear-say reports that have been covered in media.)
* Google has stayed completely self-service on the sales side of things. Groupon has a large sales staff from what I hear. One possibility (though slightly far fetched) is they might use their experience with successfully managing the Groupon sales staff to ramp up a sales team for Google Apps for the enterprise market.
These reps have established relationships with probably 100,000 [1] local businesses who are willing to spend money on online advertising.
Google's existing advertising products are all self-serve. (Large accounts get assigned a rep, but only ex post facto.)
This acquisition makes a ton of sense: Google gains a kick-ass AdWords sales team. With every Groupon sold, they would have the opportunity to ask the merchant "Can I tell you about our AdWords program?"
[1] My estimate: 730 days of deals, 3 deals per day, 50 cities = 109,500 deals. Granted, not all cities have side deals, and not all cities have been live for all 730 days, but they're closing in on 100,000 merchants fast.
But for two and a half billion dollars?
But Google isn't just interested in revenues, otherwise they would buy a small oil company - they are interested in Groupon because they are profitable and provide an asset that plays well with Google's core product.
Much of the value of the company Groupon lies in the sales team, which makes it an uncharacteristic acquisition target for Google.
Do you really think Google could replicate that? It advertiser relationships are definitely not tapped into local communities like Groupon. In fact, that's probably the big reason for the acquisition -- local relationships.
I think you hit it spot on. I see Groupon, yelp, foursquare, all as going after the local space. Some people saw it as a tech problem, some people just looked at it as a distribution problem.
GroupOn found the low tech extremely scalable solution, and is reaping the benefits.
Companies like Foursquare are probably a couple of years away from having enough businesses do self service on their tech solution...
But if you think about YT's growth and strategic fit since the acquisition, it looks like a steal for 1.6B. Meaning, had a competitor known that YT could be such a key to google, there would be many more takers for it.
The local ad market is $170B a year in the USA alone. Online is 12, TV is 70. Doesn't take a genius.