Comment by patio11 | Hacker News Reader

Comment by patio11 | Hacker News Reader

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Google is an advertising company which likes models which scale to the moon. Groupon is an advertising company which demonstrably scales to the moon.

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."

One interesting difference is that each 'groupon' is sold by a sales person, and has its witty copy prepared by a staff writer, whereas most of adwords is 100% self service. That's the main reason it would surprise me if google did in fact acquire groupon.

over time Google could automate a lot of this and increase the margins on the business; the acquisition makes a lot of sense from my vantage

Google's automation of customer facing services is exactly how they kill businesses. Google Checkout is horrendous and is going nowhere, and their customer-facing efforts with the Nexus One, while a model of efficiency, were a dismal failure.

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.

Another plus for Google... they could sell the customer analytics to their AdWords customers. For example, using Groupon data, they know that the 50% off Pizza deal was more popular in West LA than in the OC. They could sell this data to Dominos who places AdWords in those two areas, and Dominos would then spend more on OC ads.

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.

Pulling a bit more on that thread: Not only would it allow them to decrease the barrier to advertising for small and local businesses, it would even allow them to monetize their search traffic much better than PPC text ads.

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.

As scary as this thought is: I think that is small potatoes. Google ends the day with an email address of a person known to buy heavily discounted pizza in Houston. I think that fact is worth upwards of $50. They can, in a totally automated, split testable, scales to the moon fashion offer him a customized, personal, expires in 4 hours 60% GroupOn for the next 50% off offer they get.

Money. Hats.

I don't think increasing their revenue per search is going to be small potatoes but I agree that getting that email and connecting it with purchase data is going to be hugely valuable.

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.)

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