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Comment by ziadbc | Hacker News Reader

People are missing the point of this deal. Groupon is a scalable way to market Google ads to local business.

Google already sees how much Groupon spends on Google ads.

From that they realized that they can take that expense out of the equation, and Groupon becomes even more profitable.

The opportunity cost for Google of serving some junk ad vs a targeted Groupon is low. There is some risk involved, but there is a huge potential for reward.

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Is Groupon actually scalable? Their business model depends on being able to drive huge crowds to a merchant. That might work with one deal per day per market, but it might not work if they start pushing more deals.

I don't think that driving huge crowds is actually their business model. The huge crowds overwhelm the merchant and wind up making the promotion a bad deal for the merchant. Groupon would do better to drive reasonably sized crowds, consistently to merchants.

It's the crowds that attract merchants to deal with Groupon. I think they tweak the mental association between bodies through the door and success that many small business owners have. Without the promise of traffic (and hope that some of them will come back) Groupon is just a very expensive way to distribute 50%-off coupons.

This is a fair point. Though ultimately I doubt Groupon and Groupon-clones can expect to continue to strike the kinds of deals they have been with local businesses. So while they might see a cost saving in the vertical integrating groupon as a means of selling more adwords, I doubt the profit margins groupon currently boasts will actually improve or even persists for much longer.

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