Simple, Google is worried Groupon theoretically could get a huge share of local advertising like they were with Yelp.

Google isn't infallible, they are mortal. I think most likely they were willing to overpay because they could afford it and are desperate to get into "social".

Also, Groupon is a ponzi scheme because they use new investor money to pay old investors--not because they don't have a moat, which they dont-- no patents, 8000 employees and how do you scale with that many employees, a list of merchants and user emails.

At best they end up looking more like Avon.