Did they not understand the business model well enough or did they just want it to bolster other services (like payments) despite it not being profitable?
How Google Offers goes should tell us. Maybe they've found a way to make the model work.
Google aims to organize all the information in the world. Video is a large part of that and that should only grow.
The same take I have on the $6B offer. Controlling a large space of the growing local/group buying market is valuable to Google.
And just imagine Groupon coupled with Google Adwords (Adwords could upsell their clientele a Groupon offer) or Google Adsense (temporary offers could show on the entire content network). Or Groupon coupled with Google Base/Google Merchant Center. Or Groupon coupled with Google Maps. The true power would come from the collaborations and the future growth where Google would have secured a place.
No matter the hard business model, social buying/local offer sites are clearly here to stay.
That breakup fee would have been paid right after due diligence.