The following is a guest post by Mobile Guru.
Groupon recently raised another $950M which brings their grand total up to around $2B and gives it a market value of $6.4B. After rebuking Google’s $6B offer, the company had the choice of either doing an IPO or raising additional funds and it hasn’t gone public yet. The fastest way to capitalize on this segments popularity is obviously to raise cash with the promise of an IPO in the future.As mentioned here six weeks ago, the ramifications of turning down the Google offer could have much far reaching implications as it would give Google the incentive and motivation to become a major competitor in the same market, and recently word of that has leaked. Exact launch dates have not been set, but for an industry that has no barrier to entry it does not seem like it will make much difference as Google will quickly be catching up as they have a huge advantage in infrastructure going forward.
First let’s look at another competitor that took a little different funding route. Back in the same time frame that Google was courting Groupon, Living Social was taking funding from Amazon in the amount of $175M. This may sound tiny compared to the billion dollar numbers being tossed around, but it came with a huge partner that provides major inroads into huge cross-marketing opportunities. Case in point, recently LivingSocial in partnership with Amazon offered a one-day deal for the Amazon site that offered a $20 gift card for the price of $10.
While this deal certainly did not make them a lot of money, it did get over 1M people taking part, which was certainly worth the number of new subscribers and exposure it received which will convert into paying subscribers down the road. What also should be of interest is LivingSocials recently started moving into new areas such as offers of deep discounts on long-weekend package deals to resorts and bed-and-breakfasts. There are obviously a lot of adjacent markets they can move into and companies such as Google already either have key footholds or are establishing beach heads in these markets.
It’s not surprising Google is now entering this market arena by using the organic growth concept instead of spending a whopping $6B to jump in. My guess is the price tag from clean board start to implementation and finally launch, will have be well under that amount. In addition, they should have been able to leverage a lot of what they learned from Groupon’s mistakes while doing their own due diligence. What company in its right mind that is launching a new business wouldn’t want to go to the market leader and ask them to explain everything they did right and wrong during their ramp up phase? Given Google already is the $200B dollar King Kong of the internet it almost sounds down right unfair. Of course Groupon brought this on themselves by shunning the generous offer and not somehow keeping some type of deal going such as the one done by LivingSocial and Amazon.
So what type of competitor will Google be since they already have great insight into this market thanks to Groupon. My guess is down right scary due to the fact there are roughly 200M gmail account users worldwide. When you take into account their 200 million mobile views on YouTube that should be tied to the AdMob platform and just the breadth of its future product offering should be quickly coming into focus. Let’s not forget Google’s pending acquisition of travel software maker ITA which they’ll also will fit into the mix.
The real key is Google has a lot of pieces that will fit nicely into a daily deal and they have the advantage that they can fail miserably and still easily end up the leader in this emerging market. While Groupon , LivingSocial and many others who are already established in this market certainly have a nice head start, this is really an industry that is very early in its development. I not only see Google quickly coming up to speed, but in as little as a couple of years being the leader. If Groupon can go from zero to $2B in revenue in an amazingly short time, then Google can certainly challenge that with all the different pieces that can be utilized to sign up new users and offer deals to the masses. The infrastructure that many of these other companies have had to build from scratch already exists and sitting on $33B in cash certainly does not hurt either.
I’m a long time investor with investment experience in high tech, biotechs and precious metals. I blog on topics that are of interest to me and my goal is to generate intelligent discussion. I don’t consider myself an expert in any one area, but know a little about a lot of things. I believe as soon as we stop learning, we stop living. You can connect with me atSeekingAlpha.
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