Google Willing to Start From Scratch to Enter Daily Deals Market

Published on January 21, 2011
by Tricia Duryee

Google appears to be entering the local daily deals business on its own after Groupon rejected a jaw-dropping $6 billion buyout offer.

According to Mashable, Google is close to launching “Google Offers,” a service that will compete with Groupon, LivingSocial and their hundreds of clones.

In a fact sheet sent to Mashable, it says users will receive a daily email offering a local deal, and as with other sites, the discount will be activated once enough people have made the purchase. The deal will be promoted throughout Google’s ad networks.

Google confirmed the service at a very high level: “Google is communicating with small businesses to enlist their support and participation in a test of a pre-paid offers/vouchers program. This initiative is part of an ongoing effort at Google to make new products, such as the recent Offer Ads beta, that connect businesses with customers in new ways.”

To be sure, early providers have proven that the business can scale.

For instance, just yesterday LivingSocial sold 1.3 million $20 Amazon gift cards for $10 each to ring up a one-day sales total of $13 million. Groupon’s run rate is close to $2 billion, although about half of that is passed on to merchants.

It’s not surprising that Google is kicking off the service without acquiring a company in the space. Groupon would rather seek an IPO than sell, and LivingSocial has already teamed up with Amazon–and after those two, it’s slim pickings.

Google’s challenge won’t be in attracting a large audience but in executing the business.

Traditionally, Google has focused on a self-service advertising model, where merchants can go online to buy an ad without having to interact with a salesperson. But Groupon and LivingSocial have approached the business differently and have put hundreds of feet on the street. Groupon has roughly 3,000 employees, while LivingSocial has about 600–and both are growing extremely fast.

Google could try the approach it knows best, by automating the process and putting at least some of it online. After all, one of the reasons it was reportedly willing to pay so much for Groupon was for its local sales force.

So far, Google’s local track record has been spotty. Getting mom-and-pops interested in buying keywords online has been notoriously hard, as they have continued to prefer working with other mediums like newspapers and yellow pages (which do have local sales forces).

But if it is successful at automating any part of the process, Google could take a smaller cut of the deal than others do today, which could push down margins for everyone.

Photo Credit: Mashable.

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