For nearly a month now, my VC friends have been sending me emails confirming that a Groupon deal is "Done!". Because of our investment in ideeli, a daily deal site in the fashion space, they recognize I have more than a passing interest in the outcome, particularly in the multiple of revenue the ultimate buyer is willing to pay. First the buyer was Yahoo! coming in at $2.5 billion. Then $3 billion. "Any day now the press release is coming out," they said.
My first reaction to the rumors was, "wow, big number." But, given Groupon's growth rate and Yahoo!'s flailing efforts to change the trajectory of their business, it actually seemed like a small price to pay. It's obvious to anyone other than the Yahoo! board that the company has consistently proven their inability to innovate their way to a more expansive future, and so the deal seemed logical and necessary. There was simply no price too high to transform their business.
Wrong.
Now it seems that Google will be the ultimate winner here, with widely reported rumors of an all-in transaction value of $6 billion. And so the question must be asked: Is this a transformative deal for Google? Answer: Not really, and here's why:
- It doesn't materially change their business model. Selling ads is great, and selling more of them is even better. But if you look where Groupon is headed, with self-service offerings for merchants and a more automated sales process, Google gains nothing in the way of an enhanced and balanced business model. It's more of the same.
- It isn't something they couldn't have done themselves with their own resources, albeit with focused attention. Jeff Bezos is famous for saying that the only surefire way to get out of problems is to innovate your way. In business, there is no more fundamental problem than not knowing where your next big opportunity is going to come from. In no way do I minimize what Groupon has accomplished by suggesting that Google could have replicated their success--indeed Google is one of the few companies that could have executed as well. But the fact that they didn't innovate their way to this place and are paying "retail" prices to get into a business they were capable of creating at "wholesale" internally says more about their current ability to transform than it does about their technical skills. The talents are there; they were not put to use.
- It doesn't support their stated core value to users: organizing the world's information. Instead, it's the opposite. If there's one deal that ends the pretense that Google is anything other than a media company that delivers ads to buyers this is it. It's over, guys. You're a media business officially. Nothing more, nothing less.
- It's strategic in hindsight. I'd bet dollars to donuts that at any of the last several Google strategic planning sessions there was not a single person who said "You know, we really need own the leadership position in the daily deal space because it's core to who are and where we're going." They will say that now, of course. But the truth is, this is just a fast growing profitable company that they'd like to own.
On the other hand, I believe losing this deal is truly transformative for Yahoo!, but unfortunately it's to the negative. For all of the reasons mentioned above why this isn't transformative to Google, it could have been for Yahoo!. Yahoo! needs a more balanced revenue model including local ads; it's culture and skills wouldn't have allowed to incubate a business like this internally; it does support their core value to users, but at a bigger scale and scope; and it would be strategic and forward looking as a way to engage and monetize an entirely new audience. They blew it, plain and simple.
For Yahoo! this will be the deal that got away, the one they talk about as the official beginning of the end. For Google, assuming the deal goes through I have no doubt it will be a successful financial decision. The economics make sense and the global opportunity is enormous. But unlike the YouTube acquisition, which is now viewed as one of the most prescient, strategic and relatively inexpensive acquisitions in the company's history, Groupon will be just another daily deal: valuable only for the moment.
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