Sunday, December 5, 2010

Google Talks With Groupon Are Ended Without Deal

Google Talks With Groupon Are Ended Without Deal

Google Inc.'s multibillion-dollar bid to acquire local deals site Groupon Inc. ended Friday as the two sides broke off talks, according to a person familiar with the matter.

Negotiations between Google and Groupon eated up over the past week but Groupon's board, many of whom are investors, was divided on whether to accept Google's offer. Here, Groupon's headquarters in Chicago.

Negotiations between the two companies heated up over the past week but Groupon's board, many of whom are investors, was divided on whether to accept Google's offer.

The company continued to consider remaining independent and pursuing an IPO in the future, people familiar with the matter have said. reported earlier that the deal was off. A Groupon spokeswoman didn't immediately respond to a request for comment. A Google spokesman declined to comment.

AllThingsD previously reported that Google offered $5.3 billion for Groupon, with a further $700 million to be based on Groupon's ability to hit certain performance milestones.

Groupon, a closely held company based in Chicago, has grown rapidly by getting local businesses to spend money online to attract consumers, a market Google has sought to crack.
The online market for local business advertising is expected to grow rapidly and is coveted by other large Web companies including Facebook Inc. and Yahoo Inc.

Yahoo also pursued an acquisition of Groupon, according to a person familiar with the matter.

Though both Google and Groupon run online businesses, they had significant differences. Google's army of thousands of highly educated engineers, sales and marketing executives, developed advanced software and sophisticated algorithms for its search engine and advertising initiatives.
Groupon, led by its quirky co-founder Andrew Mason, hit upon a new business model by mobilizing a force of more than 1,500 sales and customer service employees to call and deal with restaurants, tanning salons, and helicopter tour guides.

Groupon, whose name is a combination of group and coupon, inspired numerous clones of its business model—selling discounted products and services from local merchants.

The model has caught on because it improved on the idea of local online advertising, where a business pays money up front for exposure that will hopefully translate into sales. With Groupon, merchants don't pay for marketing until they get a customer in the door.

A potential Google-Groupon deal was controversial among Silicon Valley entrepreneurs and executives, with some feeling that the Groupon model could be copied successfully by others and that the two companies' cultures might not mesh, among other things.

Some financial analysts favored the deal, even at $6 billion, because it would allow Google to get a slice of a fast-growing market, and that Google could market the coupon product to its more than one million advertisers.

Google, whose largest purchase to date was $3.1 billion for online ad provider DoubleClick in 2007, appeared willing to pay a lot more than that to gain a beachhead in the local business space. Such businesses currently spend about $20 billion annually online--including for ads on Google's search engine--but are expected to shell out more than $35 billion by 2014, according to BIA/Kelsey, a local-media advisory firm.

Other Web companies including have made forays into the market, attracting suitors such as Google. Last year Google was in talks to buy Yelp, which has become the first stop for some Internet users in their search for local businesses like restaurants, dentists, taxi cab companies, among others, people familiar with the matter have said. No deal was reached. Yelp generates revenue in part by letting those businesses advertise on the site.

Since then Google has developed its own business-review service similar to Yelp's and has increasingly directed its users to its "Place" pages that give information and reviews about local businesses rather than merely directing them to sites like Yelp or

Google, which for years has been amassing business listings, has said more than four million businesses have their own "Place" page on Google to which it directs users.
—Joann S. Lublin contributed to this story.

Write to Amir Efrati at and Gina Chon at

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