Groupon Slips Through Google's Hands

Groupon, the online discount coupon company, did not sell itself to Google (NASDAQ: GOOG).  Many media  including The Wall Street Journal, AllThingsD, and The New York Times reported that the deal was a good as closed last week.

The Journal now reports that “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.”

The deal may be dead, but the important issues it raised are not. Venture capitalists are concerned that the value of social network companies, as they are loosely defined, is much too high in comparison to their future prospects. This includes Facebook and Twitter each of which carry valuations well into the billions of dollars, but have modest revenue.

Investors in Google were concerned that it would pay $6 billion for Groupon, a relatively new company with a barely proven business model. Some analysts saw it as a desperate attempt on the part of the search engine firm to buy growth because it cannot build it. Google’s sales are still almost entirely based on search advertising. New products such as Android, the mobile operating system, have been widely adopted, but it is not clear how Google will make money from them.

Other analysts saw the Google offer for Groupon as a good way to use its huge cash balance to enter and perhaps corner a key part of the market for local advertising and e-commerce. The transaction might have even drawn regulatory antitrust concerns.

None of that matters for now. Google could not get the deal done whether it badly needed it or not.

Douglas A. McIntyre