Groupon Moves On From Google

December 4, 2010

Sources: Groupon rejects Google’s offer; will stay independent

Posted yesterday at 6:04 p.m.

Groupon CEO Andrew Mason speaks at the company’s headquarters on Aug. 31, 2010. (Brian Cassella/Chicago Tribune)

By Melissa Harris and Wailin Wong

The deal didn’t tip after all.

Chicago-based Groupon Inc. has turned down an acquisition offer from Google Inc. and is staying independent, two sources with direct knowledge of the situation said Friday.

The two companies had been engaged in talks, with speculation about the marriage reaching a fever pitch over the last week. Mountain View, Calif.-based Google reportedly had offered between $5 billion and $6 billion for the daily deal start-up.

Groupon still may choose to pursue an initial public offering but will not make a decision about going public until 2011, a source said.

A Google spokesman said the company does not comment on rumor or speculation. A Groupon spokeswoman could not be reached for comment. Groupon is not expected to acknowledge the news until Monday.

The rejection of the Google offer is a milestone in Groupon’s dizzying journey, which in two years has taken the company from a struggling Web site to a tech star with more than 3,000 employees worldwide, a presence in 35 countries and expected annual revenues of at least $500 million this year. The company was profitable in its seventh month.

Groupon’s financial backers include local investors Eric Lefkofsky and Brad Keywell, venture capital firms such as New Enterprise Associates and Accel Partners, and Russian firm Group, formerly Digital Sky Technologies.

Google, which is pushing into local search advertising, had been hoping to tap into Groupon’s massive human network of sales employees and their relationships with small businesses across the country. The interest in Groupon, which also was reportedly courted by companies such as Yahoo, underscores the start-up’s meteoric growth — its valuation was $1.3 billion in April — and the industry’s belief that the company’s business model is a sustainable one.

Groupon offers consumers steep discounts online for local businesses such as restaurants and salons, with the deal tipping for everyone if a minimum number of its subscribers sign up for the offer. Groupon takes a cut, typically 50 percent, of the revenue from each deal it runs.

Under Lefkofsky’s auspices, Groupon Chief Executive Andrew Mason initially created a site called The Point in 2007 that would organize collective action around social or charitable causes. When The Point failed to turn a profit, Mason retooled the site to focus on daily deals for local services. The new idea became Groupon, which launched two years ago.

Earlier this year, the company rolled out personalized deals, a feature that targets offers to users based on gender, ZIP code and purchasing history. This program allows Groupon to serve up multiple deals in each market, keeping any single business from being overwhelmed by thousands of new customers. The move also loosens up a crowded queue of local merchants eager to participate in a Groupon promotion, since the company turns down seven businesses for every one that it features.

Activity in the industry Groupon pioneered is heating up, with Washington, D.C.-based rival LivingSocial announcing Thursday that it received a $175 million offer from Amazon.

Even amid the rumors of the last several weeks, Groupon continued to sign partnership agreements and make acquisitions. The company agreed to have its deals featured on eBay and joined a new Yahoo program that aggregates daily deals from multiple providers, including many of Groupon’s rivals. And just this week, Groupon acquired a trio of Asian daily deal sites and bought a California-based technology firm, expanding its presence in Silicon Valley.

Groupon said it also plans to expand its product team in Chicago. Earlier this year, the company received a $3.5 million incentive package from the state to create 250 additional jobs.