Google to buy 'direct marketing skills' rather than technology of Groupon

Reports on Tuesday suggested that Google's bid to acquire collective-buying site Groupon now stands at $5.3 billion compared to earlier estimates that quantified the deal at $2.5 billion.

All Things Digital reported that Google has offered $5.3 billion to acquire the collective daily deal provider Groupon, to capture the hottest company on the web. An earlier report that originated from Vator.TV had valued the deal at $2.5 billion.

At $5.3 billion Groupon would be the most expensive buy for Google this year.

It is perceived that Groupon's buy can compliment Google's Place Search which clusters search results around a location and also its Product Search feature which it recently updated with a feature that lists local stores where products are in-stock.

However, the acquisition also raises questions as to how the companies' conflicting business models will merge. As Google relies on automated and algorithmic architecture to generate ad revenues through Adwords and Adsense while Groupon uses a host of salespersons to quantify deals with merchants.

Groupon sends local Deal of the Day coupons to members of the site via emails. However, the deal is only triggered when a critical minimum number of users have applied for the deals. The onus of creating a viral effect falls on the user thus diverting promotion costs away from merchants. Also merchants have a better hold over break-even decisions of the deal. Groupon reaps commission-based revenue from merchants.

Also since Groupon takes payments upfront from users and then deducts its commission and pays the merchant it has negative working capital advantage. For struggling merchants its great tool for marketing compared to putting up an ad and waiting for users. As the deal is only for the day there is a sense of urgency among users which results in viral marketing benefits.

However, Groupon has to generate excellent deals constantly to keep a flow of users which it actualizes through sales-persons sans technology while Google relies on technology to generate revenues.

Google has been attempting to acquire the local social space and has launched a flurry of services, the most recent being Boutiques.com. Also in the fray are Google Places and Product Search which it recently spruced up to categorize product search based on inventory in specific locales. However, all the above measures are still algorithm-based and lack a tinge of direct marketing which local businesses favor.

Thus Google would acquire troop of sales people versed in the art of direct marketing from Groupon rather any specific technology. Google's own attempts at direct marketing like its Nexus One Android phone formula have flopped while Apple has scored over Google in marketing through its Apple Stores.

Also Google is eyeing Groupon as it currently leads the collective-buying space though competitor LivingSocial is close on its heels. Google avails an established merchant-relationship as it is key to winning in this segment. Not to mention it also gets a business with an established revenue model reported to be at $50 million every month. Thus unlike its strategy whereby Google devises a product and then looks for a fitting revenue model Groupon offers a set revenue model.

Though Groupon is also part of its stack of websites like Angstro, Slide, Jambool and Like.com, which Google acquired this year in an effort to build its counter Facebook offer.