If you didn’t hear, Google supposedly tried to buy Groupon for a reported $2.5 – 6+ billion. This story now sounds more and more real. When I heard it last week, my first reaction was, ‘Holy crap, that’s a lot of money! Is Google trying to buy their way into a hot trend again (see attempted Yelp acquisition last year) instead of building a true competitor? I mean, Groupon isn’t even making that much money, are they? Umm…are they?’ About 15-minutes of Google searching later, I answered my own question with a ‘Hell, yes, they’re making money!’ And it was a lot more than I thought.
This isn’t the next Twitter, this isn’t the next Foursquare, Groupon is a powerful business model with a two-way revenue stream from customers and businesses. They pull in about $20 million in revenues a month, and are projected to crush that in 2011 with $2 billion in revenues. With that in mind, my second reaction was, ‘Is Google getting cheap with their acquisitions? I mean, spending 10x to 20x or more on a proven Internet money-making machine wouldn’t have been given a second thought a few years ago.’ While multipliers aren’t what they use to be, I now think it’s more than that. Simply put, I think Groupon is choosing to not sell to Google because they see more potential and money in Facebook. As an example, their new service Deal Feed will be directly linked to Facebook. In their words, ‘We’ll be adding tons to the Deal Feed over time, beginning with making it more social: you will be able to connect your feed to Facebook and receive updates on what your friends are doing, such as when your friends buy deals, follow a new merchant or comment on an offer. This will be another fun way to find great offers – or just keep on top of what your friends are up to.’
Let’s take a quick step back. Two years ago, heck, one year ago, turning down this kind of money would have been crazy. A profitable Internet company choosing to not partner and align with Google, and instead strengthen services with Facebook, a social network that doesn’t really make much money, never would’ve happened. But this has been quite the year for Facebook, hasn’t it? They haven’t just changed the way we use the Internet, they’ve begun to truly redefine it from the World Wide Web to the Social Web. In doing so, they’ve also paved new Social Web highways for both Internet start-ups and big brands to make a lot more money than Google can offer.
Let me attempt to explain why this shift is happening. To start, the game has changed. We are no longer going to Google to search for everything from sports scores, movie reviews, weather, vacation spots, restaurants, keyboard cats, and so on. We are moving away from a search-based model and relying more on an influencer-based model. And the influencers that seem to have the most power are either real-life famous, or Facebook-friend famous, and to a lesser degree Twitter-follower famous. Basically, with so much crap on the Internet, and I say that affectionately, there is no way we can be served up relevant information and experiences without companies knowing a little bit about us. Facebook is that company. We have given them this information. This is why Facebook constantly fights to keep privacy laws less than private, and why Google wants to close the doors on personal data sharing, so they can even the playing field with Facebook and keep their stronghold on Internet advertising. And as much as Google and their lobbyists try to scare us into thinking the world will end if Facebook and their partner companies know that you have listed Justin Bieber as your fav singer…it won’t. If anything, your Internet experience will be more relevant and filled with less stuff you don’t care about by sharing that little piece of information. This realization is changing everything, and the people who are intimately involved with the construction of the Internet and all its utilities know that this is the future. Customers, however, are still a bit unsure. Luckily, Facebook’s model is working so well to constantly improve the customer experience, everyone will soon stop questioning the motives, and start connecting in more and more new ways.
Now don’t get me wrong. Google isn’t going away. They’ve been at the top of the Internet jungle for too long, and search still has its place. But when a company like Groupon turns down $6 billion because they truly think the Social Web has more money waiting…you gotta think that Google is increasingly becoming a fallback feature instead of the dominant Internet portal that it once was.
As Paul Smalera, Senior Editor of Fortune says, ‘Google is increasingly feeling like less of a value add. In its quest to be open, it's stopped feeling like a smart filter that brings the most relevant parts of the web to users of its search, and more like the actual wild, woolly, untameable raw web itself.’
Google once revolutionized the way companies connected to customers with their search-based advertising. But, when you think about it, were those companies ever profitable because of Google? Media organizations like the New York Times experienced huge search-based traffic but very little profitability. (Source: Fortune)
When you think about companies like Zynga and Groupon, however, that have leveraged Facebook’s social model, they are wickedly successful. Granted those companies are set up to monetize traffic in a way that most media companies are not, but they are still unarguably benefiting from a social, targeted, personalized data model that every company will need in order to get a piece of the potentially massive new wave of Internet money in the future. And, at the risk of sounding like a cliché…that future is now. ~ p
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