Forrester Questions Googles Groupon Ambitions

Google buyuing Groupon is a bad idea. That’s the verdict of Forrester Research retail analyst Sucharita Mulpuru.

Groupon uses collective buying power to offer a daily deal on the best stuff to do, eat, see and buy in more than 300 markets around the world, delivering more than 650 daily deals to consumers globally, via email and mobile. Rumours have been doing the rounds that Google has the company in its sights and is willing to pay $5bn (£3.2bn) for it, but Mulpuru is not sold on the idea.

She says: “A multi-billion dollar valuation for a company that is in a business with virtually no barriers to entry and is younger than my toddler is absurd. Now if the price was something more believable, like $1bn, that would be a little less shocking. There are, after all, a few attractive pieces to the Groupon story: it’s a lucrative business model, almost eBay-like in how good the margins are. It’s on a roll. It is a really different approach to local advertising where the merchant is guaranteed foot traffic and some upfront revenue. I personally love Groupon, but I have a lot of doubts about what is happening with the business, and I’m not sure I see how Google can successfully amplify their business, or how Groupon can help Google crack the elusive local search nut.”

Mulpuru notes that Groupon has a lot of competitors, adding that the business model fundamentally attracts the wrong consumer, and that many merchants aren’t fully sold on Groupon.

“The real trick with this business is list quality,” she says. “Groupon likes to say that their list size is enormous. But let me say this: the winner in this space will win not because they have the largest list, but the best list. By that I mean, knowing who are the customers who will spend more than the value of the deal and who will come back to frequent a business. The company that can identify those people, even if it’s just 100,000 customers, will win. The player that presents the best customers and gives better margins than Groupon to merchants stands a better chance of getting the best merchants.”

There’s more on this here.