Wunderkind 29-year old entrepreneur Andrew Mason figured how to inject hysteria into his Groupon model of Internet bargain hunting. Exclusivity and short-order inventories were the key. Not only has it attracted 33 million subscribers and the attention of top line investors like Digital Sky Technologies, this week the founder enters the stratosphere with an inconceivable offer of $6 billion by search giant Google to acquire the social media buying site.
According to a DealBook report, Google has put a $5.3 billion deal on the table with a sweetner of $700 million in performance bonuses for management. Several inner circle colleagues believe the acquisition and the agreement is close to being signed as early as next week.
Groupon, a name that melds "group" and "coupon" took the old school "blue light" special scheme that used to run in department stories last century and converted it into a sleek, expeditious online offering. But aside from the pitch, "you only have so many hours before the offer expires," Mason added a new wrinkle that stipulated you could only get the deal when a certain number of netizens pony up to buy the same item, the same day.
While some think Google's offer is astronomical - back in April - the company boasted a $1.35 billion valuation, after only 17 months of operation. The only other company to reach a $1 billion valuation faster was YouTube, which was also acquired by Google in 2005. However, as reported by Forbes, the ubiquitous video site is still waiting to turn its first profit.
If the deal is consummated, Andrew Mason and his company will stand as Google's largest acquisition to date, exceeding the $3.1 billion purchase of Double Click in 2007.
Evelyn M Rusli and Jenna Wortham reported the 'six billion dollar' man declined to be interviewed about Google's offer, stating that he would talk "only if you want to talk about my other passion, building miniature dollhouses." It appears Mr. Mason is as eccentric as he is a genius.
Google has many reasons for this acquisition to solidify. They have - to date- been unable to master the world of social media and Facebook is nipping at their toes in creating a viable and universal search engine of their own. While Mark Zuckerberg's Open Graph is replacing "links" with "likes," Google is concerned that their prominence as last decade's Internet leader might be coming to a end.
Since deal-hungry buyers often mobilize on Facebook, Google would be in a position to barter a deal where they could finally obtain Facebook's data in exchange for Groupon to continue to make lucrative advertising pay-outs to Facebook. Facebook is presently earning 30 percent for all of Zynga's online gaming on their site, so it seems probable that Groupon might be Facebook's next cash cow - giving them a solid reason to want to strike a deal with Groupon's new owner.
Groupon's model has scored dozens of imitators, with firms like JungleCents, Gilt Groupe, LivingSocial, BuyWithMe and RetailMeNot populating like rabbits on a hot summer day. With this new competition, Mason might have to modify his original monetization scheme to stay current. The standard commission rate of 50 percent might be too high, coupled with the sparse daily deals. This might have to change to expand into more cities, introduce more products and a variety of discounted offerings.
In any event, I am sure the six billion dollar man is resting on his laurels today while he mulls over Google's offer. But he better act fast, because similar to the business model he established, the offer might disappear as fast as it came.
UPDATE: (December 8) Andrew Mason spurns Google's offer - see Out Of All Social Media Shopping Deal Sites, Did Google Bet On The Wrong Horse?
For most posts on Groupon and its competitors, please see my previous posts.