Groupon rejects Google takeover, will consider an IPO in 2011

Group buying giant Groupon has reportedly walked away from negotiations with Google regarding a $6 billion acquisition offer, with the fast-growing tech company apparently considering an IPO in 2011 instead.

The rumours also come as Amazon confirmed late last week it will invest $US175 million in Groupon rival LivingSocial, which recently established an Australian presence through local group buying site Jump On It.

Various publications in the United States, including the Wall Street Journal’s All Things Digital and the Chicago Tribune, have confirmed that the discussions between Groupon and Google have ended without a deal being made.

While no reasons have yet been given for the talks having ended, speculation indicates that Groupon wants to remain independent and test the limits of its already-extravagant growth. Reports indicate the company is seeking an IPO next year, in order to take advantage of this momentum.

Google was drawn to Groupon because of its speed, reports suggest. Within two years the company has already been given a valuation of over $US1 billion, and new reports over the weekend indicate revenue is actually at $US2 billion, up from a previously suspected $US500 million.

Analysts have drawn comparisons between Groupon’s decision to walk away and Facebook – the social network founder Mark Zuckerberg shunned takeover offers from several groups including Microsoft, seeking instead to grow the company on his own merits.

It has also been reported that Groupon is concerned about what would happen to its merchants if Google took over. The group buying model depends heavily on keeping good relationships with small business customer and there are apparently concerns that smaller businesses may be ignored.

Adam Schwab, chief executive of local daily deals site Zoupon, says Groupon should have enough momentum to support an IPO.

“If you look back at the dotcom boom, there were plenty of less reputable companies floating as well. But Groupon is growing across the world, especially in Europe, and there’s no reason it couldn’t take that role further.”

“It’s a massive show of confidence in the business model. Zuckerberg repeatedly rejected offers, so for Andrew Mason it’s obviously not about money for him. Groupon is actually making money, compare that to something like YouTube which didn’t have any money at all. Groupon is actually profitable.”

While the group-buying scene may appear to be forming into a bubble, (especially in Australia where they are now at least 12 similar sites), Groupon seems to be positioning itself as a permanent presence in the popular coupon market. It recently launched a service that will allow companies to set up their own storefronts on the site to offer coupons and deals whenever they want.

“Groupon doesn’t have to grow at the same level it has been growing – it can grow at 50% over the next year and many companies would kill for that type of growth,” Schwab says.

Meanwhile, in another affirmation of the strength of the group buying market, retail giant Amazon invested $US175 million in Groupon rival LivingSocial late last Friday. In a statement, the company said the investment will help fund expansion.

“To be the biggest player in the local commerce space there is no one better to work with than Amazon,” LivingSocial chief executive Tim O’Shaughnessy said. “As the social shopping space continues to heat up, LivingSocial is committed to staying focused on providing the high level of quality that consumers and merchants have come to expect when working with us.”

LivingSocial recently beat Groupon to the Australian market, by funding local site Jump On It with a $5 million investment. It will establish a local URL but the site will be administered by Jump On It.