Google Buying Groupon: A Logical Safety Precaution?

|
 |  Includes: AMZN, EBAY, GOOG
by: Dan Ramsden

As much as consumers and creators of media may like to believe otherwise, media is not as much about the distribution of content as it is about the distribution of product. Advertising does not fill empty spaces around an article; but rather, entertainment is an excuse to advertise. Any content that has ever been commercially viable has conformed to this cold reality, and has allowed itself to be utilized in such fashion. Some content creators have understood the requirements of the marketplace, and others have been starving artists. This isn’t a commentary about culture or aesthetics, but about business fundamentals.

In short, if media is now perceived to be increasingly intertwined with commerce, this is not a new development. These realms have never been far apart, and are now, as always, codependent.

There has lately been much rigmarole about Google’s (NASDAQ:GOOG) allegedly pending acquisition of Groupon. At the time that this is being written, the transaction has been reported through the grapevine and scrutinized by punditry on vague information, but not in actuality announced by either buyer or seller. Assuming that the rumor materializes, the jury’s verdict will have been mixed. In one part of the room, the technorati are questioning the value contribution to an engineering powerhouse by a band of door-to-door salesmen, while in another the more financially inclined are wondering about the multi billion-dollar price-tag incurred by a digital media company to branch out into uncharted terrain. As these and other theorists are browbeating their respective points into submission, the practically inclined marketplace is reacting in a practical manner. And in action, nowhere else, is reality.

Where others may have missed the point, Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) are chiming in. The former, with less fanfare, has completed a strategic investment in Groupon’s largest competitor, LivingSocial. The latter has announced a smaller acquisition in the segment, for Milo.com, a shopping search engine that allows users to peruse the local stores’ current inventory. What both Amazon and eBay perhaps understand is that Google’s acquisition of Groupon would not only be a direct threat to their core operation, but would really follow the inevitable path that media is always bound to follow. Because, as already stated, media is not the distribution of content, but of product, and advertising is not space filler but media’s sole purpose.

Whenever Google does anything – even inventing a car that drives itself – I always ask, how does this increase search activity? That, after all, is the advertising business that is at the core of Google’s other media toys and trinkets. In the case of Groupon, the issue is not necessarily one of increasing Google’s existing search business as much as one of defending it from future erosion. When shoppers conduct searches on Amazon, or eBay, they do so outside of the Google ecosystem. They do so offline, as it were, and with increased shopping variety all the time at Amazon, and eBay, they do so more and more. Compounding Google’s worries, no doubt, has been Facebook’s increasingly adamant predictions about commerce and the social graph and Facebook’s prominent place in this long-term vision. Here again, for Google, this spells fewer “captive” search customers ahead.

While it is true that much of Groupon’s traffic is already Google dependent – from which Google already benefits – taking control of this rapidly growing franchise is not an illogical safety precaution, especially with Amazon, eBay and Facebook all well-funded and on the prowl. While it is true that Google is not technically in the business of knocking on local doors for local sales, there is nothing wrong with a media company getting into that line of work. As has been previously mentioned, media is only incidentally about content, but quite purposefully about advertising. Advertising, in one way or another, tends to be local.

Disclosure: No positions