What Groupon's Doing That Google Couldn't

By Alexis C. Madrigal

The social shopping site Groupon appears ready to close a new financing round of $950 million dollars at a valuation of $4.75 billion. While the latter number may be surprising, it's the amount of money that Groupon's sucking in that shocked me. That's green tech or biotech-level money. What could a tech company need all that money for just a couple years after its founding? It's not like Groupon actually, you know, makes something and needs factories or anything.

P Morgan Brown has a good explanation of what's going on. Basically, they've decided to go right after all the small businesses (SMBs) of America. And to do that, they're going to need, as Matthew Ingram put it, "a massive local-sales army." As Brown points out, not even Google has attempted to build that kind of fighting force.

Groupon knows that without people pounding the pavement, pounding on doors and pounding the phone, they won't reach the mass of SMBs who are 1) not actively seeking out new advertising options online and 2) are hounded by traditional SMB advertising providers like the Yellow Pages, who don't ever let up on closing small business deals. And to put that organization in place is going to take a ton of cash. You need sales agents in each city, you need sales management, you need office space, you need call centers, you need fulfillment, billing and operations teams to handle that size of a customer base. And that takes a ton of money.

What Groupon is doing is something that no other tech company has done in recent memory--made a real run at securing a big chunk of the SMB market. Sure, new local-business-focused companies pop-up all the time. But most of them are either niche providers or they partner with the big existing yellow page providers to get access to their sales organization. They become a B2B channel provider leveraging the existing sales force because few can generate or raise the cash necessary to build a sales organization to go out and reach those SMBs directly.

Even mighty Google has taken this approach until now. They're either unwilling to, or culturally unable to, commit to the SMB market with a massive sales force.

Read the full story at P Morgan Brown.

This article available online at:

http://www.theatlantic.com/technology/archive/2010/12/what-groupons-doing-that-google-couldnt/68648/