Vedanth’s blog

Some wise person said, may you live in interesting times (was that a Chinese saying or curse? I don’t remember whether it was a curse). Well, when I was young, I used to think that most of the interesting things or stuff have already been invented, discovered, and/or improved and the world is not so interesting as it was once.

Well, I know better now. The world is interesting and not always rational too. Ok, I’ll cut the introduction short. This is not irrational. Bu the times are definitely interesting. Groupon is worth 5-6 billion dollars. Yes. Groupon. and it’s billions, not millions. Everyone has read that today. And Google is in talks to buy groupon for this amount (that makes me wonder, Google share prices dropped about 26$ dollars, or about 4.5% today. Is it because of this?). Now, there are quite a few things about this news that I want to talk about (yes, that’s mostly how I start thinking. There’s never just one thing). Whether it is grossly overpriced, why would anyone want to spend 5-6 billion dollars on a new-age company, why is this important and what it means.

I remember reading this Forbes article in august http://www.forbes.com/forbes/2010/0830/entrepreneurs-groupon-facebook-twitter-next-web-phenom.html and thinking about the music, Pittsburgh, entrepreneurship, changing landscapes et al.

That was a digression. But, I’m sure it was worth your time.

Now, the first reaction to this news is “oh my god! 6 billion? is google nuts? isn’t it overpriced?” and such like. Which I understand. Also, the internet, other than many huge benefits to mankind, has made it easy for people to show their stupidity. Less than 140 characters and you have shown the world that you are a uber-intellectual or glaring imbecile. (Notes to self: I’m going to need a few more hours to explain myself. And a lot more lines of text too. Revisit later and expand on it. Or maybe not). Well, even though there are people who rightaway say that google should buy groupon’s competitors for they are cheaper, not everyone thinks that it’s that simple. Think about it. Why would anyone value groupon that much? I hate to elaborate and answer all the questions myself, but let me give some pointers:

• It is not just the revenues- the revenues are just a small part of the valuation and the deal. It should be something more.
• think about advertising reach for a company like google
• Some analyst reported that the valuation is ridiculous for new-company with “virtually no barriers to entry”. Seriously? Have you heard about information-age-economics? the price or worth of a network? The way the world is using internet?
• Some interesting points about the deal here– http://dealbook.nytimes.com/2010/11/30/googles-gambit-for-groupon-raises-concerns/

  (digression, but again, worth a read)

• Access to local businesses and then to advertising. This has huge potential. If Google can get in to this space, it is going to change the world of advertising (people will watch another version of Madmen in 2050 with this being the context). It will be interesting to see what regulators will have to say about this deal, though.
• sidebar: Carnegie Mellon friends or classmates or students who have taken that particular course who are reading this post, this IS “Digital Transformation”.
• How do you value a network? How do you value this social phenomenon? Isn’t saying “google should buy groupon’s competitors as they are cheap” equivalent to “you should use myspace because there are less people and less functionality” ? Is it a “winner takes all” market? What does critical mass mean for this business
• dealbook talked very briefly about “customer spending habits”. This will be a goldmine for the information economy. The information getting in to google’s hands– it doesn’t matter whether you are paranoid privacy evangelist or not, be very afraid. At least there are reasons to be afraid.
• How does it change/affect the customer spending behavior in the long run? What does this kind of a business mean for emerging markets?

These are just a few pointers. I am sure there are many more important things at play here.