Groupon is a great internet firm providing a great service. I’ve saved some real money on a few different purchases utilizing their collective buying model. I purchased a $75 pair of shoes for $35, and I also bought $50 of merchandise from Nordstrom rack for a total cost of $25. Groupon is not kidding when they say that all of their deals come with discounts of %50-%90- they are saving people alot of money.

Their stunning and meteoric success is attributable to providing real value to people, and being the first to market. Andrew Mason and his team cracked a business model that had yet to be successfully executed, and marketed the shit out of it with stunning results.

Ever since the beginning of Groupon’s seemingly internet-wide online advertising assault earlier this year, the company has been printing money. Experiencing wild growth, the big boys have started to take note.

Google being Google, is afraid of letting a young wippersnapper like Groupon get out  in front of them with a very new and very powerful form of internet advertising. Supposedly, Groupon is growing ridiculously fast, adding new employees left and right (the unemployment rate in Illinois is still 9.2%) and expanding globally. 

Thus the rush to do a deal. Google steps in like John Wayne with a $6bn offer for the company. With $33bn in cash laying around, who cares right? Convinced that they have even greater value from yet-to-be-realized growth, Groupon turns it down.

The great irony is that not long from now, Andrew Mason and the rest of his rockstar investors will wish they had accepted Google’s stratospheric offer.

The reason? A business with virtually now barriers to entry for competitors willing to undercut Groupon’s %50 cut of revenue from any transaction they complete and focus on highly targeted markets.

It’s great to get daily emails with %50-%90 percent of local restaurants, pedicures, bikini waxes, spas, and yoga studios. Problem is, I’m just that interested in all of that stuff very much. The opportunity for an aggressive competitor to carve out the market for men with daily discount emails remains. I am absolutely convinced of that. Groupon ignores the lack of diversity and proper targeting in their offerings at their own peril.

Also, some of you may have seen the article in the NYT recently that drilled down into the real increase in revenue and profits that Groupon provides for the businesses it strikes deals with. The answer: none. For example, if a restaurant offers $50 of food for $25, and then splits half of the revenue from that $25 with Groupon, they are only taking $12.50 for $50 worth of food out the door. The reason why many retailers are willing to take losses on such a deal is access to Groupon’s ridiculously huge database of local email subscribers looking for their next super discount.

The author of the NYT article correctly concluded that Groupon is not only “collective buying,” that benefits customers, but an advertising vehicle that grants small businesses access to a large pool of new, local customers. By getting them in the door the first time and taking a loss, at least they walked in the door and became familiar with the place, increasing the odds that they will return again.

This model is not sustainable on two primary fronts. First, Groupon is too vulnerable to competition from other daily deal sites that are building out new targeted services right now. Secondly, the small businesses that they are partnering with will soon see that the costs they incur to particpate in a Groupon deal are not worth it. In the months ahead, I suspect that both of these trends will become very clear.

In  the meantime, go get those %50-%90 discounts!

Right off the bat, I think we have to applaud Google for making the courageous decision that they have. I’m not sure if there is any other corporation out there that could have executed such a thoughtful, precise and ultimately moral action, the way Google has.

What the world’s leading search engine has done for itself from a marketing perspective is not insignificant. They are now seen as a company with courage and principle, achieving incredible brand equity and international trust along the way.

Choosing to walk away from the the largest and fastest growing internet market in the world, in Google’s business, takes balls.

From a raw corporate strategy perspective, this decision may be a disaster. Poisoning the well with the Chinese government is not good for business if you want access to all of the internet users and mobile phones that are growing every day over there. Google has chosen to embarrass the Chinese Politburo in a very public manner, and the fallout from their actions have yet to be seen.

But Google is a bit different, I think, when it comes to corporate decision making. Before going public, they said that they were not a normal company and that they did not intend to be. Cheers, guys.

Clearly, people like Sergey Brin have significant moral problems about serving as an enabler to Chinese government censorship, an ethic that I share. Google has decided that that is is not willing to cooperate with a regime that selectively controls information, a policy that in intractable with Google’s core mission to be the most effective intermediary between all information on the internet and all people, regardless of whatever that information may be.

It is a bold decision, one that sets a strong example for other large multinationals operating in China.

The results are twofold, and only benefit Google. Google pulls far ahead of the pack in terms of burnishing its reputation as a strong corporate citizen that is indeed living up to its slogan, “don’t be evil.” Secondly, the Chinese government is embarrassed at such a high profile dust-up over its censorship policy. The average Chinese person on the street might be wondering, “Why is it absolutely crucial that search terms be controlled?”

Wall Street’s Bailout Hustle (Matthew Taibbi @ Rollingstone)

Energy efficiency to shine in 2010 (San Jose Mercury News)

Apple Secures Nifty Near-Field Wireless Patent for iPhones (Fast Company)

Why I’m Not at CPAC (Mickey Edwards @ The Atlantic)

Got Spare Juice in Your Electric Car? Sell it Back to the Grid, Earn Cash (Fast Company)

Think Your Start-up Is Venture Worthy? Think Again. (Sarah Lacy @ TechCrunch)

Q&A: Google’s Green Energy Czar (NYT)

New Détente: Putin, Tycoons Rescue Each Other in Crisis (WSJ)

Steve Keen on the modern economy and the outlook (Video @ Barry Ritholtz)

How America Can Rise Again (James Fallows @ The Atlantic)

Google Nexus One: The TechCrunch Review ( Michael Arrington @ Tech Crunch)

Smart Grid Vendors: Do The Utilities Know Who You Are? (Greentech Media) Excellent survey on Utility awareness.

Chinese New Year (Paul Krugman @ NYT)

Remake of “Red Dawn” due in 2010 with China as the new enemy (Asia Times)

Chinese Coal Formed During Earth’s Greatest Extinction Is Deadly (Wired)

Lead Us Not Into Debt (The Atlantic)

Want privacy on Facebook? Here is how to get some (Yahoo)

Lightspeed’s 2010 Cleantech Predictions (Greentech Media)

David Tepper is up $7bn from the Financial Crisis (WSJ)

Goldman Sachs Responds To Zero Hedge (Zero Hedge)

The Dimming of a Beacon (WSJ)

Google’s Shopping List Grows Even Longer (PaidContent)

Look at most of the other tech companies out there that rely on free services offered to the public at large. Google? Yahoo? Facebook? Right. Cuban goes on to explain how the top dog gets supplanted by a better innovator without fail. Microsoft and Google. MySpace and Facebook. Makes you wonder who will eventually break through Google’s current dominance.

Great Stuff:

http://paidcontent.org/article/419-mark-cuban-succeed-by-free-die-by-free/