Why Google Still Needs to Buy a Groupon Clone

Google (s goog) is launching — or at least beta-testing — a Groupon-style discount program for small businesses known as Google Offers, something that was first reported by Mashable and then confirmed by Google in an email to Search Engine Land. The program appears to be identical to those run by Groupon or one of the dozen smaller group-buying startups, in that it allows merchants to offer a discount that only gets triggered if enough people sign up for the deal. But does Google have what it takes to build up that kind of service on its own? Probably not. Which is why the company should still think about buying a Groupon clone.

The web giant, of course, made a highly publicized bid to buy Groupon late last year, but its $6-billion offer was rebuffed and the group-buying startup decided to pursue an IPO, which could value the company at more than $15 billion. In the aftermath of the failed acquisition bid, Google executive Marissa Mayer — who has moved on from being in charge of search to take responsibility for the web company’s local and mobile efforts — suggested that Google would likely try to put together its own group-buying service. At the time, I argued that the company should just buy a clone instead.

That’s not to say Google needs to buy a Groupon competitor because there’s any kind of special technology or secret methods involved in this business — if anything, it has virtually no barriers to entry whatsoever, which is why some are skeptical about Groupon’s $15-billion valuation. All that is really required to make such a business work is scale: lots of sales reps making contact with local businesses, lots of people sending out emails and making sure orders get filled, etc. Groupon has more than 3,000 employees, and is continuing to hire at a rapid pace in order to get that kind of scale, and it has built up an email database of more than 50 million subscribers.

Google, by contrast, may be a gigantic search company with billions of dollars in revenue, but it has very little presence in local markets and very little pull with small businesses. It has made some inroads into that area with its Place Pages feature, which allows companies to claim their location and then add information to it, but it’s not clear just how successful that has been. And building scale in hundreds or even thousands of small cities and towns, and reaching out to hundreds of thousands of merchants and retailers, isn’t something you can just generate overnight. Google would be better off making some acquisitions to help it achieve that kind of scale quickly.

That’s because it’s not just Groupon that is in this game: LivingSocial has some significant backing from Amazon (s amzn), thanks to a $175-million investment, and the company just finished demonstrating the power of that partnership with a massive offering of Amazon gift cards, selling more than one million in 24 hours (although it has been suggested that not all of those purchases were legitimate). Amazon has the buying power, the connections to millions of consumers and the marketing heft to be able to give LivingSocial a substantial leg up in the race for scale in this business.

The bottom line is that Google needs to get the same kind of scale quickly, and there’s no indication that it has what it takes to do that, even with a brand-new CEO.

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Post and thumbnail courtesy of Flickr user Olaf Gradin