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Markets moving too fast for Google, so they buy rather than build

The New York Times today reports on an interview with Susan Wojcicki, a Senior Vice President for new products at Google in which she was asked why it wouldn’t be easier for Google to build out a similar service than pay several billion dollars for Groupon?

Not really, said Susan:

“It’s hard to assemble a team and organize as quickly as you want in these situations,” she said in an interview. “Finding the right people, interviewing them and hiring them takes time. Companies are willing to pay a premium to be in the market right now.”

There are two reasons why Google and others are willing to pay a premium to be in the market ‘right now’:

  • the leading company in most segments of the web is worth much more than the second player – these are winner takes all markets, and once the leader is established it is hard for anyone else to catch them
  • these markets are developing so quickly that large companies are often unable to start playing early enough to take a meaningful position without acquisition

The group-buying market is a case in point.  Groupon and its clones are in the local advertising market, a market that Google has been targeting for some time, but the group buying model emerged and got to scale so quickly that by the time Google was aware of it and convinced that it was it was viable Groupon had grown to be worth billions of dollars.

It is also worth remembering that there are many many innovative companies attacking large markets like local, or gaming, or video in exciting ways with new business models.  It would be impossible for Google (or Microsoft, or Yahoo etc) to build an organic presence in all of them and it is also hard for them to work out which of these innovative models are going to work.  It is a fair bet that someone inside Google wanted to launch a Groupon clone pretty early, but they were unable to persuade the company to come up with the budget, and in her interview Susan made the point that it is still ‘hard to know what will work’ in local.

Speed and the ability to target unproven markets with innovative business models are two of the greatest advantages that startups have.  As the pace of change increases these advantages become more telling.

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  • http://www.seedcatalyst.com/joomla/blog/blog rhitu

    To me it seems like the classic platform versus solution question again. Groupon, Living Social and others are solution providers addressing the local advertising market. Their strength is in sourcing deals and advertisers. There may be a first mover advantage in the short term but it is a market with a low barrier to entry – there will always be new players who will address their local markets better.

    Google may be better served if they attempted to become the service platform. They could provide the structure and tools for the host of local players that crop up globally. The players would be the ones sourcing the local markets and Google is already in a position to provide the crowds – users like you and me – to participate in the deals.

    Very much the Facebook model. Facebook had the users. Zynga bought along their games…….

  • http://twitter.com/fabiodebe Fabio De Bernardi

    Nice post Nic. I’d highlight one specific passage, which I believe to be significant:

    It is a fair bet that someone inside Google wanted to launch a Groupon clone pretty early, but they were unable to persuade the company to come up with the budget, and in her interview Susan made the point that it is still ‘hard to know what will work’ in local.

    What surprises me is that a company like Google didn’t give these people a chance to start a Groupon clone. I mean, with all the focus on new ideas, being entrepreneurial, etc. I would expect Google to give maximum opportunities to their employees to ‘incubate’ something which Google itself may be benefiting from in the end. In a way it would be a good solution for an employee to become a bootstrapped entrepreneur without having the give away a portion of his start up to angel investors, because Google would be it. Then they could come up with all sorts of agreements so that it stays a profitable opportunity for both parties.
    Well, maybe this situation created by Groupon will steer them more in that direction. And maybe they’ll find the new Steve Wozniak and won’t turn down his idea :)

  • http://www.theequitykicker.com brisbourne

    I think the difference here is that Groupon distributes via email and has its own users. That said they are definitely more solution than platform.

  • http://www.best-website-designer.com Sarah Jones

    Yes, considering the time, manpower, energy and other consumptions, everyone will opt to buy things. That is what Google is doing now, I guess.
    Best Website Designer l Best Website Design

  • http://www.theequitykicker.com brisbourne

    My guess, two reasons why GOOG didn’t incubate a Groupon clone:
    A)- they have always had an allergy to headcount heavy business models
    B)- they have a huge number of internal projects clamouring for attention and funding and Groupon wasn’t so obviously better that they would go for it despite (a)

  • http://grouponclone.contussupport.com/ groupon clone

    There is any difference between groupon clone and living social???? Eventhough, it is very useful and it will quickly set up your website using those clones rather than coding it manually…