A couple weeks ago I suggested in a comment on Hacker News that Groupon could one day be bigger than Google. This was the response I got:
If there was ever a sign of a bubble, it’s this comment. Some local coupon startup thingy bigger than Google? u-huh.
Now, I totally understand this sentiment. Google is one of the world’s most valuable brands, is worth about $200 billion dollars, and posts ridiculous levels of both revenue and income growth every quarter. By comparison, most people have probably never even heard of Groupon. And yet I still think that by 2020, Groupon could be as big as Google, provided they don’t sell to someone else first (but that window is closing rapidly). And my reasons are simple: they’re growing faster than Google was, and their market is much bigger.
Groupon is growing faster than Google was
It’s hard to overstate just how fast Groupon’s growth has been. They launched just two years ago and were rumored to have made $500 million in revenue for 2010. They were also rumored to have turned down a $5.3 billion acquisition offer from Google, and have just filed to raise a $950 million funding round at a $6 billion valuation. Most of this round will probably be used to finance international acquisition. Groupon is probably the fastest growing company in history, and unless someone buys them in 2011, they’ll probably IPO in 2012 or 2013.
By comparison, Google was started in 1998 and went public six years later, in 2004. Their IPO valued them at about $23 billion. I predict that Groupon will reach that valuation by the end of 2012, a full two years faster than Google. More to the point, if someone had suggested in 2000 that Google was going to be bigger than the media companies and car companies, would anyone have believed them?
Groupon’s market is bigger
Comparing Groupon and Google isn’t necessarily apples and oranges. At the end of the day, they’re both advertising companies. Google derives 99% of its income from advertising, and differs from normal advertising companies in that it leverages technology to create audiences for ads. Groupon’s twist is that they take a slice of the actual transaction being promoted to the customer. This almost certainly means that a customer is worth a lot more to Groupon than to Google. Groupon also has the advantage of all of their customers asking them to send them emails every day with stuff they should buy. That’s like Google without the organic search results, just ads.
So how big is Groupon’s market? Well, the local ecommerce and advertising markets are huge, but I’d argue that Groupon’s market isn’t even local ecommerce, but just local commerce, period. The transaction takes place online, but I think many of Groupon’s customers buy deals to replace a typical local outing they’d be making anyway.
How big is the local commerce market? Well, the retail market in the US is about 2/3rds of the GDP. That values the retail market at more than $9 trillion. And that’s just the US. They just have to capture the tiniest of tiny slivers of this huge river of transactions to be bigger than Google.
No, I think Groupon is going to do just fine.