Why Groupon Is Worth $15-25 Billion: It’s All About the People

Plenty of people called Groupon crazy when they turned down Google’s $6 billion buyout offer, but it looks that move was crazy smart.

According to Bloomberg, Groupon has held talks with banks about an IPO that would give the company a valuation of no less than $15 billion, and as much as $25 billion.

Groupon’s eye-popping growth hasn’t slowed since the Google offer fell apart, and despite solid efforts from LivingSocial (the closest competitor) and a Super Bowl ad campaign that rubbed some people the wrong way, they now have 70 million users in 500 markets – up from 300 markets when the Google talks were under way.

Google was rumored to have their eye on BuyWithMe – a much more distant competitor who is fighting with most of the other group buying sites for third place (earlier coverage here) – but decided to get into the group buying game with their own product.

Facebook also reportedly has their eye on the group buying market, but Groupon’s massive sales force and first mover advantage haven’t been easy for Google to catch up to, and we’re pretty sure Facebook will have similar challenges.

Why? It’s not totally about the size of the audience – although 70 million users is really, really impressive. Having the audience is one part, but the success of Groupon is also due to their significant sales force. The Groupon page on LinkedIn shows 1,353 employees, with 43% in sales and marketing. Google and Facebook, while incredibly valuable companies in their own right, are much more tech heavy. For comparison, the Google page on LinkedIn shows 26,899 employees with only 13% in sales or marketing functions. Facebook has 2,540 employees, with 23% in sales and marketing.

While Google and Facebook battle each other out over top tech talent, Groupon is building themselves up on sales talent. For small businesses, that’s important. The vast majority of small business owners aren’t sales or marketing geniuses. They may be fantastic chefs or wonderful masseuses, but that doesn’t make them online marketing experts. So when Google or Facebook present self-serve options, they may be technically perfect, but without the human touch of someone to help walk the business owner through the process and explain things to them those self-serve option will continue to underperform when compared to a company like Groupon that’s driven by sales people rather than engineers.

So far Groupon’s been using the massive amounts of money they’ve raised to acquire companies with local sales teams, and hire additional sales and marketing people. Google and Facebook largely used the massive amount of money they have to acquire new tech talent, and while that’s serving their core businesses well, it’s very difficult to change the culture of a company from tech led to sales led overnight. Google and Facebook find their strength in ideas, Groupon finds its strength in execution. No, their business model isn’t completely original, and yes, there are many other companies doing the same thing. The thing is, none of those companies are doing it better.

For the tech giants it’s going to be very difficult to add on that culture fast enough to pose an immediate threat to the group buying leader. For competitors, if Groupon is snapping up the top local sales talent it will be expensive to compete with them, and in the group buying space, it’s near impossible to outspend Groupon.