Google makes big changes to daily deals business

(Reuters) - Google Inc unveiled big changes to its fledgling daily deals business on Thursday, as rival Groupon Inc pitches its IPO to potential investors.

A Google homepage is displayed on a Motorola Droid phone in Washington August 15, 2011. REUTERS/Kevin Lamarque

The largest Internet search company said its Google Offers business will distribute daily deals from at least 15 other daily deal sites, including Gilt City, kgbdeals, TIPPR, Plum District and Juice in the City.

Google Offers subscribers in the San Francisco Bay Area will get the new deals first, but the company plans to roll out the bigger inventory of deals to new cities in coming months.

Google tried to buy Groupon, the largest daily deal site, for about $6 billion in 2010, but was rebuffed. Groupon is now pitching an IPO to potential investors at a valuation of roughly $11 billion.

Earlier this year, Google launched its own daily deals business, sourcing offers with its own sales force.

Google will continue sourcing its own daily deals, but the changes announced on Thursday mean Google can offer a lot more deals without expanding its sales force a lot. However, the company will likely be sharing revenue from the new offers with the other daily deal sites.

Groupon’s roadshow has faced some doubting investors, who wonder how the company will be able to compete with giants such as Google.

Groupon Chief Executive Andrew Mason has argued his company’s big sales force, which numbered about 4,800 recently, helps it negotiate the best deals with the most merchants.

“Building out a local sales force is not really part of Google’s core competencies and given how slowly they had been increasing the number of active deals and cities it would have taken them a very long time to get to a scale anywhere near Groupon’s,” said David Sinsky of Yipit, which aggregates daily deals and analyzes data on the industry.

Google generated less than 1 percent of Groupon’s gross billings in September, Sinsky noted.

“Google wants to gain scale so that it can compete with Groupon and LivingSocial to have a large enough quantity of deals to be able to intelligently target their subscribers with specific deals,” Sinsky said.

If Google gets a large enough inventory of deals it will be able to distribute them to a lot of users quickly, he added.

Reporting by Alistair Barr; editing by Andre Grenon, Gary Hill