Google Offers Versus Groupon: The Portland Throwdown

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Google Offers just finished its first month. Google has been testing its Groupon compete in Portland and I’ve been closely tracking the results.

Doing a head-to-head comparison like this is a bit difficult because the two companies run deals differently. Groupon runs multiple deals each day. Many Groupon deals span multiple days, with some running for three days. Google Offers on weekends ran for two days. For each run, I picked a representative deal from Groupon and compared it with the deal from Google.

I looked at 24 deals from each company. For these deals, the median deal value for Google was $1,987 compared with $8,900 for Groupon. In its first month, Google grossed $129,000 compared with $331,000 for Groupon.  Five of the Google Offers grossed less than $1,000; all of the Groupon offers exceeded this.  This is to be expected given Groupon’s longstanding presence in the market; Google hasn’t had the time to build a large subscriber base. Actual Groupon revenue (across all deals) would be significantly higher.

“Our Portland trial is going very well for us,” said Eric Rosenblum, director for Google Offers. “Our intention was to start learning how to source great deals, provide excellent merchant and customer service (including phone and email support), and deliver value to our customers, and we are certainly doing that. In terms of our commercial results, the majority of our deals in month one either outperformed or were in-line with our expectations while around a quarter underperformed. Our total units are above where we had projected, but we still need to get better about predicting performance.”

One significant difference was the median sale price. Google’s median sale price was $10; Groupon’s was 4 times that at $40. This was the result of Groupon having a higher percentage of services and activities such as rock climbing and screenprinting classes.

Cash sells best

An area of concern for deal companies is that the deals that generate the most revenue are the ones that are least sustainable for businesses.

The most popular deal in the month for Google Offers was an offer for $20 worth of merchandise at Powell’s Books for $10. 5,000 Powell’s vouchers sold out in a matter of hours. Powell’s is a Portland institution and the deal was the equivalent of selling cash for half off; there’s no reason not to buy one.

The next day, Google ran an offer for personal training and fitness classes. That deal sold 9 units. The worst performing deal over the course of the month was an acupuncture deal that sold 5 units over 2 days. Google grossed $300 on that deal.

Although Google would not comment on specific deals, I expect that the Powell’s deal was heavily subsidized by Google in order to build its mailing list. Rosenblum did say deal subsidies are something they would consider for appropriate merchants. I can’t think of a more appropriate merchant.

The worst performing Groupon that I tracked grossed $1,440 and the best performing deal grossed $44,000. Excluding the Powell’s deal, which grossed $50,000, the best Google Offer grossed a bit more than $23,000.

The closer a deal is to a cash equivalent for an everyday need, the more it will sell. 3 of the top 5 grossing Google deals were for restaurants; another was for 62% off GoKart racing. (That was the one deal that outperformed my expectations.)

Deals like dentists, guitar lessons and medical services (one Groupon offer for a breast exam sold 12 units) are more sustainable for businesses but are low frequency activities. Groupon has a large enough mailing list that it can still generate significant revenue off deals that are sustainable for businesses. But it also means that they will have to keep growing their list rapidly as people tire of such deals.

Offer restrictions

Google Offers generally had more restrictions than offers on Groupon. While this may sound like a bad thing, I believe it’s better for the ecosystem long term. An offer for Le Bistro Montage restricted the deal to weekend brunch. This is a new product offering for the restaurant, so it serves to expand awareness versus potentially displacing existing business. An offer for a Mediterranean cafe wasn’t valid for lunch.

A deal for a barber shop was “valid only for barbers Brian or Jennifer.”

In at least one case, I thought the restrictions went overboard. Here are some of the restrictions for a deal at an Italian restaurant:

Reservations required and subject to availability. 24-hour cancellation policy applies or you’ll forfeit your voucher. Not valid during holidays, on happy hour prices or at the Jade Lounge. Must mention Google Offers when making reservations.

Although the intent is to smooth demand, these are unusual restrictions and I worry they could create a bad customer-service dynamic as consumers who purchase the deals and don’t read the fine print try to redeem them.

The final deal of the month didn’t get a lot of traction because of its low value. It offered $6 worth of Vietnamese food for $3. The description noted that a small bowl of pho is $6.50, large is $7.50. For a deal seeker, that’s an unattractive deal because they would have to pay additional cash out of pocket. For many consumers, prepurchasing a voucher to save $3 hardly seems worth it.

Sales process

A common complaint about Groupon from merchants is that they weren’t made aware that they could cap a deal or that a cap was ignored. We published an email from a former Groupon employee who stated that some salespeople low-balled volume estimates to get merchants to run deals uncapped.

The feedback I’ve received from merchants about Google Offers in Portland indicates that Google sales tries to ensure that the deal structure is suitable to the business’s needs. (But then again, this was the launch of the service, so you’d expect Google to be extra vigilant).  One merchant mentioned that Google asked if she wanted to restrict the deal to new customers only. (She opted not to.) Another merchant told me that while she wouldn’t consider running a Groupon, she was considering a run with Google Offers.  She liked having the flexibility to restrict the offer to just breakfast, a time when most people aren’t aware that they’re open.

One complaint about Google Offers that was reported by Business Insider is that Google sales reps have implied that running an offer would make them #1 in Google search results. Google spokeswoman Jeannie Hornung said, “We have a training process in place for sales people that has made and continues to make it very clear that Offers has nothing to do with search. As we said before there was clearly a misunderstanding.”

I believe that Google won’t let Offers influence search results. I’m equally certain that when you build a large sales organization, some people will try to close deals by implying things that aren’t true. Google’s reputation in search is too important to damage. Any perception of such tying would also raise antitrust concerns. Google would be well served to make it very clear in its merchant help center and its merchant agreement that search results are not helped by running an offer. If it were my product, I would have merchants specifically acknowledge that they understand that Offers doesn’t generate an SEO benefit.

Conclusion

It’s still the early days of the daily deal business and Google has put out a very credible beta in Portland. Thirty days in, I stand by my claim that there’s not much that is original here.

I believe that they’re striking a better balance between merchant and consumer value than Groupon. The additional restrictions mean that merchants aren’t just selling cash at a substantial discount. Another key differentiator for merchants is more generous payment terms. Google pays out 80% of the merchant’s share in about 4 days and the remainder (subject to chargebacks) in about 90 days. Groupon pays out 1/3 in 5 days, 1/3 in 30 days and 1/3 in 90 days.

That should make for some interesting competition as Google’s product matures and it rolls out in more cities. Up next: New York and San Francisco.

Clarification: In an earlier post I noted that Google held consumers responsible if a merchant went out of business. This was based on Google’s posted terms of service. Google has since told me that the wording was unclear and meant the opposite of what they intended. “Google’s intention is to refund money to all consumers who purchased a voucher from a merchant that has gone out of business,” Hornung said. “We are redrafting clearer language now which we can share when it’s published.”

Share your daily deal experiences — dailydeals@agrawals.org.

Photo credit: Flickr/Oliver Hammond