Google Offers Is A Cheap Knockoff

Editor’s note:This guest post was written by Rocky Agrawal is an entrepreneur who has worked on local products since 1995.  He blogs at reDesignand Tweets@rakeshlobster. His previous post was Why Daily Deals Are Becoming A Raw Deal.

Google’s recently released Offers product is showing mixed success in Portland, its first market. In this post I will try to look at both the good and the bad of Google Offers. As I point out below, they get an A- for effort, but a C for originality.

Since launch, the offers have included discounted coffee, pool table time, a Lebanese restaurant, tanning services and a pedicab brewery tour. The coffee and restaurant deals did very well, while the pool table time and tanning services didn’t come close to their sales caps. The pedicab sold 26 out of 700. The contestants on The Apprentice generated more revenue from pedicab tours—$1,270 vs. $1,170.

Perhaps not coincidentally, the successful deals provided the most generous and obvious discounts on everyday needs (70% off and 50% off.) The tanning deal was a 75% discount off a fake price. (The same salon offers promotions that are lower than Google’s listed regular price. Some tanning salons give away free tans to new customers.)

Google in Portland

For the past six months, Google has been aggressively marketing its local services in Portland. It’s easily the largest Google consumer marketing campaign I’ve seen. By my estimates, they’ve spent at least $1 million promoting Google Places. Street teams have been out encouraging businesses to claim their business on Google Places and giving them NFC stickers for their store windows.

Google has sponsored events including a bus tour to four Portland microbreweries, three private concerts with tickets given out at local businesses, as well as numerous cocktail parties. They’ve also given out a lot of Google gear. (See this slideshow of Google’s marketing activities.)

Although I would have done a few small things differently, it’s been a really solid effort. I would rate it an A-. They’ve created awareness of Google’s local and mobile offerings and highlighted local businesses. It’s very much along the lines of what Yelp did in its early stages to foster community, only with a much bigger budget.

What I really like is that they’ve promoted quality and differentiated experiences.

Google Offers vs. Groupon

The structure of Google Offers are very similar to Groupon. There are some differences around the edges:

  • Google has a 60-day return policy. Groupon’s is indefinite.
  • Google explicitly puts the risk of merchant bankruptcy on the deal purchaser. Groupon doesn’t address this, but the Groupon Promise is broad enough that it should cover this.
  • Google provides 360-degree interior views of some businesses. These are mildly interesting, but I’d rather see a slideshow with various elements that illustrate various dishes and ambiance.
  • Google doesn’t have a tipping point. If only 1 person buys the deal, it’s active.
  • Google doesn’t offer its customer service number on its Web site; you have to enter your phone number and wait for a call back. Groupon has a toll-free number listed.
  • Google’s payment terms for merchants are more generous, with merchants receiving 80% of their share in about four days. Groupon pays out 1/3 in 5 days, 1/3 in 30 days and 1/3 in 60 days. If Groupon is forced to match this, this could be a real issue for Groupon as their S-1 warns that “We use the operating cash flow provided by our merchant payment terms and revenue growth to fund our working capital needs.”

The biggest potential difference that we can’t see is the cut that Google takes of each deal and how it compares with the cut that Groupon takes. Neither company is transparent about this and the ranges are wide. In some cases, the deal company pays the merchant more than the revenue generated; in other cases, they want all of the revenue and the merchant gets nothing.

Despite all of Google’s recent talk about Google Wallet and Offers with NFC payment, that’s not available yet. Nor is a mobile app. Groupon has long had a mobile app that allows you to redeem offers without a printout.

Not Googley

Google has long been a leader and an innovator in local and mapping. I remember when I first saw Google Maps, it was a wow experience that was way ahead of Mapquest. That gap has steadily grown over time.

That’s why it’s so disappointing to see a product that is essentially a knock off with no meaningful improvements over what’s out there.

Google’s products have typically revolved around solving hard problems with innovative technology. Even failed products like Google Wave and Google TV have tackled really difficult problems. Offers does not. It’s just a ploy for revenue.

One area where I expected Google to excel—given their bias toward data—was in collecting data. In order to truly determine if an offer works for a business, you need to track a number of metrics: percent of deals sold to existing customers, unredeemed offers, fraudulently redeemed offers, repeat visits from offer purchasers, sales above voucher face value, sales below voucher face value, average ticket size and more. Data on redemption patterns could be used for capacity planning.

With the high margins built into the daily deals business, it would be possible to equip merchants with a $200 Android tablet that could do all of this.

This is also important for fraud prevention. For the offer that I redeemed at Floyd’s Coffee, for instance, the cashier manually copied the coupon number onto a piece of paper. It would be easy for someone to print out dozens and redeem them because they are not validated in real time. This is an even bigger issue at merchants like Floyd’s, which have multiple locations. While Google does offer online validation via PC or mobile device (as does Groupon), some businesses don’t have the infrastructure in place. Even adding the ability to validate by SMS would significantly improve validation and tracking.

These data are also critical to understanding behavior and designing future local products. The tablets could also be used for future offer management purposes.

All in, it’s a weak first effort and I hope it fails. I’ll talk about why in the next post.

If you know of a business that has run a daily deal and since closed please email