Google Offers a New Threat to Groupon

The daily-deal leader was never profitable, but at least it was growing quickly. Now, after a lackluster third quarter, Groupon is shifting the focus again by saying no one can compete with its huge scale, in particular its email list of 143 million and sales force of nearly 5,000 world-wide. Google showed last week how it can do just that, with a clever plan to resell other companies' deals.

A dozen-plus sites like kgbdeals, zozi and Gilt City will now distribute their deals through Google Offers. Not only will they keep the lion's share of revenue and benefit from Google's huge reach, they can also rely on Google's technology to target deals at users most likely to buy them. That makes more sense than fighting each other, not to mention Groupon and Living Social, for email inbox space.

Google benefits by outsourcing sales costs: kgbdeals alone has a sales team of 250, says Chief Executive Patrick Albus. More deals mean higher-quality local search results. And as the undisputed search leader, Google has the potential to reach many more users than simply those signed up for daily-deal emails. The company is already experimenting with "Offer Ads," a service that places deals against search results.

Facebook tried a similar strategy but pulled the plug in August. Yet Google looks more focused. Its recent $114 million purchase of German deal specialist Daily Deal, not to mention its previous $5 billion offer for Groupon, testify to its desire to be a deal leader. Restaurant deals will appeal when placed next to Zagat's reviews, which Google just picked up. And travel deals may fit nicely with another recent acquisition, ITA Software.

Groupon says scale is its trump card. Google, it seems, begs to differ.