Google Offers will give local ad platforms and even Groupon a run for their money

By now, most people are aware that Google is planning to offer its own version of local ad service dubbed Google Offers. This service comes after Groupon turned down a $6 billion offer from Google. I don’t know what Andrew Mason was thinking, but I sure hope he thought this one through. Maybe the rumored IPO for $15 billion is true. Anyway, I digress. Back what I was going to write about.

There are many Groupon clones out there, such as LivingSocial and BuyWithMe as well as dozens of daily deal aggregators. Living Social and BuyWithMe have been enjoying modest success (compared to Groupon), and arguably, other copycats are doing OK too. So, we must ask ourselves, do we need yet another Groupon copycat? The answer is NO. But this is what’s interesting: Google Offers is NOT another Groupon clone. Yes, Google Offers is likely going to do something similar to Groupon, but its goal is not be or even beat Groupon. What Google really wants to do is get SMBs to spend more of their advertising dollars with them, and Google Offers is the perfect tool for that purpose.

TechFlash reported several months ago that, “A real bright spot in the online advertising market for next year will be at the local level.” The Seattle-based technology business news publisher estimated that the local online advertising market would be worth $16 billion in 2011. The total local advertising market according to some estimates is more than $90 billion. When considering that currently less than 10% of that money is spent online, the implication is that there is a huge potential to get the local advertisers, mainly the SMBs, to spend that money online.

Groupon has been successful because it has given local businesses a way to win new customers. With Groupon taking a commission of somewhere in the neighborhood of 50% and the SMBs discounting their products or services 30%-70% for the special promotion, business owners don’t really profit from their Groupon deals. In fact, I think I remember reading somewhere that more than 1/3 of businesses actually lose money by running Groupon promotions. Obviously, Groupon is still a good marketing tool to provide market visibility for SMBs. That said, here is why Google will give Groupon and other local ad platforms a run for their money.

Local ads in newspapers may appear cheap, but they are actually more expensive. Why? Because they have lower reach and are ineffective at target specific market segments. Furthermore, their effects aren’t long lasting.  The advertisements in print media are static. You see them once and then that’s it.  So while it may be easy for a business owner to pick up the phone an place an ad in the Sunday paper, she will actually be paying more for each customer. Then again, maybe that’s  not so bad considering that most Groupon promotions are unprofitable (for the reasons mentioned earlier) and nearly 50% of business owners say that they would not run Groupon offers again. I have guesses as to why some would run them again while others would not, but I will not go into that here— at least not now.

According to Google, more than 50 million Google Places have been created and 2 million of those have been claimed by U.S. business owners. In addition, Google has mailed more than 200,000 Favorite Places window decals to business owners in the U.S. When you add in the fact that local search accounts for 20% of Google searches, you have to give credit to Google for its huge reach and advantage in the local space. And, let’s not forget about Google’s dominance of online ads with its AdWords. Throw in Google Offers on top of all the “local arsenal” Google already has and (as my friend’s dad would alway say) now we are cooking with gas.

Local has been one of Google’s key focus areas since 2010 and Google is looking to build new channels ad sales teams to reach business owners. The Official Google Blog announced that 2011 would be Google’s biggest hiring year ever. Google has been hiring aggressively recently, adding 4,500 Googlers in 2010. Since Google’s biggest hiring was in 2007, during which it hired 6,131 employees, we can presume that in 2011, it will hire perhaps more than 6,200. My guess is that a decent portion of that hiring will be for building out its strength in the local space. It’s going to be interesting to see how this unfolds for all parties involved. One thing for sure is that the SMBs are going to benefit from all the new tools at their disposal.

By: Jonathan Lee
Twitter: @hi5at5