GOOGLE OFFERS: Here Are The Secret Details About Google’s Groupon-Killer

To begin to answer these questions, we spoke to representatives of merchants who have signed on to offer Google Offers in New York. We also spoke with Google’s Eric Rosenblum, the lead engineer on Offers, and Google spokesperson Nate Tyler.

And it turns out that Google Offers does have a few key advantages over other deal providers that could shake up the deals industry and force Groupon, at least, to change the terms of its deals.

In other words, if Google makes a big commitment to the deals business–a big if–its entry into the market could hurt the businesses of Groupon, Living Social, et al, even if it does not end up “killing” them.

THE GOOGLE ADVANTAGE

Groupon’s Andrew Mason, in Google’s crosshairs

The deals business is a “chicken-and-egg” business. To sell coupons (and get a commission), you have to 1) persuade merchants to offer the coupons, and 2) persuade consumers to buy them. Failure on one side of the business means failure overall: You have to succeed on both sides at once.

Google’s competitive advantages come on both sides of the deals: The distribution side (consumers who buy the “offers”) and the merchant side (merchants who sell products and services through the offers.)

Let’s start with the merchant side…

THE MERCHANT SIDE

To get consumers to buy coupons, you have to provide them access to great deals. Specifically, you have to persuade merchants to provide major discounts on products and services that consumers want. If a deals provider like Groupon or Google continually offers excellent deals, consumers will seek it out, which will take care of the other side of the equation (distribution).

Thanks to the already intense competition in the deals industry, however, it’s not easy to get merchants to give you great deals. To get great deals, the deal provider needs to have both great distribution (lots of consumers eager to buy the products) and the ability to offer merchants advantages that other deal providers don’t. And, for now at least, Google’s Offers business has some clear advantages.

According to a Google Offers boss Eric Rosenblum and a New York-based merchant who has now signed deals with three deal providers (Groupon, Gilt City, and Google), Google has three major advantages over the competition:

• Vastly better payment terms than other deal providers, especially compared to Groupon. Google Offers will give merchants 80% of the merchant’s share of voucher revenue within 4 days of the voucher sale, and the rest within 90 days. The payment terms for Groupon and Gilt City are far longer than this (30-90 days, according to one merchant we spoke with).  Merchants that offer vouchers have to provide the product or service they are selling as soon as the voucher is sold. When merchants use Google’s deal service, they will get the cash for these products and services much more quickly than they do with Groupon.

• Google pays merchants for vouchers that are sold but not used; Groupon doesn’t. After every deal is sold, coupon-buyers do one of three basic things: 1) They redeem their coupon for the product or service it covers, 2) they request a refund on their coupon, or 3) they forget about the coupon and neither redeem it nor request a refund. There are three different ways that the deal providers treat the third outcome–unredeemed coupons–and Google’s current method is much better for merchants than Groupon’s. Specifically, Google gives money from unredeemed (and unrefunded) vouchers to merchants. Groupon, meanwhile, automatically refunds unused vouchers to consumers, returning the purchase price to the consumers who bought them. Groupon’s practice is obviously better for consumers. But Google’s is better for merchants. And one merchant we spoke to expects the amount of money involved to be significant.

Now, in New York at least, Google’s salesforce is also selling its Offers service with a fourth competitive benefit, one that Google’s management disavows: “SEO benefits.” Specifically, a merchant tells us, at least one of Google’s New York salespeople is promising “SEO benefits” to merchants who sign up for Google Offers–the benefit of becoming “No. 1 in Google.”

Importantly, “SEO benefits” is not an official benefit of Google Offers, and it would be highly controversial it it were. Google is already the target of an FTC investigation into whether it uses its search dominance to help its business and harm its competitors, and tying Offers to the search business would create an uproar.