Groupon pins its future on mobile, but Google stands in its way

Groupon went from Wall Street hero to zero in record time. The social commerce platform's stock has declined steadily in the six months since its $700 million IPO, with criticism mounting over everything from its accounting practices to its customer acquisition model. But there are signs Groupon is righting the ship: On Tuesday the company reported first quarter 2012 revenues of $559.3 million, up 89 percent from $295.5 million a year earlier and outstripping analyst expectations. At the same time Groupon added roughly the same number of new customers as it did in the fourth quarter while managing to slash its marketing costs by 25 percent.

Groupon's financial turnaround coincides with the continued growth of its mobile deals efforts. According to a recent letter to shareholders by CEO Andrew Mason, mobile devices now account for 30 percent of transactions on the Groupon platform, up from 25 percent just four months ago. On a Tuesday conference call with investors, Mason said Groupon is entering a new phase in its business that signals a push toward making its products "smarter, more personalized, convenient and relevant," adding the firm will seek to create "an operating system for mobile commerce."

The mobile platform is a far better fit for Groupon's daily deals business than the desktop. Not only do smartphones and tablets enable Groupon to supply location-targeted offers, but mobility allows the company to specialize in delivering instant gratification: Consider its location-enabled, real-time Groupon Now service, which consists of just two buttons, one emblazoned "I'm Hungry" and the other "I'm Bored." (Groupon Now has surpassed 1.5 million purchases, and according to Mason, Now customers buy approximately twice as many Groupons as customers who only buy daily deals.)

"Groupon is talking a good game," said Yankee Group Research Director Sheryl Kingstone. "The only way to remain relevant to its customers is to harness the power of social and mobile with precision marketing execution. Groupon must demonstrate to retailers and brands that its value proposition is more than just low-priced promotions, and that it is a go-to partner for both customer acquisition and deepened loyalty."

But there's an obstacle standing in the way of Groupon's mobile aspirations, and it's called Google (NASDAQ:GOOG). The two companies have quite a history: In late 2010, Groupon rejected a Google buyout offer reportedly worth a cool $6 billion, and weeks later a jilted Google responded with its own Offers service, later followed by a dedicated Offers app for Android devices. Last week Google updated its popular Maps for Android service, integrating location-specific Google Offers daily deals from local restaurants and retailers along with corresponding mapping and navigation data. Deals may be redeemed immediately or saved for later use; consumers may also opt in to receive in-app notifications when they approach a nearby deal. In other words, it's Google's branded riff on Groupon Now--and that's a problem for Groupon, regardless of who did it first.

The issue is that Groupon doesn't own the mobile user experience, but Google does. This week Nielsen reported that among the five apps most commonly accessed by U.S. smartphone owners, four--YouTube, Google Play, Google Search and Gmail--are Google properties. (Facebook tops the list for the second year running.) Offers could conceivably roll out across any and all of those apps: Last week, Google Offers Director of Product Management Eric Rosenblum told All Things D that the service could expand to "any Google properties that have a strong location, social or commerce component." At the same time, Google is effectively building out an end-to-end mobile commerce operating system of its own: Its Google Wallet tap-and-pay service enables payment processing, loyalty programs and corresponding consumer services that Groupon doesn't yet match and maybe never will. Groupon's future is on mobile, but Google's sheer scope and reach will inevitably stunt Groupon's growth at every turn.--Jason