The social shopping network only has about $600 million in revenue, so the price seems high. But industry experts believe that figure will grow rapidly. Groupon gets its revenue by offering steep discounts to its members from retailers. The retailers in return get large amounts of traffic for their inventory.
Why would Google spend so much on Groupon? The search company continues to buy what it cannot build on its own. It has purchased firms like DoubleClick and On2 as a means of adding online infrastructure and advanced software. It is in the process of purchasing ITA Software, a platform for travel e-commerce, for $700 million. This transaction, however, could still be blocked by the Department of Justice because it may put too much of the online travel booking industry in Google's hands. It is too early yet to tell whether Google's competitors will be able to make a similar case against the Groupon deal.