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Groupon Facing Stiff Competition

Posted on 8.01.2011

E-commerce is a rough game, and that is a lesson that the Chicago-based daily deals website Groupon is learning first hand. Over the last two days, they've seen two of their primary competitors in the daily deals business partner with Internet powerhouses Google and Amazon, respectively.

The first big bombshell dropped on August 1, when Google announced that they had acquired Dealmap, a site that compiles local offers and then displays them for users on a Google-powered map. It's safe to assume, then, that this agreement will lead to deals being blended with the traditional Google Maps site in the near future. As many have noted, Google have a number of location services at the moment, but none of them really sync up to create a cohesive experience for users. The acquisition of Dealmap should help to expand on Google Offers, the company's current daily deal site, as they continue to expand their mobile and social platforms.

Interestingly, just last year Groupon rejected a $6 billion acquisition deal from Google.

It is also important to note that Groupon offers are actually among the many deals displayed on Dealmap.

As if that wasn't enough, just one day later Amazon came out with an announcement about Amazon Local, their own venture into the world of daily deals. And to add insult to injury, Amazon Local's initial rollout will take place in Groupon's hometown of Chicago.

LivingSocial, Groupon's closest competitor, has signed on to be the sales force behind merchant partnerships with the service. Though Amazon plans to eventually hire its own sales force, at the beginning they will outsource sales to help quickly get the project off the ground.

In December 2010, Amazon invested $175 million into LivingSocial, so by enlisting them as its sales force, they will begin to see some of that investment come back to them.

While Groupon has thus far been successful in thwarting the attempts of smaller start ups like LivingSocial, Gilt City, and Zozi, they will likely have their hands full with the onslaught of these existing large companies with a huge Web presence. Companies like Google and Amazon (or AT&T and American Express, who also expressed interest in pursuing daily deals programs) will have to pay far less than start ups for user acquisition, as the users already exist; it just becomes a matter of extending an offers channel within the site's existing framework.

What does this mean for Groupon, or more importantly, for future retailers who use their service? Only time will really tell, but it's certainly something many people are going to want to keep an eye on in the near future.

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