Google's AdSense Gains from Groupon and Social Deals Bonanza

Social Buying Phenomenon on the Rise

Social buying is one of the hottest online trends these days where people share great deals in a group. Groupon, along with LivingSocial, are the leading companies to catch up with this trend. Groupon partners with businesses to offer consumers incredible savings on products and services. Social deals create a win-win situation for both the consumers and the businesses. Consumers benefit from highly discounted deals while businesses benefit from a more focused and inexpensive advertising, and at the same time they increase their customer base.

However, the barriers to entry in this market are low, and players like Google, Yahoo!, Aol and Facebook have jumped to tap into the growing social buying phenomenon -- Google Offers and Facebook Deals are such examples. We touched upon this phenomenon, and how competition among these players has intensified, in our previous note: Yahoo Enters the Local Marketing Arena.

How Groupon Is Benefiting Google?

We believe that the Groupon's advertisement spend on AdSense is substantial. This can be determined from the fact that Groupon's competitor LivingSocial spent $2.4 million on AdSense in June 2010 alone. Moreover, LivingSocial has a much smaller reach than Groupon since it has a presence in far fewer countries and cities than Groupon. Additionally, Groupon's attractive business model means that its ads carry higher user click through rates, as many users tend to click on the discounted offers. Hence Groupon's ads create higher monetization opportunities for Google AdSense program.

We estimate that AdSense program's revenue per page view could increase from around $1.70 per 1,000 page views in 2010 to around $2.20 by the end of Trefis forecast period. However, although Groupon's advertising spend on AdSense seems substantial, the benefit to Google stock is limited since AdSense contributes little to Google's stock value.

See our full analysis and $603 price estimate for Google.

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