Google planning its own daily deals offers

If you can't join 'em, beat 'em.

A month after Google was spurned in its effort to acquire rapidly growing startup Groupon, the Mountain View company has begun testing a local-deals site of its own.

Google is soliciting small businesses to participate in a test of Google Offers, a vouchers program, the company said. It declined further comment.

A message to merchants posted on Google said the service "makes it easy for you to attract new customers and bring back old ones by enabling you to instantly post discounts and other types of special offers across Google properties."

The move, which comes in the wake of Groupon's board rejecting a reported $6 billion offer from Google, highlights the intense interest in local advertising among Internet companies.

Investment bank Caris & Co. estimates that local advertising represents a $100 billion market in the United States, and twice that globally. Yet less than 10 percent of that money is spent online today.

"It's the undiscovered country - that's where all the money is that's not already allocated online," said Chris Tolles, chief executive of Topix, a news aggregation site that depends on local advertising. "Groupon has to date done the best job of tapping into that with an alternative product. It's something that's never been done before."

In November, Facebook started Deals, which allows merchants to make a variety of special offers to nearby customers. This week, deals site LivingSocial drew widespread attention for selling a $20 Amazon gift card for $10, purchased by 1.3 million people.

Significant advantages

But as the world's most visited website, Google brings significant advantages to the fight, analysts said.

"Groupon created the daily deals market, but if Google gets into the act, it's going to be 'Clash of the Titans,' " said Susan Etlinger, a consultant at the Altimeter Group in San Mateo.

Etlinger said Google's advanced ability to tailor ads to customers, both on the Web and through mobile devices, would be significant advantages in the market.

Google has been working to expand its local offerings for some time, with its Places listings for local businesses and the Hotpot consumer ratings service, and sending popular merchants Zagat-like window stickers proclaiming them a "Favorite place on Google."

But it has been tough for online companies like Google and Yahoo Inc. to break into the local-deals arena because of the high cost of reaching and working with local restaurants, salons, pet stores and the like, which individually spend little money on advertising.

Groupon's platform

Groupon employs a direct sales force focused on small merchants, and offers a relatively easy platform for businesses to work with.

The Chicago company, which has about 3,000 employees and a growing Palo Alto presence, draws 33 million subscribers to local stores in more than 300 markets. It serves 40,000 businesses, and its annual revenue is approaching $1 billion, according to Caris.

Offers could allow Google to integrate deals with its mobile advertising and smart phone efforts, delivering coupons based on a consumer's precise location.

"That opens up an incredible opportunity to reach people at the point of (shopping) consideration in the real world," Etlinger said.

Antitrust questions

Operating its own deals site could also allow Google to avoid antitrust issues. The combined Google and Groupon could have gained an unfair advantage in selling local advertising, critics said, but a new service within Google is less likely to concern regulators.

Mergers cause antitrust worries "because they reduce the number of actual or potential competitors," said Mark Lemley, a law professor and antitrust expert at Stanford University whose law practice represents Google in unrelated matters. "Entry into the market increases the number of competitors, and antitrust considers that a good thing."

E-mail the writers at cnewton@sfchronicle.com and jtemple@sfchronicle.com.

This article appeared on page D - 1 of the San Francisco Chronicle