Location, Location, Location Plays Big Role In Internet Plays

Reports that Google will pay up to $6 billion to buy two-year-old local coupon site Groupon are creating a halo for companies that do something similar to the company 29-year-old Andrew Mason founded in Chicago.

That’s because other big players are looking for ways to go local as well.Amazon.com has invested $175 million in a Washington, D.C.-based company, LivingSocial, which provides a service similar to Groupon. Amazon’s investment values Living Social at about $1 billion.

"To be the biggest player in the local commerce space there is no one better to work with than Amazon," said Tim O'Shaughnessy, CEO of LivingSocial, in a release. "As the social shopping space continues to heat up, LivingSocial is committed to staying focused on providing the high level of quality that consumers and merchants have come to expect when working with us."

Other investors in LivingSocial include AOL founder Steve Case and Virginia venture capital firm Grotech Ventures.

Like Groupon, LivingSocial is all about local discounts. It provides its users with discounts to nearby merchants.

That model is clearly very attractive to giant Internet players like Google and Amazon. Google makes no secret of its ambition to dominate pretty much every phase of Internet advertising. That makes Groupon a natural play for the search behemoth.

Sources have said Google is willing to pay up to $6 billion for the Chicago firm—$5.3 billion for the company, plus management bonuses of $700 million. That deal, numerous news outlets have reported, could be finalized as early as this week.

But other companies aren’t likely to let that local space go to Google without a fight. Google’s play for Groupon—which would be its biggest acquisition if it is finalized—is seen in both offensive and defensive terms. It’s offensive in that it provides Google with immediate local muscle and what is perhaps the fastest-growing Internet property ever.

It’s also a defensive play, because social networks, especially Facebook, are able to leverage networks of friends, and increasingly location-based tracking of users, to offer highly targeted advertising.

A number of other companies have taken their own tack in trying to attract local dollars to the Web, including Case’s former company, AOL, which has formed a series of hyper-local news sites, called Patch, in hopes of attracting those local advertising dollars.

And old-line newspaper and broadcasting companies will, of course, have to leverage their power as the dominant providers of local news to attract their print advertisers to their own online sites if they are to survive transition from print and broadcast to digital news delivery.

That urge to break down the advertising potential of the Worldwide Web explains Amazon’s apparent willingness to make a bet of its own in the local coupon battle. And it’s likely still others will wade into the game as the Web goes more mobile, and the ability to target specific deals in a location-based way increases.

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Kent Bernhard Jr. is News Editor of Portfolio.com