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Yahoo! (Nasdaq: YHOO ) may be about to do something very silly with its money.
Silicon Alley Insider is reporting that Yahoo! has made it known to Groupon executives that it would be interested in buying the flash-deal giant for as much as $3 billion to $4 billion.
For Yahoo!'s sake, let's hope this isn't true.
Everyone knows that CEO Carol Bartz is under pressure to make exciting acquisitions to help offset its organic stagnancy, but overpaying for the flavor of the week is nuts.
Groupon rocks. I don't have a beef with the company. It's carving a cozy living with the simplest of models. It reaches out to local merchants -- primarily restaurants, spas, hotels, and leisure providers with flexible pricing -- and offers to make them the deal of the day to its growing list of city-specific email blast recipients.
The deals can be substantial for the consumer. An upstart restaurant may offer a $50 voucher for $25 through Groupon. Since Groupon's cut is typically half of the voucher's price, we would be talking about a restaurateur with enough empty tables to be willing to sell $50 worth of future purchases for $12.50.
Merchants flock to Groupon, just as eateries flock to Restaurant.com and Rewards Network (Nasdaq: DINE ) to drum up new business. It remains to be seen if the model is viable in the long run, especially if Groupon only attracts penny-pinching opportunists who don't follow through with repeat visits to participating merchants at non-discounted prices.
However, the real threat to Groupon is that you have to squint to see its moat. It's an easy model to get off the ground, especially for established sites that already reach millions of users in niche-specific areas.
AOL (NYSE: AOL ) is so high on the model that it's turning its Wow.com domain -- formerly an unofficial hub for players of Activision Blizzard's (Nasdaq: ATVI ) World of Warcraft -- into yet another Groupon clone.
There's nothing wrong with aiming for the top dog in this quickly crowding niche. It made sense when the rumor first surfaced earlier this year, seemingly at a more realistic price. Yahoo! would be wrong to overpay. Heck, it can buy The Knot, OpenTable, and Travelzoo -- all three, at hefty premiums -- for less than what it's rumored to be shelling out for Groupon.
Oh, and it could also just buy AOL.
Yahoo! failed to offer just enough to buy Facebook a couple of years ago, and it's kicking itself now. Unfortunately, Groupon is no Facebook.
You're smarter than that, Yahoo!.
Should Yahoo! buy Groupon? Share your thoughts in the comment box below.