If the rumored $5 billion to $6 billion price is right, Google thinks it really, really needs to have the daily deal site Groupon.

      But the jury remains out on whether the search giant will ever get its money's worth out of what would be the second highest price paid for a private venture-backed company.

      Caution No. 1 could be this. The highest price ever for a VC-backed company paid was when Cisco Systems paid about $7 billion for optical networking company Cerrent at the tail end of the tech bubble in 1999. Despite that acquisition, optical never figured large at Cisco and the company last year shut down the former Cerrent HQ in Petaluma.

Here are five other reasons that Google might want to pause before hitting the "Buy!" button on Groupon:

1.    It's not a good business model fit. Google works best in businesses that don't depend on human interaction, that are cleverly designed, switched on and run like a super-efficient machine. Groupon's secret is reportedly the sales force that solicits businesses to participate, local planners who decide which are the best offers and copywriters who write the pitches.

      That's just not how Google does business.

2.    It's a fad. Groupon has certainly grown rapidly, with an estimated $500 million run rate after only two years in business.  It reportedly has 40,000 businesses lined up waiting for their offers to hit the company's e-mail. But is it really the best way for small businesses to attract customers? And how long will it take before its customers decide to try something else?

      The typical Groupon deal involves a retailer offering a 50 percent discount on what they are selling. Groupon then takes half of the remaining price that is paid, leaving the business at the end of the day with about 25 percent. There are some real horror stories out there about retailers who were nearly ruined when they got Groupon'd.

      How long will it take for the small local businesses Google hopes to reach to figure out there are more targeted ways to use the Internet without giving away the store?

3.    Facebook will throw a wrench in the works. Jefferies analyst Youssef H. Squali pointed out to the Wall Street Journal that much of Groupon's draw comes from using Facebook Connect to gather friends for group buying discounts. What if Facebook decides it doesn't want to share its information with Google, a company that it increasingly sees as a rival? And the social networking giant is making a Groupon competitor of its own, called "Deals."

4.    Can you say antitrust investigation? With each new deal that gives it mountains of information about consumer buying habits, Google is getting more and more scrutiny from U.S. and foreign regulators concerned that it is building a monopoly.

      The company is still fighting regulators and others over its 2005 plan to digitize libraries of books and it almost didn't get its purchase of AdMobs approved.

      It seems only a matter of time before they go one deal too far. By the time this one is fully adjudicated, will Groupon still be the hottest local ad play on the Web?

      Kara Swisher at All Things Digital quipped this week that a Google-Groupon deal could be thought of as a full-employment program for antitrust lawyers.

5.    It's a desperation play. Google is in danger of becoming Microsoft. The folks in the funky headquarters in Mountain View have long been considered what Microsoft always claimed to be — home of many of the most innovative minds in technology.

      Much of the innovation that folks from Redmond were boasting about, though, wasn't really invented there. They bought it using legendarily strong-armed tactics, reportedly bullying innovators to sell out or face competition from free versions of their products Microsoft could bundle into Windows.

      Google is too nice to use those kinds of bully tactics (and it would only fuel the antitrust crowd). It can't afford to be seen as evil.

      So the company is giving across-the-board 10 percent pay increases to keep employees from jumping to competitors and offering unheard of sums to buy successful but relatively unproven companies.

      Is that the sound of a bubble popping?

Source from Business Journal

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