Six billion for Groupon from Google would have been a stupid number. A stupid deal. Google got lucky that Groupon is so greedy. The fact that Google was willing to pay so much money for Groupon is seriously concerning. I have hopes that Google will use its stock wealth to do smart things. I have hopes that Google will avoid an eBay like purchase of Skype - but maybe I'm wrong.
The company that Google should buy is Blackboard. (I've argued in the past that Microsoft should buy Blackboard - but now that the Groupon deal looks like it has fallen through, it seems like a good opportunity to put all those lawyers and investment bankers to work).
Blackboard is expensive, with a market cap of about $1.5 billion, and a P/E (price-to-earnings) ratio of about 65. By way of comparison, Apple (the world's largest tech company) has a market cap of $291 billion and a P/E of 21. Microsoft: $231b / 11.6. Google: $183b / 23.3. Netflix is the one of the few companies with a similar P/E ratio to Blackboard (about 70), but with a bigger market cap of about $9.7 billion. The average P/E (price-to-earnings) ratio in the technology sector is 17.4.
Blackboard's share price is high because customer acquisition is so expensive. Once a customer is acquired, however, the subscription model provides steady and predictable profits (for almost no marginal cost beyond support and retention). Blackboard has a huge potential upside as the market for learning management services expands in Asia, South America, and Europe. Even if Blackboard's valuation is too high (I think it is pretty reasonable), Google spending a couple of billion to acquire the company would be money well spent. (Not to mention relatively cheap in comparison to Google's wealth).
Google should buy Blackboard and take the following actions:
- Move gBlackboard as quickly as the market will bear to an all cloud-based, multi-tenancy delivery system. This will drastically reduce implementation costs, allowing the price of the software to drop quickly.
- Deeply integrate gBlackboard with Google Apps for Education, gDrive (Google Storage), and the content available on YouTube/EDU.
- Follow a plan to bring the licensing fee for public institutions to gBlackboard down to zero.
A no-cost high quality LMS, integrated with the educational content and collaboration tools developing under the Google umbrella, could significantly lower the costs for postsecondary education in the wealthy world -- and extend educational opportunities to the rest of the planet. Google would give educational platforms away for free for the same reason it gives gMail and Google Docs away. Free is the best method to aggregate huge audiences, gather data on their behaviors, and deliver relevant advertising.
Advertising will indirectly pay for much of incremental growth of higher education in the 21st century. This is a good thing.
Paying $6 billion for Groupon would have been dumb because the service offered by Groupon is so fungible. Less so Blackboard, which has done the hard work of rolling up the competition and developing their U.S. market share. Blackboard will be hard to replace. Groupon could go away tomorrow and 50 companies could replace their service, nobody would really miss them. Not so for Blackboard.
It is time for Google to open the checkbook and get serious about the educational space.