A purchase of Groupon (estimated price tag of US$5-6bn) would have eclipsed Google’s $3.1 billion purchase of online ad provider DoubleClick in 2007, the largest to date.   The deal would have put Google in the position of selling directly to Internet users – in this case, coupons for area merchants – and boost its standing in the race for local business ad dollars. That market is expected to grow rapidly and is coveted by other large Web companies including Facebook Inc. and Yahoo Inc.

The rejection of the Google offer is a milestone in Groupon’s dizzying journey, which in two years has transformed the company from the fledgling side project of another Web site to a tech star with more than 3,000 employees worldwide, a presence in 35 countries, and expected annual revenues of $500 million this year. The company was profitable in its seventh month.

Groupon’s financial backers include local investors Eric Lefkofsky and Brad Keywell, venture capital firms such as New Enterprise Associates and Accel Partners, and Russian firm Mail.ru Group, formerly known as Digital Sky Technologies.

Google, which is pushing into local search advertising, had been hoping to tap into Groupon’s massive human network of sales employees that have relationships with small businesses across the country. The interest in Groupon, which was also reportedly courted by companies such as Yahoo, underscores the start-up’s meteoric growth — its valuation was $1.3 billion in April — and the industry’s belief that the company’s business model is a sustainable one. Groupon takes a cut, typically 50 percent, of the revenue from each of its daily deals.

Breakingviews commented: “The search giant’s willingness to spend $6 bln on a startup in a business with almost no barriers to entry is the most damning evidence yet. In the past, Google would’ve tried to create a Groupon of its own. But these initiatives rarely panned out. It now has to buy innovation.”