LivingSocial Living High on $400 Million in Funding
The online deals space is certainly heating up as more and more marketers get in the game. The decision for many is whether they want to build their own version of a deals site or whether they want to use one of the big names in the space.
For the most part, the biggest name in the space is Groupon. They are in the news constantly for a variety of reasons which are a mix of good (tremendous growth) and bad (poor executive decisions about marketing etc) but they are the de facto industry leader.
Unlike the search marketing game though Groupon’s position is less than bulletproof since the ability to copy the process isn’t a high barrier to entry. What is tough is scale and that’s where Groupon has the edge over most little guys.
Where that edge is wearing thin, however, is in their competition with the other big player LivingSocial. LivingSocial is quietly putting together a serious threat to Groupon’s status as the only big player in town. How do we know that? Well, a $400 million dollar new round of funding is evidence that many people who already believed (meaning they already invested) are going back again. And the rumored valuation of LivingSocial? $3 billion. Not too bad.
Less than four months after landing a $175 million investment from the e-commerce giant Amazon, LivingSocial last week raised an additional $400 million from existing investors like Amazon and Lightspeed Venture Partners, and several new ones including T. Rowe Price and Institutional Venture Partners, according to two people close to the company who spoke on the condition of anonymity. The deal values LivingSocial at more than $3 billion.
“The investment is certainly a milestone in the company’s evolution,” said (chief executive) Tim O’Shaughnessy, who declined to talk specifically about the valuation. “But it’s just that — a milestone, not the end game.”
This is a significant mark in the whole deal space because until now, Groupon has been the Google of the space getting the lion’s share of publicity and business. Where LivingSocial is making inroads is by being just different enough and actually quiet enough to let Groupon stub its toe and make others see that there is another option and it’s pretty good. (Note: I just bought tickets today through LivingSocial for the Durham Bulls and I am very happy about it).
From the industry side of the coin there is one difference between LivingSocial and Groupon that will play out and could be the difference as to why one marketer chooses one company over the other. The leadership.
Groupn’s CEO, Andrew Mason, has done a brilliant job getting the company to the place it is but he has also shown some less desirable traits that have made some wonder if the hubris of the company could eventually hurt it. It was Mason who initially stood by the now infamous Super Bowl ads developed by Crispin Porter + Bogusky only to turn on them last month. LivingSocial’s O’Shaughnessy paints a different picture despite being about the same age.
Mr. O’Shaughnessy, 29, also represents an interesting foil to Mr. Mason, known for T-shirts and practical jokes. The LivingSocial chief wears a crisp, buttoned-down shirt every day and rode a Segway to work for a year, after calculating the time and risk of various modes of transportation. Mr. O’Shaughnessy’s aggressive efficiency and dexterity with numbers is part of the reason LivingSocial has been able to grow as fast as it has, according to several of his colleagues.
With culture usually being a top down event in most organizations will the more business like approach from LivingSocial help it to run with Groupon? There really is no way of knowing and time will ultimately tell but it will be interesting to watch the contrast in styles as these two deal makers heat up an already hot market.
It’s that heat, though, that make some wonder whether this entire space is running a little too hot.
But as LivingSocial’s statistics climb, some analysts warn the industry may not have a big upside over the long term. Several local vendors have publicly expressed dissatisfaction with daily deal services, which often attract discount-seekers instead of repeat visitors.
“This is not attracting the customer behavior that anyone wants, few merchants cheer and say ‘This is the opportunity we’ve been waiting for,’ ” said Sucharita Mulpuru, an analyst at Forrester Research. “Groupon or LivingSocial could be No. 1, but is this a $50 billion business?”
So it looks like LivingSocial is truly in this game. And while all of this is being discussed it is no small matter that Amazon is a major player in the future of LivingSocial. It’s already been evidenced as to how powerful Amazon’s influence is when LivingSocial ran it’s now famous $20 for $10 on Amazon deal and sold 1.3 million deals. That will make anyone stand up and notice.
Where do you see this space going? Will there be two big players and the rest or will it eventually fragment to more local offerings? Is this something that has long term value or is it a fad? When will merchants wield enough power to cut the onerous terms that they face for revenue shares?
What’s your take?