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More


LivingSocial – Another Groupon?
 8/29/2011 edit
By PJLouis
Tags: LivingSocial, Groupon, daily deal, coupon, deal of the day

http://online.wsj.com/article/SB10001424053111904009304576532761725682254.html?mod=WSJ_Tech_LEADTop

 

LivingSocial’s CEO, Tim O'Shaughnessy, sounds like a lot of startup CEOs; confident.  He is clearly a hard worker.  In a couple of short years he has gone from zero to hero.

Is LivingSocial worth $3 Billion?  Well, let us hope the financials backs up the claim.  I am in favor of IPOs.  I am just sick of the hype that goes along with an IPO.  You are never ever sure if the banker is full of hooey or not.

However, based on Mr. O'Shaughnessy's comments, he is not out to conquer the world but is trying to run a business intelligently.  He seems to understand that a hiring process as aggressive as LivingSocial’s can be dangerous; one slipup and you end up with a nutcase in your company.

I like level headed and aggressive CEOs; they tend not to do stupid things and keep themselves from talked into doing stupid things.

Moving to multiple offices is not a thing many startups do in the first couple years of their operating life but it has been done by others so it is not a big deal.

LivingSocial is like Groupon , a high-tech penny saver.  Penny savers make money; they generate cash flow but not necessarily double digit returns in the short time frames investors like to see.  Penny savers take a lot of time and energy to manage and require a deep understanding of the local market.  I am not sure Groupon’s international strategy makes a lot of sense.

LivingSocial is going to have to make sure it gives its customers a bigger share than Groupon.  The reality is that everything Groupon has been criticized for can also apply to LivingSocial if it is not careful.

The coupon business is about knowing local market.  It means getting the local nail parlor, beauty salon, and Dollar store to sign up for the voucher.  If the bankers believe you make a business by hawking the vouchers to a company like Target or Wal-Mart alone then they do not know what they are doing.

To make the daily deal business work, you need to run it like the penny saver business.

 
Wonder if facebook thinks daily deals is not a good business strategy ...

*********************************************************** 
SAN FRANCISCO, Aug 26 (Reuters) - Facebook is getting out of the daily deals business after four months of testing, a move that may ease some competitive pressure on industry leaders Groupon and LivingSocial.

"After testing Deals for four months, we've decided to end our Deals product in the coming weeks," the company said on Friday in a statement emailed to Reuters.

"We think there is a lot of power in a social approach to driving people into local businesses," Facebook added in the statement. "We've learned a lot from our test and we'll continue to evaluate how to best serve local businesses."

Facebook, the world's largest social network, launched Facebook Deals in April, bringing competition to daily deals leader Groupon and rival LivingSocial.

Facebook started making offers in five cities and had a small sales team arranging deals with local merchants. But the company also ran offers that were set up by 11 other daily deal companies, including ReachLocal, Gilt City and Zozi.

Facebook's exit means Groupon has one less major competitor as it prepares for a $750 million initial public offering later this year.

"It is surprising that Facebook ended their deals product after just four months," said Vinicius Vacanti, co-founder of Yipit.com, which aggregates daily deals and tracks the industry. "On the other hand, Facebook Deals had been an underwhelming product and experience."

However, Facebook's decision not to pursue the business may mean the company thinks the approach lacks merit.

"The Groupon group buying phenomenon is a commodity. There are no barriers to entry. It's just not going to work because everybody offers it and therefore the margins go down," said Jeremiah Owyang, a partner at research firm Altimeter Group.

The end of Facebook Deals is "certainly good" for Groupon and other daily deal services, Vacanti said.

"I don't believe this means daily deals are not a viable business," he added. "It more suggests that large media and tech companies can't just 'turn on' daily deals and expect them to work. It has to be more thoughtfully integrated into their existing product."

Facebook stressed on Friday that it is committed to developing other products, such as Ads, Pages and Sponsored Stories, which connect local businesses with potential customers.

The company also is sticking with its Check-in Deals offering. This lets Facebook users check in at local businesses and see offers from those merchants.

"Facebook is doing some major re-thinking around local," Vacanti said. (Reporting by Alistair Barr and Alexei Oreskovic; Editing by Tim Dobbyn and Carol Bishopric)
gdt gdt
8/29/2011 
There is nothing wrong with the coupon business.  However, it is a heavy lifting business.  This means you need people on the ground who know the local market.

The fact that Facebook is getting out of the business does not diminish the type of business at all.  I am sure the Facebook people thought it was your typical e-commerce business and was not labor intensive.

This has to be run like a pennysaver.
PJLouis PJLouis
8/30/2011 edit 
Profit margins will continue to be squeezed, so not a great business to invest.
gdt gdt
8/30/2011 
It is not a business meant for investors.  It is a tough cash flow business.  You have to be in it long term.  Forget about double digit returns in less than 3 years.  The penny saver guy I know made a very nice living at it but it was all hard work.

This is why Groupon's early investors collected early; they know what business they are really in and it is not the Internet business.
PJLouis PJLouis
8/30/2011
 
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