October 26, 2011 5:15 pm

LivingSocial keeps eye on rival’s fate

Plastered in the middle of an otherwise blank white wall at the Washington, DC headquarters of LivingSocial is a life-size image of chief executive Tim O’Shaughnessy, wearing his signature jeans, white shirt, and black sweater, waving his right hand. Employees regularly high-five it when they walk by.

At age 29, Mr O’Shaughnessy runs the second-largest daily deal company by customers after Groupon. He is calm, amiable, and professional, a stark contrast to his counterpart at Groupon, the pugnacious and outspoken Andrew Mason, who shocked investors recently when a strongly-worded memo to staff about the company’s growth was leaked during the quiet period before its initial public offering.

More

On this story

IN Technology

Groupon is now struggling to maintain a positive image in the weeks before its IPO, now expected to be valued at $11.4bn, half of its original target, and has also adjusted its questionable accounting metrics, following widespread criticism.

Meanwhile, LivingSocial is keeping a watchful eye on its rival’s fate while it diligently pursues its own path. It is expected to file for its own IPO later this year.

Several analysts have placed their bets on LivingSocial’s longevity, predicting Groupon could become the MySpace of the daily deals market. Groupon paved the way for LivingSocial by introducing the concept of daily deals to investors and merchants.

“In places where we compete with [Groupon], we believe the model we have is frankly more effective,” Mr O’Shaughnessy said.

The best thing for LivingSocial, says Sucharita Mulpuru, an analyst with Forrester Research, would be for Groupon to have a successful IPO, so the former can ride its coat-tails to the public markets, and do so less expensively.

In the middle of so much speculation about Groupon and the viability of daily deals in general, Mr O’Shaughnessy’s strategy is to make his company more than just a daily deals provider.

“We have really tried to take this longer term view that local commerce, local advertising, and local retail is in the process of being disrupted. There’s all this pent-up demand,” he said, speaking in his sparsely decorated office a few blocks from the White House. “We’re asking: ‘How do we solve the local commerce problem?’. Not: ‘How do we solve the daily deal problem?’.”

He cites the example of Amazon, one of LivingSocial’s main partners, which moved from being known as an online bookseller to one that sells a full range of retail items.

The current wave of daily deals first hit the internet in 2008 when Groupon started selling “group coupons.” But hundreds of companies have since launched worldwide using the same business model, eating away at its margins, and making it more difficult to attract the best merchants. That has lead to deal fatigue among customers, especially in markets outside the US where sales forces and deal offerings can be less robust.

Groupon, which was first to both merchants and the media with the deals concept, has received the brunt of criticism from analysts and would-be investors.

“Groupon has done amazing things to build affinity. But I’m not seeing innovation, just replication,” said David Strebinger, founder of Wantsa, a deal exchange platform. “LivingSocial is constantly evolving the different things they’re trying. They’re much more sophisticated on the social side and the mobile side. The partnerships they’re doing are more strategic.”

LivingSocial has launched several new products in the past year, including Escapes, which sells travel packages at much better margins than typical daily deals, and Families, which sells child-friendly deals to its largely female customer base. The company is also creating its own signature products with Adventures, curated events involving multiple merchants.

For example, one recent Washington, DC Adventure was called ‘Become a Canadian for a night’. Participants were bussed to an ice-skating rink in the city where they played broomball, an ice hockey-type game that uses brooms instead of hockey sticks, and learnt how to curl, a kind of shuffleboard on ice. They drank Molsen beer and ate Canadian-style food.

“LivingSocial choreographed that whole thing,” Mr O’Shaughnessy said.

Rather than set up a telephone sales warehouse, he chose to build his sales force on the ground, so they could meet merchants in person, learn the details of their businesses and the local market, and build a relationship that could evolve as the company evolves.

“As we’ve evolved our product sweep, we can work with different merchants by having more tailored solutions,” he said.

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in