Following the daily deal industry is enjoyable yet challenging. I had hoped to get an idea how Groupon may fare by finding out how LivingSocial was doing. Sometimes you have to listen to one conference call in order to gain insight into another’s business. Such was the case with Amazon and LivingSocial. In order to find out how LivingSocial was doing, I had to listen in on the Amazon quarterly conference call. This is where problems can arise and information, although accurate, may not paint an accurate picture.
The Amazon call focused on Amazon yet painted a picture of massive losses for LivingSocial. Thank goodness for conferences and interviews and great notes. Recently, Kara Kamenec, of Daily Deal Media, was privy to an interview between Tim O’Shaughnessy (CEO and Co-founder of LivingSocial) and Henry Blodget (CEO and Editor-in-Chief of Business insider) at the Business Insider Commerce Summit 2012. I am using Kara’s notes and quotes to not only expound on the $558 million in losses booked by LivingSocial, but also to discuss what may be considered the top 5 controversies or myths that surround the daily deal industry .
First, let’s delve into the massive losses for LivingSocial as reported by Amazon. According to O’Shaughnessy, the biggest part of that loss was in the beginning of the year, and it narrowed toward the end of the year. “The joys of getting the scrutiny of an S-1 filing without actually filing one,” he said. “There’s one small chart that Amazon filed that doesn’t really give a particularly illuminative view of the business. There are certain things from an accounting perspective that you can’t see with that limited of a view. It’s fun to see little snippets and extrapolate them out without the big picture.”
The two companies are not in the same industry, however, similarities do exist. Amazon was told for years (over a decade) that they couldn’t make money. Now the e-tailer is Huge. LivingSocial is currently number two in the daily dealing space and has around 60 million members and O’Shaughnessy said his company is doing “very, very well.”
Tim goes on to say that “we are starting to get a large cross section (of all merchants) as a whole. I will be the first to tell you that we don’t always bat 1.000, we don’t nail it every single time,” he said. “But the merchants we ask to run again accept 80 percent of the time. We consider that a healthy business rate”
The product itself (deal for the merchant) is constantly evolving. In this case, technology in the form of IT had to play catch-up when the industry was at first flooded with daily deals and dealers. Tim believes that it is “much easier to work with us as a merchant now than it was two years ago. This year (2012) is about an additional evolution of that.”
LivingSocial contends that they are gaining ground or market share from Groupon. Tim doesn’t hesitate at all in stating that “we are very, very aggressive. We structured ourselves to always have someone on the ground to provide service to merchants. We are now starting to harvest some of that (customer service) investment.”
In regards to how the deals are working, like anything else in our economy, some markets are working reasonably well, others aren’t. The closing for example of parts of the Sacramento branch dictates that LivingSocial won’t hesitate to pull the trigger on areas that don’t produce.
Controversies and Myths in the Daily Deal Business
“Everyone can do this, the platform can easily be duplicated”
That’s a yes and a no. The platform itself can certainly be duplicated; however, entry today is either limited to niche markets, or a lot of “capital and speed is needed “to get a national or global site up and running.
“You can’t make money in this industry.”
Wrong. Startups in this industry require money or seed capital. Depending on the company’s goals and aspirations, the amount could be easily managed or considerably large. LivingSocial required a lot of capital in order to “build merchant relationships,” according to Tim. Monetarily, “we are doing well and are on plan with where we thought we would be right now. You’ll see in time. It’s a working capital positive business, which has benefits.”
For those naysayers (I read the comments on my posts) that consider this industry a ‘disaster’ or compare it to the Titanic, consider this; the daily deal industry is still very much in its infancy. There is a ton of tweaking to do with the deals themselves and in building merchant loyalty. You have to look at the entire picture that is made up of smaller yet multi-billion dollar pieces. Daily dealers pull from travel, auto, hotel, restaurants, and consumer staples just to name a few. Each one of those represents a massive muti-billion dollar opportunity. Those companies that can extract just a sliver from one or more of those arenas have the opportunity, over time to become “wildly profitable.”
“Daily deals can’t make money.”
This is false. Many of us have read the horror stories that make the headlines form time to time. There will be companies that sell too many cupcakes and go bankrupt, or sell counterfeit items. This is not the norm. There are two parts to this equation; the merchant and the consumer. One of Tim’s comments suggested to “look at your own buying habits, my guess is that you have purchased a (daily deal).”
This is so true; as a matter of fact I have 5 vouchers on my books right now. Sorry Tim, only two are from LivingSocial. From my point, the consumer side, I’d rather save 50% and use the other 50% for something else. This is what our society is coming to expect. I’m still going to dine out, travel, go wine tasting, so why not enjoy those events and save money doing so.
From the merchant side of the equation, most of this is just simple common sense. If you are truly trying to build a repeatable business, you must be reputable. You also need a very solid understanding of your own business to avoid understaffing when running a deal or not capping quantities and running out of products.
“All deals are ‘crappy’ deals you are forced to use them or they expire.”
I honestly don’t understand why this still comes up as an issue or controversy. No one is forced to participate in a deal. That being said, if you don’t use them, the majority of the time you can and will get your money back. As for the e-mails that seem to inundate inboxes, Tim says “people can self- select into that.” LivingSocial is working on a process now that will allow them to see whether or not their e-mails are being opened. The idea being that if you aren’t opening the emails, “we will stop sending them.”
“Buyers are just buying ‘deal to deal’.”
Of course this is true. Tim used an analogy; “what is the average repeat rate of window shopping customers? Probably the same!” It gets down to who offers the nicest window at the time. LivingSocial and daily dealers just want to have their windows viewed. Those that are enticing and presented well will be validated by sales.
In closing, how about looking into the future 5 or 10 years down the road, Tim uses another analogy – Google. “For each fundamental core of life, there’s an answer on the web. Like how people naturally go to Google.” I am hearing a loud knock on the door with a big green ‘G’ on it. It’s clear that LivingSocial wants to be that ‘go to company’ for their daily dealing needs.