Groupon opened a new chapter for the daily deals space with the announcement of its plans to raise $750 million in an initial public offering on June 2. The head of Groupon’s chief rival, LivingSocial CEO and Co-Founder Tim O’Shaughnessy, addressed how the IPO would impact his company at the MIT Enterprise Forum in Cambridge, Mass., on June 7. (Related: Groupon’s Business Model: Bubble or the Real Deal?)
On the surface, Groupon and LivingSocial appear to have much in common. Both promote online and on mobile devices discounted vouchers daily in cities across the country for local restaurant, retailers and other businesses. Yet O’Shaughnessy stressed that “fundamentally, they operate differently than us.” In particular, he stated that Groupon is primarily run out of Chicago, while LivingSocial felt from the start it was important to decentralize and invest in putting teams in as many cities as possible to get closer to the local customers. As for the IPO, he says, “They have the opportunity to set some of the metrics,” said O’Shaughnessy, while also offering his congratulations to Groupon. “Whether we like it or not, we’re going to be grouped into the category regarding these metrics. So, that’s primarily how it affects us.”
O’Shaughnessy went on to say “we don’t view ourselves as a daily deals business,” he said. “We view ourselves as a local commerce business. Things we do are around staying true to that promise.” (Related: LivingSocial Reveals Plans for Future Growth)
O’Shaughnessy also pointed as a differentiator to the company’s activity voucher initiative, LivingSocial Adventures. This division of LivingSocial, as he described, offers outings to users from go-karting trips to wing tastings.
The company is certainly not suffering from deal fatigue. O’Shaughnessy claimed between April 2010-2011 that 45 percent of users had made 6+ purchases. Yet when asked about the company’s biggest mistake, O’Shaughnessy replied, “we saw the opportunity but wish we had moved faster.” However, he was not referencing an IPO. Instead, O’Shaughnessy acknowledged that despite LivingSocial’s traction in the United States, the company was “behind in the international space, and it’s going to be a hard battle.”
Developing long-term value proposition for merchants is also a continual focus for the company. He joked about the “groupon-zi scheme” in that merchants won’t continue to work with a daily deals site if the initial venture isn’t ROI positive.
“The No. 1 problem merchants have is how to get people through the door,” said O’Shaughnessy. “The beauty of the model we built up is that it clearly delivers on that promise. The problem of having too many customers was a foreign concept up until last year. What we try to do is deliver them customers, give them tools and data to go and help them learn more about their customers. With those tools, we think they will work with us and work with us for a long time.”
LivingSocial’s 20 oldest markets are all revenue positive, according to O’Shaughnessy.
Still, Groupon’s IPO is a validation that this business model has arrived, O’Shaughnessy noted. He mused that the model didn’t work for Web 1.0, as consumers couldn’t be targeted specifically by interests and locations.
“We as a company have been around for about four years,” reminisced O’Shaughnessy, noting that all four founding team members gave their respective employer notice on the same day. “We initially started when the Facebook platform opened up. It was like a light bulb went off. We can acquire users faster in the history of the Web… and aggregate people much fast than you could before. Ten years ago, people weren’t calling their friends, saying ‘you got to get in on this.’”
O’Shaughnessy recalled how the team started out building a restaurant app and the widely popular “Pick Your Five.” Yet he and his team felt tying their ventures so closely to Facebook also proved to be a risky scenario in that they were constantly responding to changes made by the platform. He said they also didn’t see at the time how working on Facebook itself would allow the company to rapidly grow revenue over the course of several months.
After testing out a “buying a friend a drink” business model, the group eventually moved on to what would become LivingSocial. Yet he was hesitant when asked whether there was room in the sector for a No. 3.
“We’re a listing business, and if you look at other listing businesses historically, a couple businesses usually rise to the top,” he said, pointing as an example to Match and eHarmony in the online dating space.
O’Shaughnessy remarked that Groupon would be spending a billion dollars on marketing this year and that LivingSocial’s budget would be similar.
“It’s hard for someone starting from scratch to compete with that,” he pointed out.
But on the bright side, O’Shaughnessy reminded the audience that there is always room for innovation.
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