LivingSocial Monetizing Splendidly

Earlier this month, Groupon’s IPO news was accompanied by market’s revised valuation assessments pegging the company to be worth $30 billion. I believe that their highly unprofitable performance may bring their valuations down to more realistic levels. But, one cannot deny the strength of their business model that has helped them to achieve such fast-paced revenue growth. And it is not just Groupon. Their model of revenue sharing with merchants has also been successfully adapted by their competitor LivingSocial, which too now boasts significantly higher revenues.

LivingSocial’s Financials
Earlier this quarter, LivingSocial’s financials were leaked to the market. For the month of February, revenues were reported to be $50 million and the company is estimated to end the year with revenues of $1 billion. A few months ago, the market had pegged the company’s revenues for the year at $500 million. LivingSocial now has more than 26 million subscribers spread across 250 markets in 13 countries and are working to reach 400 markets by the end of the year. They are still much smaller compared with Groupon’s 70 million subscribers spread across 500 markets in 43 countries. But, they claim to be bridging that gap by adding over 1.5 million new users each week.

LivingSocial recently raised another $400 million in funding from investors which include Amazon, Lightspeed Venture Partners, T.Rowe Price, and Institutional Venture Partners. The funding pegs LivingSocial’s valuation at close to $3 billion, compared with the earlier valuation of $1 billion.

LivingSocial’s Expansion
To continue to expand their market reach, LivingSocial recently tied up with Next Jump, a provider of reward program platform services. As part of the alliance, the two companies launched OO.com, which is a revamp of Next Jump’s Overwhelming Offers. Users at OO.com can enter their location and will be presented with a map of LivingSocial deals. Additionally, users will also receive reward points, being called WOWpoints, for their purchases. These WOW points will be redeemable at other stores or for other deals on the same site.

They also acquired SocialMedia, a social advertising network, for $3 million. SocialMedia was launched in 2008 and was among the first ones to create digital ads that leveraged people’s social network list by transmitting people’s personal endorsements to their friends and communities. In 2009, SocialMedia’s revenues were projected at $25 million and is rumored to have received a merger offer from Facebook.

LivingSocial’s International Expansion
As part of their international expansion focus, LivingSocial acquired Dealissime.com, a France-based daily deals operator. Dealissime.com was launched in 2010 and has operations in Paris, Marseille, and Lyon with operations planned in Lille and Bordeaux. France became the 13th country for LivingSocial to set up operations in.

Like Groupon, LivingSocial’s business model too is part of the trend where the businesses have adopted revenue sharing with advertisers/merchants as their primary monetization model. I do hope that the other more established Internet giants like Facebook, LinkedIn, and Demand Media also hone into this trend and not focus solely on the low monetization model of CPM-based revenues. Groupon, LivingSocial, and similar companies are establishing a clear trend in performance advertising, and it’s a trend that will have longstanding consequences for Internet business.