The Deal Radar 2010: LivingSocial ,Washington, DC

LivingSocial is an online community that connects more than 85 million people and powers group buying through Deals, its social commerce program. Through Deals, LivingSocial users and their friends can save 50%–70% or more each day on restaurants, spas, sporting events, hotels, and other local attractions in major cities. The company is also the creator of the Facebook application Visual Bookshelf and the flagship LivingSocial, a comprehensive place on the Web for people to engage with others around topics such as entertainment, food, fashion, and technology.

Tim O’Shaughnessy is the CEO and cofounder of LivingSocial and the social commerce leader behind LivingSocial Deals and Facebook applications Pick Your Five and Visual Bookshelf. Prior to LivingSocial, O’Shaughnessy led the consumer products team at Revolution Health and managed product launches at AOL. Other founders include Eddie Fredrick, Aaron Batalion, and Val Aleksenko.

Based in Washington, DC, LivingSocial started in 2007 as a social discovery and cataloging network for reviewing and sharing common interests. In keeping with this original goal, the company’s focus is now on LivingSocial Deals, the daily deal function. After LivingSocial acquired BuyYourFriendADrink, the company realized that there was a huge untapped market to leverage group buying – although as we will see, LivingSocial competes in a very crowded market.

LivingSocial’s customers are people who like to do things in the city in which they live. While some merchants and deals naturally work better for one type of customer, the customer base for the service is broad – males and females from ranging from recent college grads to people who are of retirement age. Users sign up in their city and receive e-mails (or can go directly to the site) to access the daily deal. For example, on June 21 LivingSocial had a deal for Pizzeria Avellino in San Francisco; for $15, a user could buy a voucher for $30 worth of food and drink at the pizzeria. New Orleans users could buy a $20 voucher for a haircut and style at Salon La Rouge, which normally charges $40 for the service. The company says that in April LivingSocial Deals saved people over half a million dollars in Seattle and two million dollars in Washington, DC. The site for each city also offers “365 Things To Do In …” where users can browse and vote on suggestions.

Like many of its competitors, LivingSocial does not take money upfront from the merchant, which enables it to serve as a low-cost marketing tool for local merchants. When the merchant signs on with LivingSocial, the company writes that merchant a check and takes a commission on each deal sold.

Living Social did not provide a total addressable market, but a guest author at TechCrunch puts it at possibly more than $5 billion, extending to any number of products and services. Mashable’s Peter Cashman on CNN also asks if the market could be worth multiple billions of dollars.

The company has raised a total of $49 million thus far: a $5 million Series A led by Grotech Ventures and including a personal investment from Steve and Jean Case in July 2008; a $25 million Series B led by U.S. Venture Partners, with Grotech Ventures and Steve Case’s Revolution, LLC in March 2010; and a $14 million Series C led by Lightspeed Venture Partners with U.S. Venture Partners, Grotech Ventures, and Steve Case’s Revolution, LLC in April 2010. The company did not disclose revenues, but according to Jeremy Liew of Lightspeed Ventures, “Groupon has seen tremendous growth, from $100,000 in revenue in January 2009 to $10 million in revenue in January 2010. Living Social got started 6-9 months after Groupon but is seeing similar growth.”

In May, TechCrunch did a teardown of the rapidly growing Groupon, an earlier entry in a field where, it notes, competition is “rampant.” Groupon is easily the largest player. Other competitors are BuyWithMe, Adility, SocialBuy, Yipit, What’s the Deal, and a large number of players that may operate in only one city. Kevin Eklund of ToMuse has a post that compares these sites in greater detail. Groupon recently acquired Citydeal to expand in Europe, and LivingSocial, which is available in 23 cities plus Orange County and the San Fernando Valley, has aggressive plans to expand in the United States. Group buying and social commerce are trends that are likely to continue to grow, and as they do it seems as though all eyes will be on the Groupon–LivingSocial race.

LivingSocial says that its differentiators and previous social media success position it for success in this crowded market. The company has salespeople in each city in which it has a presence who work directly with local merchants to design and secure the deals (although other players are likely to have this, too). It also has a referral program – if a person purchases a deal and gets three friends to buy it, that person’s deal is free. This makes the deal more viral as friends promote it through Facebook, Twitter, and e-mail. Push notifications from LivingSocial’s iPhone application also enhance ease of use and drive user purchases. Further, LivingSocial deals run for 24 hours, so anyone who wants to purchase the deal can do so in ample time.

LivingSocial’s growth strategy for 2010 is to expand to dozens more cities while staying on the cutting edge of social media. The company is comfortable with its current strategy, growth trajectory, and capital position and is not looking for an exit at this time.

Recommended Reading
Did Amazon Miss The Boat On Social Commerce? (from Leena Rao on TechCrunch)
Deal Radar 2009: Bazaarvoice