LivingSocial Growing In Travel

BIA/Kelsey estimates that the U.S. “deal-a-day” market will reach $4 billion over the next four years. The researcher pegs the U.S. market to be worth $873 million in 2010. Further, according to the report, 178 cities in the U.S. are served by the various deal-a-day companies. These offers reach more than 102 million people in the country. Hitwise’s comparison statistics on group buying show that Groupon commands 79% of the U.S. market in group buying, and LivingSocial is a distant second with an 8% share.

LivingSocial’s Financials
LivingSocial was founded in 2007 as a social discovery and cataloging network for reviewing and sharing common interests. It evolved into a social commerce engine offering local deals to a subscriber base of about 20 million people in more than 120 markets in 11 countries.

Like Groupon, LivingSocial receives revenues by sharing the deal value with the local merchant. However, compared with the hefty 50% cut that Groupon usually takes for a deal, LivingSocial usually takes a smaller 35% share from businesses. Last year LivingSocial made history by launching the biggest-ever group deal campaign, in which it sold sold $13 million worth of $20 Amazon Gift cards at $10 each. LivingSocial is also looking at bringing in ad revenues. Earlier this month, its website featured the company’s first ever ad with NBC offering $2 off to all buyers of a restaurant offer in exchange for watching a 30-second trailer of the network’s new TV show, America’s Next Great Restaurant.

LivingSocial has not disclosed financials. However, reports estimate that it earns more than $1 million a day and is expected to clock more than $500 million revenues in 2011. The company is estimated to be worth over $1 billion. Recently, Amazon invested $175 million in LivingSocial, adding to the company’s existing $49 million in funding.

LivingSocial Expands Its Market Reach
LivingSocial has traditionally focused on smaller businesses, including local florists, spas, and restaurants. However, earlier this month, it went more upscale and launched a $10,000 coupon for a one-day stay package at a penthouse suite at the Fairmont hotel. The package, which normally retails for $20,000, included a day’s stay in the suite and rental of a Maserati Quattroporte. It was LivingSocial’s most expensive deal thus far, by a large margin, and the company sold 115 coupons. Clearly, LivingSocial is “trying to reach a broader demographic.”

LivingSocial is also venturing into travel deals through LivingSocial Escapes. Earlier last year, it bought Urban Escapes, a group adventure site, for an undisclosed sum. Urban Escapes operated in Boston, Washington, DC, New York, and Philadelphia and targeted people interested in guided outdoor adventures ranging from snow tubing day trips to longer excursions in Mexico. In a recent interview, CEO Tim O’Shaugnessy said that LivingSocial Escapes is on a $100 million annual revenue run rate. That translates to a 20% revenue contribution for the company.

Within travel, the company also launched LivingSocial Adventures, which conducts group tours. Recently, in New York, it offered ‘Snowtubin’ and Tastin’, which gave deal buyers a round-trip bus ride to a snow tubing resort with exclusive access to a snow slope followed by a visit to a brewery. At present, Adventures is available in eight markets, and there are plans to extend to 24 markets by the end of the year.

LivingSocial’s Mobile Offerings
To expand its mobile offerings, the company is conducting a pilot program called Instant Deals for its iPhone- and Android-based smartphone app. The program uses the smartphone’s location-sensing capabilities to alert customers of smart deals running within a half-mile radius. Unlike the regular deals, these deals run for a shorter time and let merchants offer instantaneous deals to boost traffic. The pilot is being run in select neighborhoods in Washington, DC and will expand to other cities based on its success.

LivingSocial’s Global Expansion
Like Groupon, LivingSocial is focusing on international markets. It is present in 11 countries and is looking at acquisitions to grow that base. Recently, it acquired a majority stake in LetsBonus, a daily deal site with presence in 25 cities in Spain, Italy, Portugal, Argentina, and Mexico. Earlier last year, it acquired a controlling stake in Australia’s Jump On It for $5 million.

Groupon, with its $15 billion market value, is much larger and through their tie-ups is able to offer more deals per day in a city. But, Groupon’s deals are also getting weird as this 60% discount on colon cleaning proves. Meanwhile, LivingSocial is concentrating on not only adding more markets and merchants, but also on successfully diversifying offerings and demographics. The company is growing very quickly and is hiring 150 employees a month, mostly in sales. Surely, competition between the two will be interesting to watch in the near future. I particularly like the focus on travel, which could become a big business in the daily deal sector.