LivingSocial had wrapped up its most lucrative month ever, and its four founders were sprawled around an Ikea conference table with their investors in a brick-walled office above the Hooters in Chinatown.
It was a bright July morning in 2009. The initial business was building widgets for Facebook, leveraging its customer base of hundreds of millions of users. The group downed Starbucks coffee and noshed on cookies while working through the agenda.
Building to deals the world over
Then chief executive Tim O’Shaughnessy, flanked by Tige Savage, a key investor on the company’s board, dropped a bomb: What if they abandoned it all to make a big bet on something called the vouchers business?
Mostly silence.
This bold turn would propel the company beyond building cool gizmos. The just-emerging daily-deals trade would mean hiring salespeople. Selling to merchants. Selling to customers. Retail.
“It was completely different from the apps business, which was our bread and butter,” co-founder Eddie Frederick said.“The daily deals didn’t really leverage our existing resources.”
They dedicated one developer and one salesperson to the project and launched the business that LivingSocial’s millions of subscribers use today. You know the drill: Once you sign up, you get an e-mail each day with an offer — say $30 worth of Indian food for $15. You buy the deal with a credit card. LivingSocial then gives you a voucher, which you use to settle up with the merchant once you’ve had your curry.
After two years and scads of deals, LivingSocial is preparing for an initial public stock offering that analysts say could raise $1 billion.
With coupons? Really?
Well, there’s more. LivingSocial and its larger rival Groupon have pioneered a new form of local advertising, one that exploits the massive scale of the Internet to drive customers into brick-and-mortar businesses.
In no time, the company has become the most aggressive private employer in the District — adding 600 jobs in less than two years. The churn has turned heads in Maryland and Virginia, where officials are hungry to create jobs.
LivingSocial’s reach has extended worldwide, with 40 million subscribers in 25 countries (to Groupon’s 43) from Asia to Western Europe to South America. Its global growth is fueled mostly by acquisitions. Last week, for instance, it snapped up a South Korean company with 2 million members and 600 employees.
When LivingSocial begins selling shares to the public, a process expected to be put in motion as early as this week, O’Shaughnessy, 29, and his team will become multimillionaires — on paper at least. Investors who put $100,000 into LivingSocial just a year ago could hold shares worth as much as $5 million, depending on how the company is valued.
It all snapped into place at the “Hooters meeting,” as it is known among LivingSocial insiders. The founders had been on a quest for a business with blockbuster potential. With the daily deals, they thought they had it.
Despite LivingSocial’s meteoric rise, skeptics are taking a wait-and-see approach to a valuation in the billions. After all, competitors crop up daily. Consumers might feel bombarded by e-mails. Merchants could soon resent the steep discounts.
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