LivingSocial expands deals beyond daily e-mails in effort to increase revenue


Tim O’Shaughnessy, chief executive of LivingSocial, at the company’s District headquarters, in 2010. (Andrew Harrer/Bloomberg)
September 15, 2013

LivingSocial wants to take the daily out of its deals.

The District-based company plans to announce changes this week aimed at converting LivingSocial from an e-mail service that delivers deals daily into a Web site and mobile app where people can browse through thousands of offers at local merchants at any time.

The latest incarnation for the company comes as it has struggled to replicate the success of its daily deals business. Discounts to spas, restaurants and retail outlets catapulted LivingSocial into a multinational corporation, but creating new revenue streams that help it stay there has proven to be a challenge.

This isn’t the company’s first foray into non-daily deals. LivingSocial tried out a real-time deal service in 2011 that allowed customers to see short-term deals, some as long as a couple hours, in their immediate vicinity. That was discontinued a year later.

Still, executives expect the move away from daily-only deals will fundamentally alter the way LivingSocial interacts with its two key constituents: subscribers and merchants.

The former will now have more deals to scour and potentially buy. Executives hope the volume of deals alone will equate to more sales, and thus, more revenue. But the change is more substantive than that, executives assert.

Before, LivingSocial was in the business of “generating demand,” meaning they put deals in front of subscribers that they weren’t seeking otherwise and goad them into making an impulse purchase. Few people wake up itching to go skydiving for example, but LivingSocial aimed to give you that desire each time you opened one of its e-mails.

The new format allows the company to capture people who already have a demand for a product or service — they plan to get a massage soon or go out to dinner this weekend, for example — but want to shop around for the most compelling or cost-effective option.

“What we hear from consumers is they want more great deals from us, and so a big part of what you’re seeing is greatly expanding the selection of inventory that we’re able to offer our users on a day-in, day-out basis,” said Jake Maas, senior vice president of product and operations.

The company’s travel deals, called Escapes, is among the first categories to be revamped. Last week, the site began serving up an expanded inventory of offers for both packaged getaways and hotel stays. Visitors can now peruse roughly 1,500 options compared with the 200 that were available before.

The shift puts LivingSocial in a line of business already crowded by the likes of Expedia, Kayak.com, Travelocity and Travelzoo. Those sites, among others, offer an even broader selection of vacation packages and travel deals.

Under the new strategy, merchants, meanwhile, will be able to advertise through LivingSocial on an ongoing basis rather than be stuck with one-time promotions. That gives businesses the option to attract new patrons slowly over time rather than responding to a glut of them all at once.

Executives expect the change could create new revenue streams for LivingSocial from merchants that were unwilling to participate in the older model or simply grew tired of it.

“If they came to us and said ‘Hey, send me 50 customers a month,’ we really didn’t have that as an option,” chief executive Tim O’Shaughnessy said in an interview. “Now we do.”

New tools

The changes coincide with LivingSocial’s move to offer merchants a slate of technology tools to help with customer service, marketing and management. It’s a line of business that LivingSocial began to test last year, but in which it has made little headway to date.

The free software offerings give merchants the ability to respond to feedback from customers who redeem deals, see metrics about how their offers perform and manage and monitor social media marketing campaigns.

“We want to increase the amount of value that we give to our merchants. We can make our business relationship worth even more to you,” O’Shaughnessy said. “Over time, there may be additional products and services that we add that are things merchants would pay us for.”

(O’Shaughnessy is the son-in-law of Washington Post Co. Chairman Donald E. Graham. Jeff Bezos, the founder of Amazon.com, which owns 29 percent of LivingSocial, recently announced plans to buy The Washington Post newspaper and affiliated publications.)

This week’s announcement is the latest pivot for a company that has tried many ideas since its initial success with daily deals business, only to see some of them fizzle out. Earlier this year, the company announced it would no longer orchestrate small-scale adventures and events, which they once deemed a promising source of growth.

“This is a culture that encourages people to be fearless, and I think that’s a really good thing,” said Doug Miller, senior vice president of new business initiatives. “We have to be bold. We have to be brave. And we have to stand behind the ideas that we’re working on.”

“It’s also a culture where we’re not afraid of being wrong a lot of the time,” he said.

A corporate evolution

But companies hope to get it right. LivingSocial is no longer a scrappy start-up, nor is it a corporate megalith with money to burn chasing new ideas.

It’s a company that has consumed nearly $1 billion in venture capital from investors who ultimately want to see a payout when and if the company is acquired or goes public. But either of those outcomes depends on the company once again demonstrating rapid growth, and for the first time, turning a profit.

O’Shaughnessy initially predicted the company would turn a profit by the second quarter of this year, but executives said that effort was thwarted by a cyber breach in April that required subscribers to change their passwords and resulted in the company losing customers and enduring a double-digit drop in revenue.

“We were never as high or as good as people would have written two or three years ago, and I don’t just mean us, I mean the industry,” Chief Financial Officer John Bax said. “And I also don’t think we’re anywhere near as low as what people would write or say today, and I also say that about the industry as a whole.”

“You know you have a good product when the merchant wants to run again, and the consumer proves it by buying again,” Bax said. “So the business model works.”

Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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