Value Added: Online, the art of the deal

Tim O'Shaughnessy, chief executive and co-founder of LivingSocial, started with other businesses before hitting on this idea.
Tim O'Shaughnessy, chief executive and co-founder of LivingSocial, started with other businesses before hitting on this idea. (Bill O'leary/the Washington Post)
  Enlarge Photo     Buy Photo
By Thomas Heath
Monday, May 31, 2010

I am not on Facebook. I have never bought anything on eBay. My Amazon account is retired and my LinkedIn activity lapsed long ago.

I regularly tweet on Twitter. So at best, my online social activity is at the low end of the scale.

But I am fascinated by the marketing opportunities the online world presents. Every business under the sun, including newspapers such as this one, is trying to figure out how to make money through the Internet.

It looks as if one Washington enterprise might have cracked the code.

LivingSocial is a start-up run by some online entrepreneurs, led by Georgetown University graduate Tim O'Shaughnessy, 28.

The company has a simple online model: It has a deal of the day, in which participants use a credit card to buy, for instance, $50 of goods or services from a local company for $25. LivingSocial customers punch in their credit-card information and receive a code (or coupon) redeemable at the restaurant, spa or retailer participating in the offer. LivingSocial keeps 30 to 50 percent of each transaction and passes the rest to the deal-of-the-day business.

The May 19 deal of the day was a $40 voucher for food at Georgetown's Il Canale that sold for $20. O'Shaughnessy said 1,373 people bought in. That means LivingSocial took in around $27,460. At a hypothetical 50-50 split with Il Canale, LivingSocial's cut was $13,730.

Not bad. Throw in the fact that the company is operating in 20 cities, with dozens more on the horizon, and LivingSocial looks like a nice business indeed. It expects to gross $50 million this year; its net profit should be around 10 to 15 percent of that. One big competitor is Groupon, a company with a similar concept.

LivingSocial raised $40 million from venture firms such as Vienna-based Grotech Ventures and from former AOL mogul Steve Case this year. O'Shaughnessy, the son-in-law of Washington Post Co. Chairman Donald E. Graham, invested some of his own cash during the fundraising to increase his stake in the business. The four founders still own a significant portion of LivingSocial, though it is less than half of the company.

O'Shaughnessy is a busy man these days. I caught up with him on the telephone after a long day of meetings in San Francisco, and before he jumped on a red-eye flight back to Washington.

Business is in his blood: His father runs a trucking firm in Minneapolis. O'Shaughnessy joined AOL after graduating from Georgetown's undergraduate business school in 2004. Two years later, he left the Internet giant to join Case's Revolution Health, an online site designed to help people take better care of themselves. O'Shaughnessy ran a 20-person products team in charge of the entire site, which offers a variety of things, from a calorie calculator to a listing of symptoms for diabetes.

Revolution Health paid the bills, but O'Shaughnessy and three buddies had been noodling for years over the business possibilities of online social networking. Specifically, they were trying to figure out how to use the social side of the Internet to get people to buy stuff. After a day at Revolution Health, they would head to the nearby Brickskeller Saloon on 22nd Street NW, where they would bounce around business ideas.

CONTINUED     1           >

© 2010 The Washington Post Company