LivingSocial: We're set to overtake Groupon (Q&A)

Last week, word of a great offer began to make its way around the Internet. I first heard about the offer--a $20 Amazon gift card for $10--on an e-mail list. Then I saw it on The Huffington Post. Then it started showing up on Twitter. Every few seconds, it seemed, someone new would tweet about it. It was all over Facebook, and people were blogging about it left and right.

If you're fairly new to the group offer space, you probably would have thought that this great deal was coming from Groupon, the superstar start-up that has blown up seemingly overnight and already has turned down a $5 billion to $6 billion acquisition offer from Google. But you'd have been wrong. This deal came from another player in the space, LivingSocial. Lest you wonder how such a company could sell an unlimited number of the gift cards, it was because last month, the Washington, D.C.-based start-up had sealed a $175 million investment from Amazon that gave it a $1 billion valuation, and this was clearly the first tangible public benefit of that transaction.

LivingSocial says it could overtake Groupon in U.S. market share in the offer space this year, and whether or not that claim has any merit, this was probably the company's real public coming out party. Before the day was done, it had sold more than a million of the cards and made a real name for itself in the blogosphere and beyond. And more than a week later, its home page features a prominent banner directing people to a link where they can collect the Amazon card.

But is the company that much different than Groupon, or any of the others that are now flooding this fledgling industry? To find out about that and about how things really work in this fast-paced and explosive business, I invited CEO Tim O'Shaughnessy to sit down for a 45 Minutes on IM interview.

Q: Thanks very much for joining me for 45 Minutes on IM. I appreciate it.
Tim O'Shaughnessy: You're very welcome

To begin with, tell me how the Amazon gift card offer happened.
O'Shaughnessy: The Amazon gift card was really the first operational way that LivingSocial and Amazon worked together post Amazon's investment late last year. It really came together because we thought it was a unique value proposition that our existing users would love, new users would find interesting, and would be great brand building and retention for both LivingSocial and Amazon.

Talk about how things have changed for LivingSocial since the offer. I have to assume that it was the biggest event in the company's history.
O'Shaughnessy: It certainly was the biggest sales day ever. We think it might have actually been the largest single day sales of a product in the history of the Web. Maybe ever. And it's definitely been very impactful. In addition to the significant brand building, we've seen a very strong uptick in subsequent days' sales.

Wow. The largest single sales day in the history of the Web. How do you measure that, and what makes you think that might be the case?
O'Shaughnessy: I don't think anyone really keeps an official tally of that sort of thing, and it may not be. Although when our team put our heads together, we couldn't think of anything that had surpassed it--unless you count pre-orders prior to an item going on sale, a la the iPad. But that's not really in a day, per se.

Can you give me an idea of the scope of the sales of the Amazon card?
O'Shaughnessy: It ended up being around 1.2 million sold at $10 each. That's a total gift card value of around $24 million, and a total sales value of about $12 million.

Nice.
O'Shaughnessy: I agree.

I'd still like to get a little more at the idea of how the Amazon offer impacted the company. For one, it would seem to me that it brought LivingSocial to the attention of a lot of people who hadn't heard of the company before.
O'Shaughnessy: I think it absolutely brought us to new audiences that hadn't heard of us before. It was really tremendous exposure. The resulting impact was that I think people have realized we are on our way to really changing how people shop and behave. And also people are starting to realize how much market share we're really getting in this space in the U.S. To be able to pull off that large of a day really shows the power of the platform. And people take note. Hence our interview today.

With Groupon in the same industry, how would you say LivingSocial specifically is changing the way people shop and behave?
O'Shaughnessy: I think we're helping people buy from local merchants online, which they haven't traditionally done before, or where we actually operate events in conjunction with local merchants.

Is that substantially different from what Groupon and others in the space are doing?
O'Shaughnessy: Some components are similar (we just tend to think we do them better--hence our very fast growing market share), and some are very different. For example, I don't know of anyone else out there that actually operates and produces their own events in conjunction with merchants.

Why do you think it took so long for this market category to emerge, and why do you think it's growing so fast?
O'Shaughnessy: I think it's really a confluence of things. First, we reached a tipping point where user comfort with online purchasing reached truly critical mass; Second, social tools have allowed great deals or fun things to do to reach wide audiences faster; Third, previous methods of local advertising for merchants have decreased in effectiveness and audiences have gotten more and more diffused.

It seems it took almost an aha moment, though, for this space to even get started. It's one of those, Oh, I should have thought of it years ago kinds of things. Would you agree?
O'Shaughnessy: Well, I think the high-level concept has been around for years. The idea of aggregating people together for a discount isn't novel in and of itself. But all the things I mentioned have made it the right time to really take off.

Looking at the competition, what was your reaction when you heard that Groupon had rejected Google's 10-figure offer?
O'Shaughnessy: They should have made it 11-figures.

LOL
O'Shaughnessy: It's a big space. It's obviously a lot of money to turn down, but local commerce is a big opportunity.

Were you surprised that Groupon turned down the offer?
O'Shaughnessy: Well, one of my eyebrows raised, but definitely not both.

Can you talk about how the offers are conceived? Does LivingSocial work with retailers and marketers to come up with the specific ideas? I'd love to know the process.
O'Shaughnessy: We very much work with the retailers to come up with what will work best for their business. We have an entire team whose mission is to figure out what works best with the merchant. We also have worked with tens of thousands of merchants at this point, so we can really provide good guidance to the merchant on what will work best for them both financially and on the customer acquisition front.

You provide one offer per day in each market. I have to assume there are many more than one available for you to choose from each day. So how does LivingSocial choose which ones to offer?
O'Shaughnessy: Variety, plus what we think customers want to buy, plus creativity and keeping things fresh.

For retailers, how do you help them decide that an offer is going to be a net positive for them?
O'Shaughnessy: We first try and identify their goals (how many customers, particular nuances of their business they'd like to highlight) and then we help construct a package that we think will be creative and a great value for the consumer that fits within those constraints.

What gets you excited about being in this business?
O'Shaughnessy: The immediacy of it. The ability to make people happy every day. The types of products we get to deal with.

What do you think are the biggest challenges you face as a business going forward, especially given that you're competing with an 800-pound gorilla like Groupon?
O'Shaughnessy: We're a pretty big gorilla ourselves. We've been taking U.S. market share pretty much every month for quite some time now and are on track to pass them in the U.S. in 2011. So we're operating very, very effectively.

Note: Contacted about this, Groupon said it doesn't comment about its competition.

O'Shaughnessy: So we tend to focus right now on continuing to innovate and figure out how to provide great things to do in their city at great value for our users and not really worry what others are doing.

Tell me something about LivingSocial that will really surprise my readers?
O'Shaughnessy: We've added more than 6 million new members already this month.

How much do you attribute that to the Amazon card offer, i.e., how many of those were before the Amazon offer?
O'Shaughnessy: The majority were before the Amazon offer. We've been accelerating on a variety of fronts over the last few months, although obviously, Amazon was a step change for us.

We're out of time, which means one last question. It's my standard last question: I really like doing IM interviews for several reasons. One is that I get a perfect transcript, and also because IM allows my subjects to be a little more thoughtful and articulate than they might be on the phone or in person. But maybe most important, IM allows for multitasking. So...
O'Shaughnessy: LOL

What else were you doing during the interview?
O'Shaughnessy: I was actually looking at the American Film Institute's greatest movie quotes list and wondering if I could have, as an answer to each of your questions, used one of the quotes.

Very nice. Well, thanks so much for doing this. I appreciate it.
O'Shaughnessy: You're very welcome. And "Nobody puts baby in a corner." (Note: From "Dirty Dancing".)