When was livingsocial created

The company continues to quietly work on rebuilding its business and points to underlying signs that there is a market for its brand and its role in offering customers more offers from merchants local to them. The company says it added 1. However, trends are not going in the right direction right now. Let's take two types of businesses that are superficially similar: A boutique hotel and an upscale restaurant.

Both are part of the hospitality industry and may appeal to heavily overlapping sets of consumers; however, they differ vastly in terms of incremental profitability. Consider the marginal cost associated with one additional booked room at the hotel; it's close to zero. Essentially, you just need housekeeping to clean the room — an hour of work, tops, at little more than minimum wage. Now consider the case of the upscale restaurant. As such, the restaurant can only justify the transaction as a form of advertising that is expected to generate recurring revenue beyond the initial deal.

Survivors of another meltdown That's a textbook discussion. In the real world, when it comes to some of the businesses that generate the highest marginal profit on every additional unit sold including hotel rooms or airline seats , the marketplace is already pretty efficient. Also, the opportunity is well covered by companies that survived the collapse of the first Internet bubble in , including priceline. Priceline, which arguably came up with the most disruptive model with its "name your price" offer, earns very high margins and terrific returns on capital.

It doesn't position itself as an advertiser because the hotel rooms and airplane seats it fills are profitable for the hotels and airlines it does business with. Outside of the sectors that share this property, group couponing can only be analyzed as a form of advertising, rather than distribution. Unfortunately, the evidence that consumers who participate in a deal are willing to return to a merchant and pay full retail prices is underwhelming. Big wow, half-price Here again, a basic economic concept helps to explain that figure.

Demand for a good or service is said to be elastic when the change in price has a relatively large effect on demand, and inelastic when the change has a small effect. Logically, demand for discretionary items tends to be elastic, while demand for necessities, such as consumer staples or health care, is inelastic.

Indeed, deal sites like to entice their users with offers on unusual leisure products, services or experiences, as there is no "wow factor" in staple goods for example, LivingSocial advertised a deal that combined a horseback ride with a wine tasting. Put huge discounts together with high elasticity and presto!

Unfortunately for the merchant, when it comes to repeat purchases, the converse mechanism takes over. Compared to the terms of the discounted deal they snapped up initially, full retail price represents a doubling of the price on a product or service that the consumer can do without.

Under that framework, it's easy to see why the rate of repeat patrons might be abysmal. The initial discount is so substantial that it creates massive demand for goods and services for which consumers would never dream of paying full retail prices. Faced once more with ordinary prices, one would expect shoppers to revert to their behavior prior to taking advantage of the deal -- in short, they abstain from buying.

The fundamental flaw That reversal is really at the crux of the contradiction in the deal site model: Demand generation occurs due to the huge discounts. When the discount disappears, the demand evaporates with it. For most merchants, the only thing that justifies doing a deal in the first place is the promise of repeat demand at full retail price, which is a mirage.

The executive managements of GroupingSocial missed that contradiction because in choosing to focus on delighting users, at the expense of satisfying merchants, they misunderstood who their customers are.

The deal site gets paid out of the merchant's pocket, with the user paying nothing to access these deals. In other words, the deal site's true customer is the merchant, not the user. Remember the adage that if the service is free, you're not the customer, you're the product the same applies to Facebook -- if you're on it, you're their product. Groupon's initial public offering prospectus provides plenty of evidence of this misunderstanding:. Our investments in subscriber growth are driven by the cost to acquire a subscriber relative to the profits we expect to generate from that subscriber over time We spend a lot of money acquiring new subscribers because we can measure the return and believe in the long-term value of the marketplace we're creating.

The irony here is that Groupon appeared to be completely oblivious to the fact that its merchant customers would think about customer acquisition via Groupon in the very same way, i. Our strategy Grow the number of merchants we feature: Our merchant retention efforts are focused on providing merchants with a positive experience by offering targeted placement of their deals to our subscriber base, high quality customer service and tools to manage deals more effectively.

When it comes to the merchant, there is no mention of profitability or ROI, as if a "positive experience" could replace cash in the till. Furthermore, Groupon confused growth with value creation:.

Our metrics We believe revenue is an important indicator for our business because it is a reflection of the value of our service to our merchants First, we track revenue -- our gross billings less the amounts we pay our merchants -- because we believe it is the best proxy for the value we're creating. That's plainly false.

For an early stage business with an unproven business model, revenue is no indication of whether or not of the business is creating value. GroupingSocial had long waiting lists of merchants who were willing to experiment with this new model for customer acquisition.

If you're looking for evidence of value creation, a much better metric -- which neither Groupon nor LivingSocial make public -- is the rate of repeat business from merchants.

Going "all in" on growth Nevertheless, GroupingSocial made a strategic choice to focus on growth through user acquisition. They did this for two reasons, in my opinion. First, it was easier for the young entrepreneurs at the helm of these businesses to identify with their users, who are typically young, digitally active, and ready to pounce on a good value -- particularly when it comes to treating oneself or experiencing something new.

Second, creating user interest and mobilizing demand online was something both organizations knew how to do and the founders found the process tremendously exciting -- much more so than trying to pin down the formula that would produce a "win-win-win" for all three parties to a deal.

Snapchat , the messaging company, and Dropbox, the online storage business, were recently marked down in value by mutual fund investors. Silicon Valley venture capitalists such as Bill Gurley of Benchmark and Michael Moritz of Sequoia Capital have warned that a unicorn shakeout is coming. Venky Ganesan is a venture capitalist in Menlo Ventures, which has invested in the ride-hailing company Uber and other unicorns.

The first iteration of LivingSocial, called Hungry Machine , produced apps that hooked into Facebook , including polling apps and a way to share favourite books with friends. Over time, Hungry Machine became a company that sent daily emails with deals from businesses.

About a year after getting into the business, the company said it had 10 million subscribers in the US and Europe. A few months later, it said it had more than doubled that. It pushed into Asia later that year. Over the next several years, LivingSocial acquired consumers as fast as possible in an effort to build an unbreakable lead in daily deals.

To increase expansion, LivingSocial scooped up startups in Spain, New Zealand and other markets that it knew little about. The company introduced deals in new categories such as travel and food delivery. There were hiring sprees. But even as it spent big, the underlying business was not sound. Groupon, which was also unprofitable, went public in November and promptly faced investor scepticism about its sustainability.

The suspicions were contagious, infecting LivingSocial and halting its chances of going public. No one paid much attention to how the company would ultimately make money. Only one of the four co-founders, Aleksenko, remains in a daily operating position.

LivingSocial is now run by a new chief, Gautam Thakar, who joined in August after nearly a decade at eBay. A pilot programme, Restaurants Plus, gives customers cash-back discounts on their credit cards — no printed coupons required — when they dine at certain restaurants.

LivingSocial takes a cut. What can we do to help this woman have a good weekend? Savage, the board member, put it more bluntly. There is other evidence that the daily deals fad is passing. Amazon recently shut its daily deals business.

And Rich Williams, the new chief of Groupon, said it was a myth that Groupon was an email daily deals company. Internally at LivingSocial, employees have been sceptical about the strategy shift, according to three employees who left this year. Retention is an issue, especially as LivingSocial competes with new unicorns for engineers.