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Summary:

Don Rainey of Grotech Ventures, one of the financial backers behind the number two group-buying player LivingSocial, says he sees a future in which consumers looking for a night out can bid on offers of discounts from local merchants in a real-time, stock exchange-style marketplace.

LivingSocial screenshot

Right now, Groupon-style group buying is more or less just coupons that get sent to you via email to entice you to sign up. What if you could look at a real-time, auction-style exchange of local offers from merchants or retailers or restaurants in your vicinity — maybe even on your mobile device — and pick the offer you wanted for dinner that evening? You can’t do that now, but that’s one vision of where the local group-buying phenomenon is headed in the future, according to Don Rainey, a partner with Grotech Ventures and an investor in LivingSocial, the number two player in the U.S. group-buying market next to Groupon.

Rainey said he sees a day when merchants and potential customers interact through a kind of real-time exchange — like a stock exchange, with buyers and sellers, but for local offers on meals or other goods. “I can see local retailers and consumers bidding in a real-time system for where that consumer is going to go for dinner,” says Rainey. If a merchant is having a slow night, they can put an offer into the system and users can choose between that and multiple other offers, based on location and the time they want to go out. As someone who is constantly looking for new options for places to eat in my local area, this sounds like a winner to me.

Groupon gets all the press when it comes to group buying, primarily because it’s the largest player in that market by far; it has raised more than $165 million in venture financing and has sales that are approaching $500 million. However, LivingSocial is a strong number two in that expanding space, and in some regional markets, it’s a larger player than Groupon, according to Rainey. Like its larger competitor, the company makes most of its money by taking a cut of the deals that are offered through its system

Echoing comments made by founder and CEO Tim O’Shaughnessy in a number of interviews, Rainey said that LivingSocial takes a somewhat different approach to the group-buying market than Groupon does. While the larger company is acquiring foreign competitors in Japan and Russia and trying to grow to national or international scale, LivingSocial is more focused on local markets, the VC says — it sees itself as partnering with local merchants, and helping them market themselves and understand how group offers work. “LivingSocial fields a local sales force in every city in which it does business,” he said, unlike Groupon, which often relies on phone support.

In terms of the competitive landscape, although Groupon is much larger than LivingSocial, it’s not clear that the market is a zero-sum game. LivingSocial and other competitors (some of whom Liz described in a recent piece on “Groupon Wannabees”) could carve out some local market share for themselves, particularly through partnerships like the one LivingSocial has with the Washington Post, where the newspaper uses its local reach to publicize the company’s latest deals to its readers. Rainey said newspapers in particular need help grasping the idea of “cost per action” deals such as group buying, because they are so used to thinking of display advertising as the only option (Groupon has similar partnerships with some media outlets).

If anything, in fact, the group buying market looks like it could continue to expand beyond Groupon and LivingSocial. In one glimpse of where it could be going, Walmart recently announced it’s experimenting with a form of group buying through a Facebook offering called CrowdSaver; if enough potential shoppers click the “like” button on a proposed discount, Walmart goes ahead with it. If anyone has national and international reach when it comes to shopping, it’s Walmart, and the entry of the giant retailer and its ilk could make the space even more competitive in the future, and put pressure on both Groupon and LivingSocial to continue innovating.

LivingSocial raised a Series C round of $14 million in April from new investor Lightspeed Venture Partners and a group of other financial backers that included U.S. Venture Partners, Grotech and Revolution Capital. The company also raised a $25 million Series B round in March and a $5 million Series A-1 round in January.

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  1. Groupon and LivingSocial are both very successful companies that are going to be around for a long time to come. They garner a lot of business and make a lot of money from consumers looking to save.

    A great site to use to find deals and sales in your area is http://www.dailydealpool.com. They’ll send you a daily email with the best buys, ensuring you don’t miss out on this new trend.

  2. Is Facebook Moving in on Groupon’s Turf?: Tech News « Friday, October 29, 2010

    [...] both Foursquare and Groupon, as well as other similar group-buying services such as LivingSocial, which I wrote about recently. While Groupon has been growing at a dramatic rate, thanks in part to the more than $160-million in [...]

  3. Groupon has created a feeding frenzy like sharks on chum. The market is already undergoing the beginning of a maturing market with market segmentation. Consumer segmentation with companies like http://www.couptessa.com that focuses on coupons for women. Urban segmentation with companies like http://www.scoutmob.com that focuses on just a few cities. Location segmentation like http://www.appcelerator.com/products/titaniumcommerce/ that focuses on coupons / deals based on location and proximity. (similar to what Rainey attempts to describe).

    Right now, the average time from start-up to profitability for a digital coupon company is 4 months! The technology is not that complicated and the barrier to entry is very low. So, the real stress test for companies like Groupon and Living Social comes when the market gets saturated with the “Groupon Wannabees”. And is there a tsunami building that will hurl the sharks ashore?

  4. How to Make Myspace Relevant (Again): Tech News « Monday, November 1, 2010

    [...] a marketplace for artist merchandise, and should consider adopting gimmicks such as Groupon-like daily deals and group purchasing. Easy-to-build storefronts from Payvment would make sense, and Myspace should be a leader in [...]

  5. Groupon and Living Social are taking the world by storm right now. One issue that stands out is the sustainability of their business models. Businesses are going out of business and customers can’t redeem their coupons.

    We’re developed the first sustainable local deal business model…

    bTreated is a premier members-only online service that coordinates limited-time sale events on luxury services from the world’s most prestigious spas. bTreated provides members exclusive last minute luxury deals and experiences in their city. Consumers willing to wait to book up to 48 hours in advance can score deals ranging from 30-80% off on services such as massages, manicures, haircuts, and more.
    !

  6. Groupon Seeks More Cash so it Can Scale: Tech News « Monday, November 8, 2010

    [...] as others try to replicate the company’s success. In addition to LivingSocial, which is the number two player in some major U.S. markets and has also been expanding aggressively, Groupon got a new — and [...]

  7. Google Wants Groupon Because Social Ads Are the Future: Tech News « Tuesday, November 30, 2010

    [...] LivingSocial — talked about a future in which consumers and local businesses could participate in a kind of real-time auction-style marketplace for deals on products and services, so people looking for deals on dinner tonight could survey the [...]

  8. 8coupons does essentially what Mr Rainey is explaining
    http://www.8coupons.com

  9. Totally agree with felow commentators about Groupon and LivingSocial’s success and how they have revolutionized local business advertising.

    While the business objective with group buying and daily deal sites is primarily “lead generation” for local businesses as what they offer are loss leaders and they cannot run those offers regularly, there are services now emerging to help businesses with real-time offer and inventory management. One of such services is Matchpin (www.matchpin.com) that enables local businesses to run offers on their terms, when they want and what they want. Matchpin through its location-based mobile app (www.tinyurl.com/matchpin) distribute offers to consumers in real time that users can go redeem directly at the store – no prepayment, no preplanning.

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