Groupon gets all the press when it comes to group buying, primarily because it is the largest player — it has raised more than $165 million in financing and has sales that are approaching $500 million — but LivingSocial is a strong number two in that expanding space, and in some regional markets it is a larger player than Groupon. I had a chance recently to talk with Grotech Ventures partner Don Rainey about the company and where it is going, as well as his vision of the future of group buying — Grotech is an investor in LivingSocial, and Rainey is a member of the company’s board of directors.
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.
And what about location-based players such as Foursquare? Rainey sees them filling a different role for merchants. The kinds of rewards that can be distributed through Foursquare, he says, are primarily aimed at rewarding repeat customers: that is, the people who check in regularly and become “mayor” of a spot, etc. LivingSocial’s offers, however, are aimed at attracting new customers through discounts — in other words, a model focused on customer acquisition, rather than customer retention.
When it comes to the future of group buying, 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.
In terms of the competitive landscape, meanwhile, 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 (Groupon has similar partnerships with some media outlets).
If anything, in fact, the group buying market could continue to expand beyond Groupon and LivingSocial: in one glimpse of where it could be going, Wal-Mart recently announced that it is 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, Wal-Mart goes ahead with it. If anyone has national and international reach when it comes to shopping, it is Wal-Mart. The entry of other retailers 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 including U.S. Venture Partners, Grotech and Revolution Capital. The company raised a $25 million Series B round in March and a $5 million Series A-1 round in January.