Category: Gigaom

Being a kid can be a lot of fun, but eventually you have to grow up. It happens to all of us, and technology startups are no exception. Until recently, Twitter seemed more like a cool experiment thrown together by a few guys as a side project than an actual company — probably because that’s exactly what it was. But when you have 175 million users and over $150 million in venture financing, you have to start getting serious, and for better or worse that’s exactly what Twitter has been doing. The latest signs of that maturation are the departure of Evan Williams as CEO and the company’s renewed interest in cracking down on things like who can use the word “tweet” and when.

The first of these steps is explored in detail in a New York Times piece published this past weekend, in which Williams is described as a visionary when it comes to product design, but more or less an abject failure when it comes to managing people, and the kinds of difficult financial and structural decisions required of a CEO. Williams himself admits this, saying: “I’ve screwed up in many, many, many ways in terms of managing people and product decisions and business.”

It’s a tribute to the Twitter co-founder’s own maturity level that he came to realize this and stepped aside in favor of former chief operating officer Dick Costolo, an experienced startup executive with what most people seem to agree are the necessary chops for such a task. Some of the Williams’ maturity may have come as a result of some painful experiences along the way — including some bad blood related to his previous startup, Blogger (which was bought by Google), and the forcing out of Jack Dorsey, one of Twitter’s co-founders and the original CEO of the company.

Some of what Twitter has been doing as it matures is structural: expanding its headcount dramatically, fixing its stability issues, redesigning the website, launching of official apps for the iPhone and Android, etc. But much of what Costolo has done is also aimed at making Twitter a “real” business — not just a cool service that doesn’t know what it wants to be when it grows up, but a business with revenue (via things like Promoted Tweets) and rules. And flexing its muscles as a business and enforcing those rules has caused some tension with what developers call the Twitter “ecosystem.”

The first eruption of this came earlier this year, after Twitter acquired the Tweetie app for the iPhone and investor Fred Wilson talked about the need to “fill the holes” in the company’s feature set. Many developers took that as an attack on them, and some clearly felt betrayed, since many of these third-party apps had helped promote and build Twitter into what it was. This weekend saw a small flashback to that tension, when Twitter’s rules around the use of the word “tweet” and other trademarks got some attention in the blogosphere.

In a nutshell, the company says it wants companies to avoid the use of the word “tweet” in their name if their app or service does things other than access Twitter — a clear shot across the bow of services like Tweetdeck. Although there was a lot of grumbling about these directives, it seems like a natural move for Twitter to make. Investor Chris Sacca noted in a Twitter exchange with Hunch co-founder and angel investor Chris Dixon that Facebook has done the same thing with respect to apps and services that use terms like “face” and “book” and “wall.”

More than anything else, the response from the blogosphere and from Twitter developers sounds a little like friends criticizing their former childhood pal because he has started wearing a suit and has gone “all corporate,” and is therefore no fun any more. Twitter isn’t out of adolescence just yet: even Williams describes the company as “a 6-foot-tall sixth grader” with a “lack of maturity, despite size and the perception of outsiders.” But there is no question it is becoming more of a business, as it should. Twitter’s challenge now is to maintain some of that spirit of fun — and the support of its ecosystem — as it grows into adulthood.

When it comes to the group-buying market, Groupon is clearly the 800-pound gorilla, with 20 million subscribers, over $160-million in venture financing and a market value of more than $1 billion. So how do you compete with that kind of presence? If you’re Tippr, you don’t — you arm websites and publishers with the weapons to do that themselves. The Seattle-based startup today launched a white-label group-buying platform that does exactly that: gives companies an alternative to signing up with Groupon, by providing them with both the software and support to run their own group-buying campaigns.

Tippr founder Martin Tobias — who is also a venture partner at Ignition Partners in Seattle, and founded a streaming-media company called Loudeye in 1999 — says the company began as a spinoff from another company he started called Kashless.com, which offered local businesses a local classified-advertising solution (that business is in 130 cities and has 700,000 users, he says). When Tobias talked to his clients about an advertising offering, some mentioned that they were looking at offering deals through Groupon and LivingSocial. “They said it was just like advertising, except they didn’t have to put any money up front and it got people to walk in the door,” Tobias recalls.

So Tobias set up Tippr.com, but says the idea behind the site was always to use it as a proof-of-concept for the company’s eventual white-label offering, which has been in beta testing with several large publishers for the past few months. “We thought of Tippr as a kind of owned-and-operated version of our service, as a way to show clients our ability to provide a white-label group offering,” he says. Despite the fact that the company wasn’t really focusing on the site itself, Tobias says that Tippr.com is the number three group-buying service in many major markets, behind Groupon and LivingSocial (it is in 13 markets in total, and the site gets about 700,000 unique visitors a month).

Tippr’s pitch to publishers is that deals with Groupon and its traditional competitors, which a number of newspapers have signed recently — including a deal with McClatchy, publisher of the Miami Herald and other papers — effectively sign over control of the relationship between a reader and an advertiser to Groupon, and cut the publisher out (although they get a share of the revenue). Tobias says that in talking with potential clients for the white-label version of Tippr, many companies said they didn’t want to do this. “When that McClatchy deal was announced, my phones started ringing off the hook,” he says. “I’ve talked to a number of publishers who see Groupon and LivingSocial as fundamentally being in competition for marketing dollars that they feel they should be getting.”

The white-label solution, the Tippr founder says, gives publishers and other sites full control over the relationship with both advertisers and customers, and anything that happens remains within their brand. “We even do customer service as well,” says Tobias, “so that when a user calls they think they are dealing with the publisher, but it’s our people helping them print a coupon or whatever.” One media company in Baton Rouge, he says, heard that LivingSocial was coming to town and decided to do its own promotion using Tippr, “and their weekly deals outsell LivingSocial’s by a factor of 10 to 15 times, every time,” according to Tobias.

While some publishers like McClatchy might see partnering with Groupon or LivingSocial as a shortcut to riches in the group-buying game, others may see things differently, and resent giving someone else control over the advertising relationship. Tippr’s white-label offering seems like a reasonable compromise — and as big as Groupon gets, there are likely to always be companies that prefer the other option.

It may not be quite as big a deal as the presidential elections in 2008, when Barack Obama’s campaign team used social media and social networks to mobilize supporters and win the White House, but the mid-term state elections happening tomorrow have some of their own social tools — including a special Foursquare badge, a Facebook “get out the vote” pitch from the President, and a geo-location app for tracking polls. There’s also a cool Twitter visualization from the brainy nerds at the New York Times and an analysis of whether the number of Twitter followers can predict who wins the election.

Foursquare Maps: As we’ve noted before, the location-based service has been gradually extending its virtual game-world of badges and achievemenets into the real world, and the special election badge it has created is another example. But it’s not just a badge — Foursquare is planning to track activity and display it in real time on a map, and says it sees the mid-term elections as a kind of training ground for the national elections in 2012.

Vote with a check-in: GeoPollster is another election visualization app based on Foursquare: you select which political party you currently support, and then each time you “check in” at a Foursquare venue, GeoPollster counts your check-in as a vote for that party. The site then tracks votes across the various states based on activity. Obviously this isn’t likely to correlate with actual voting patterns, but it does produce funny headlines like “Democrats seize control of LL Bean outlet in Pittsburgh.”

Challenge your friends! Organizing for America has a Facebook app called The Commit to Vote Challenge that is aimed at getting people to publicly display their intention to vote, and to challenge their friends and acquaintances to vote as well. According to the site, the average use who commits via the app has passed along the message to 10 friends, and nearly a third of those who have committed to vote and provided a reason are first-time voters.

Twitter bubble view: The programmers at the New York Times have done some fascinating things with data visualization and elections in the past, and this time around they have come up with a real-time view of Twitter activity that looks at tweets that come from, are directed to and are about each of the candidates. Bubbles grow and shrink depending on the volume of activity. What does it mean? We’re not sure, but it’s fun to watch.

Do followers = voters? Dan Zarrella, a social-marketing researcher, looked at the official Twitter accounts for 30 senate, governor and house of representatives candidates, and then correlated the number of followers with the performance of those specific candidates in early polls. In more than 70 percent of cases, the candidate with the most followers was also ahead in the polls. Of course, this suffers from the “correlation vs. causation” problem — did the leaders get more followers because they were leading, or were they leading because they had more followers? Klout has a similar ranking of candidates based on their Twitter influence score.

Not to be left out of the action, Google has a mobile app/website that will show you where your polling station is and keep you up to date on any news related to your area. And we wrote recently about a candidate for the Senate whose programmer son came up with an election game that uses Facebook Places check-ins as way of encouraging people to get out and vote. Fred Trotter said that he hoped using social networks would help the U.S. move away from a brand of politics based on heavily financed interest groups and polarized viewpoints on the major issues.

We’re not sure whether that will actually happen or not, but it looks as though the “gamification” of elections is increasing, for better or worse — so go out and get your badge.Rob Boudon

Facebook is testing the addition of Groupon-style discount offers to its Facebook Places location feature, according to a report from All Facebook, which based its conclusions on an email that a company said it received from the social network approving such a deal. Under the terms as described by this anonymous source, the retailer would offer a free product to a user if three of their friends checked in — or were tagged — at a specific location via Facebook Places. If true, such offers would bring the social network into direct competition with Groupon and other group-discount services.

Although there have been some questions raised about the authenticity of the email (based in part on the use of the term “Facebook followers” instead of the term “fans”), the idea that Facebook would tie discounts to its Places feature makes a lot of sense. As the social network tries to come up with more offerings for advertisers and merchants that leverage its 500-million-strong userbase, combining its new location-based feature with a pitch to retailers seems like a natural. Some businesses have experimented with offers for users who check in via Foursquare, but so far the location-based discount is a potential marketing feature that remains relatively untapped.

If Facebook was to bring the weight of its vast userbase to bear on that market, it would definitely have an impact on 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 venture financing it has received from a number of prominent VC funds — including Russian holding company Mail.ru (formerly known as Digital Sky Technologies) — there have also been increasing signs of competition in the space, including the launch of a similar group-discount feature from Walmart (s WMT) called CrowdSaver, which is offered through Facebook.

Groupon, meanwhile, is continuing to expand its reach: it has reportedly signed an agreement with Yahoo (s yhoo) to do a global distribution deal, and has signed similar agreements with eBay (s ebay) and Ning. There have also been rumors that Yahoo is interested in acquiring the company for as much as $2 billion

It’s an irony that is keenly felt by virtually every media entity, whether it is a tiny web-native outlet or a giant traditional publisher: the Internet, one of the most easily — and frequently — measured media in the history of humanity, is also one of the most difficult when it comes to getting a straight answer about who is consuming your content and when. That conundrum is at the center of a new report from the recently launched Tow Center for Digital Journalism at Columbia University, entitled “Confusion Online: Faulty Metrics and the Future of Digital Journalism.”

The report notes that even among the leaders in web measurement such as comScore and Nielsen, there can be widespread disagreement about how many visitors a site gets, how long they spend there, and plenty of other important metrics that might help media websites do their jobs better. In May, for example, comScore said that the Washington Post’s website had 17 million unique visitors, while Nielsen said it had less than 10 million — a difference of more than 40 percent. Estimates from the two companies of Yahoo’s traffic differed by 34 million, or approximately the population of Canada.

Although the report doesn’t go into the details, these gaps stem from differences in the way that each measurement firm pulls in the data it uses. Some companies (such as comScore) have software that users download and install, while others use information that comes directly from Internet providers. Some actually still sample web users by calling them on the telephone and asking them what sites they visit regularly. And all of the numbers being used that come from the servers themselves are polluted to some extent by the effect of “click-bots” and other scams that can inflate traffic counts, in some cases by huge percentages.

[inline-pro-content] And it’s not just comScore and Nielsen — there’s also Omniture, which many larger media companies use, as well as Google Analytics and other services that measure traffic directly from a site’s servers, and services like Hitwise and Compete that take data from ISPs and other sources. And then there are newer analytics tools that can give publishers an almost real-time look at the activity on their site, such as Chartbeat. While some news sites are excited by the potential of all this data, others say there is so much conflicting information that it is actually making their jobs harder rather than easier — particularly when it comes time to talk to advertisers.

Tom Heslin, senior vice president and executive editor of the Providence Journal, calls this the “irony of expectations”: neither publishers nor advertisers have been able to keep up with the flood of data. “Our biggest challenge is to simplify solutions for our clients, even for national advertisers,” he explains. “The development of metrics has far outstripped knowledge of ad buyers and sellers.”

As this comment makes clear, the biggest issue with metrics isn’t that newspapers or websites can’t figure out what their readers want to read — although that is part of the problem. The big issue, in financial terms at least, is that most publishers rely on advertising for the bulk of their revenue, and there is no simple standard for showing traffic or readership online the way there is in the dead-tree world, where NADBank and other measurements are accepted (although they also have their flaws). That leaves media outlets in a quandary, says the Tow report.

Uncertainty about audience measurement hinders online ad spending, with buyers and sellers of media favoring incompatible metrics [and] increasingly, the decisive information resides not with the publisher but in the databases of intermediaries such as ad networks or profile brokers.

So what is the future of online measurement? The report doesn’t come out and say this, but it probably looks a lot like the present — multiple competing measurement sources, each of them flawed in a slightly different way, so that most publishers have to throw as many different numbers as they can into a hat and then average them all out and hope for the best. The report’s authors say there is a chance that Nielsen and comScore might merge and become the dominant player and the de facto standard, or that publishers and advertisers will settle on Google Analytics as the main arbiter of numbers, but both of those seem relatively far-fetched.

In all likelihood, digital media will have to continue muddling along as best it can, for better or worse — tormented by the fact that in a medium where measurement is so easy, measurement by itself can mean very little.

If you’re a student, you probably find it a pain to have to sign off Facebook — or even just close your browser window — because you have to go and study for an exam. What if you could study for your MBA without even leaving Facebook? That’s the tempting offer from an outfit called the London School of Business and Finance, a private degree-granting institution in England that has launched a free-to-study MBA program as a Facebook application. You have to pay to take the exam at the end in order to get the actual degree, but the studying itself is free of charge.

The school’s introductory video (which is embedded below) notes that most traditional MBA programs cost tens of thousands of dollars just to enroll, but the LSBF says its Facebook app offers the chance to try out the content of its program without having to pay anything. The application features video lectures, interactive case studies — including videos of a “panel of business experts” doing an analysis of the suggested courses of action from the case study — and an online discussion forum where students can debate the various topics discussed. The app also has a “briefcase” section where users can store notes and videos.

Before you get your hopes up about doing a quick MBA in between playing Facebook games, however, we should note that the LSBF program is effectively a teaser for the school’s existing online MBA program and other traditional degree courses (which are accredited through a partnership between the school and the University of Wales). In order to complete the MBA and get certified, students have to sign up for one of the school’s regular online courses (which require a Bachelor of Science or BA, or five years of work experience), and pay the regular fees — which can cost as much as $20,000 for a full MBA — or pay to take an exam related to a specific course.

In a sense, all the London school is really doing is taking the idea of “distance learning” or e-learning — in effect, digital correspondence courses — and moving it online and into the world of Facebook and social networking, which raises some interesting possibilities. What about other courses as Facebook apps? We probably wouldn’t want doctors to get certified via a Facebook app, but there are plenty of other disciplines that could probably make the leap quite easily, such as legal or accounting-related degrees. Maybe someone will come up with a game that uses FarmVille or Mafia Wars-style rewards to convince students to study. Let’s just hope no one adds features like “poke your professor.”

Search-related keyword advertising is a multibillion-dollar industry for a reason — namely, it works extremely well when it comes to converting shoppers who are searching for information into shoppers who want to buy something. But it doesn’t work for everything, and it’s worth being reminded of that sometimes. Dropbox CEO and founder Drew Houston provided another example of that in a presentation at the recent Stanford Accel Symposium, where he talked about how the cloud-based storage company grew to where it is now, with more than 4 million users. Among other things, he described how search ads didn’t really work for the company when it was starting out.

The way Houston described it, Dropbox did lots of things that it thought young startups should do to get attention — including hiring a PR firm and buying search ads for Google keywords. But none of those worked particularly well: in particular, he said, search ads were a complete bust, because the company was paying hundreds and hundreds of dollars on advertising just to get a single new user — far more than it would ever likely make from that user.

So why didn’t Dropbox get much traction from search ads? Houston says it’s because people didn’t really know what they needed, or weren’t aware of how Dropbox could solve problems for them in their lives, so didn’t really respond as well to the keyword ads. Houston said something very similar about the growth of Dropbox at a startup conference Liz attended earlier this year — saying the company got far more mileage from word-of-mouth and

This goes right to the heart of something we have talked about a lot, which is the threat that Google faces from social media in general, and Facebook in particular. Google does well with search advertising because that involves people who have already made up their mind to buy something, and they are looking for where they can go to do so — but it doesn’t do as well with people who are just looking to talk or network with others around issues. To the extent that your potential customer base is closer to the networking end of the spectrum — as Dropbox’s were, because they likely weren’t even aware that the product could fill a need in their lives — social media is likely going to be more effective, because it is about word of mouth recommendations.

Where do you get word-of-mouth recommendations and related discussion about various issues from Google? The short answer is that you don’t. Maybe you get some of that from Buzz, but as a mainstream product Buzz is (no offence, Google) pretty much a bust. That’s not to say Google itself isn’t useful, of course, or that keyword ads are worthless — it’s a multibillion-dollar market for a reason. Even in Dropbox’s case, once users heard about how great it was from a social network, they would probably (as I did) go and search for the company and look for reviews, information about other related products, etc. before deciding whether to try it out or pay for it.

But Houston’s observations are just another example of why, as Om argued in a GigaOM Pro report last year (subscription required) Google needs to be afraid of social and what it implies. It’s why the company is focusing on adding what CEO Eric Schmidt called a “social layer” to its products and services — although being truly social, as I noted in a post, is not the same as simply adding a widget to your existing features, which is why Facebook has a leg up in that department. As ** noted in a blog post, Google is good at appealing to those who want to get information and move on, but not so good at appealing to those who want to engage with others around a shared goal or topic of interest.

Can a faded brand redesign its way back to popularity? That question seems to be coming up a lot lately, whether it’s Digg doing a relaunch or Yahoo redesigning its email. Now it’s Myspace’s turn — the social network owned by Rupert Murdoch’s News Corp. is rolling out a relaunch starting today, which it says is focusing on Generation Y and the music/entertainment scene. The big question is: will anyone care? Or, more broadly, will the redesign have any appreciable impact on Myspace’s also-ran status in the social-networking space? It may still have millions of registered users, but it has clearly lost a ton of momentum, and when you are a social network, momentum is everything.

Michael Jones, president of Myspace (which has given up the capital S in its name as part of the redesign), told the New York Times that the service “got very broad and lost focus of what its members were using it for.” But is that really what happened? More than anything, Myspace simply lost the hold that it had on users as Facebook grew, and the latter has gradually sucked virtually all the oxygen out of the room as far as social networking is concerned. Jones — who is the latest in a virtual revolving door of Myspace chief executives — told Bloomberg that the redesign is “a full rethink,” and that the new site is “an entirely different product.” But it clearly is not. The changes are a coat of paint and some new plumbing, but the house remains the same.

A recent chart of Myspace traffic from Quantcast shows an almost unbroken toboggan hill downwards from about 80 million monthly unique visitors in 2007 to a little over 40 million (Compete.com shows Myspace with about 60 million). The only other major service to see that kind of decline is probably AOL, which has spent the past decade hemorrhaging users of its Internet access service. Facebook’s chart goes in the exact opposite direction — up from the 45 million range in 2007 to almost 150 million today.

Myspace clearly still has an audience, just as Yahoo and Digg both do. The social network says that it has 100 million registered users, and that the number of Generation Y users grew by more than 20 percent this year — but Facebook crossed the 500-million mark earlier this year and has been adding several million more every month. And growth (or lack of it) is the crucial question for advertisers: RBC Capital Markets analyst David Banko told Bloomberg that Myspace lost about $350 million last year. News Corp. paid $580 million for the site in 2005, in what some said was a brilliant foray into social networking.

The problem for Myspace and Yahoo and Digg — not to mention dozens of other faded superstars of the web — is that once you are on that downward slide in terms of users and traffic, it is virtually impossible to recover. That’s just not how the network effect works. Myspace’s redesign might appeal to many of its existing users, and possibly encourage some to use it more, but will it bring in new users, or enough of them to make a difference? Unlikely. The same goes for Yahoo’s new email service, and the rolled-back relaunch of Digg. Those services can continue to try and maximize the revenue they get from their existing (or declining) user base, but growth is probably a thing of the past.

Sean Adams, who runs a UK music blog called Drown in Sound, had some suggestions about what the social network should do to really become a music and entertainment powerhouse, including

1. Commissioning exclusive content, maybe even trying to be the angel funder for music (a la the Starbucks label), so that artists don’t have to put their hand out for fan-funding, and in exchange they, like a record label, have exclusive content that if they get the right A&R could be really relevant and also vital to the music eco-system. MySpace shifting the Zeitgeist, like it did for a few weeks with Test-icicles, way back when, again, would blow people’s minds.

2. Paying people whose tastes people give a shit about to “DJ”/compile content. Even if it’s doing ATP style curation, taking-overs of the site and letting Paramore run the site one week, and Phoenix the next day. Give them a budget to stream one of their favourite films or documentaries for a day.

3. Be rumoured to be buying Spotify, and then maybe whilst no-one is looking merge with Last.fm and Bandcamp, and create something simple and universal that music fans want and tools that artists need, rather than sitting on all that data for “fans” that artists can no longer access, whilst doing the same thing with a different, more data-locked face on it.

There have been 117 different Myspace logos created for the service.

From the tour that Myspace has provided on its site (yes, I still have an account) and the screenshots it has sent to the media, the redesign makes profile pages somewhat cleaner looking — in other words, they have mostly lost that late-1990s look they used to have. But they are still quite cluttered, and it is still difficult to find things amidst all the widgets and plugins and assorted doo-dads. More than anything, the new design looks very Facebook-like, which probably isn’t surprising. And the new logo with the empty bracket is a little odd-looking, although I assume it is supposed to mean that you can fill in the blank with whatever you want Myspace to be.

Khoi Vinh, former design director for the New York Times, has written a blog post giving his thoughts on magazine apps for the iPad (something he clearly gets asked about a lot). The bottom line? He hates them. With a passion. Why? Because, Vinh says, they are “bloated [and] user-unfriendly” and because they are a result of a “tired pattern of mass-media brands trying vainly to establish beachheads on new platforms, without really understanding the platforms at all.”

The New Yorker’s new app comes in for particular derision from the designer, who says it took too long to download, cost him money even though he already subscribes to the print edition, and was a walled garden without any connection to the web — a point I made in a recent post about the new Esquire magazine app. As Vinh describes it: “I couldn’t email, blog, tweet or quote from the app, to say nothing of linking away to other sources — for magazine apps like these, the world outside is just a rumor to be denied.”

It’s unfortunate that Vinh doesn’t say much about news apps like the one his former employer has for the iPad. The designer says that news-based apps “are really a beast of a different sort, and with their own unique challenges. There is a real use case for news apps (regardless of whether not not any players are executing well in this space).” Magazines, however, are in danger of losing the battle for readers in a digital age by making their apps so closed and monolithic, Vinh argues.

Even with an Apple-operated newsstand, I’m just not sure I believe these people will turn to publishers’ apps to occupy their tablet time. It’s certainly possible that a small number of these apps will succeed, but if publishers continue to pursue the print-centric strategies they’re focused on today, I’m willing to bet that most of them will fail.

strong advertiser interest “may be more a sign of a bubble than the creation of a real market for publishers’ apps. According to Advertising Age, the initial enthusiasm for many of these apps has dwindled down to as little as one percent of print circulation in the cases of some magazines.”

Too many publishers, the designer says, are looking at media consumption in the old-fashioned way (something Om described in a recent post), rather than taking advantage of the more social forms of media available online. This makes virtually no sense at all on a digital tablet that is connected to the web, he says.

In a media world that looks increasingly like the busy downtown heart of a city — with innumerable activities, events and alternative sources of distraction around you — these apps demand that you confine yourself to a remote, suburban cul-de-sac.

Vinh doesn’t just blame publishers though — he blames Adobe as well (which recently took over production of all of Conde Nast’s magazine apps) for “doing a tremendous disservice to the publishing industry by encouraging these ineptly literal translations of print publications into iPad apps.” And who comes in for praise? It’s a short list, including one of the few apps to take a creative tack on the iPad magazine: Gourmet Live, which has turned the magazine into an interactive game of sorts. In the long run, says Vinh, traditional magazines will lose out to apps like Flipboard, which are “more of a window to the world at large than a cul-de-sac of denial.”

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.