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January 31, 2013

The end of daily deals?

by nomlinz

LivingSocial just reported a net loss of $650 million in 2012. Is this the end of the deal-providing company?

I had the opportunity to contact LivingSocial once to discuss a potential deal listing for a local recording company here in Charlottesville. After about 10 minutes on the phone, I was pretty appalled by the business model since it basically handed the short end of the stick to local businesses wanting to get the word out about their product or service. In case you are not familiar with how it works, LivingSocial asks you (the business) to shave 50% off whatever you want to offer and then provide LivingSocial with approximately 30% of your earnings from coupon redemption. These local businesses (some also very small) have to weigh the trade-offs between getting the word out there about their product/service and bleeding out cash to LivingSocial. Many businesses opt in to the LivingSocial scheme one time and can never afford to do it again. After I came to understand how LivingSocial’s partnership with businesses play out, I quickly thanked the salesperson for their time and hung up the phone.

Honestly I really like LivingSocial and the deals they provide, but I always wonder how sustainable their relationship is to all the businesses they interact with. With major acquisitions and Amazon as an important backer, LivingSocial will probably be around for awhile longer. But then again, how much net losses can a company take before becoming obsolete altogether?

Read the short article here.

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