What Does the Future Hold for LivingSocial and Daily Deals?
LivingSocial posted a $50 million net loss in the first quarter of 2013, according to a filing from Amazon, which owns 29 percent of the No. 2 daily-deals company. This might be taken as bad news if it weren’t for the fact that Q1 2013 was actually an improvement of affairs for LivingSocial: revenue grew 22.7 percent year-over-year to $135 million and the company’s operating loss narrowed from $91 million in the first quarter of last year to $44 million (the total net loss for 2012 was $650 million).
Modest improvement seems to be the name of the game for LivingSocial and its biggest competition in the daily-deals space. But is that enough to stay alive for much longer, even past next year? According to 24/7 Wall St., the answer is no. In a recent article, the analysis and commentary website declared that LivingSocial is one of the major brands today that won’t make it past 2014, due to strong competition in the likes of eBay, American Express and AmazonLocal.
Then there’s this recent Brand Equity Relationship Assessment (BERA) chart from Vision Critical, which conveys how people feel about a brand based on financial indicators:
When 20,000 Americans were asked about how they perceive LivingSocial and Groupon relative to about 4,000 other brands, Vision Critical found that consumers are close to “divorcing” both daily-deals companies.
The future looks bleak for LivingSocial, but the door to redemption might still be open. We spoke with some experts to find out how the company can avoid a shameful demise and find greener pastures.
The big problem(s)
“LivingSocial, like the other daily-deal sites, is having big business-model problems,” says Rita Gunther McGrath a professor at Columbia Business School and author of the upcoming book “The End of Competitive Advantage.” “The central dilemma is that for the merchants involved in their transactions, the daily-deal business has turned into a big loser.”
McGrath says the original promise that daily deals would lure new customers who would eventually become regular customers who pay full price simply hasn’t panned out. She cites research in MIT Sloan Management Review, which found that “even under optimistic scenarios, the payback periods for merchants involved in the daily-deal business are extremely long
