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LivingSocial Is Burning Through Its Cash

Posted on Tuesday, Nov 19th 2013

Last year, the rise in the daily deals market prompted the market leader, Groupon, to list its IPO. Competitor LivingSocial, was expected to list as well. But since then, the market has taken a tumble. Driven by increased competition and waning consumer interest, both Groupon and LivingSocial have tried to restructure their business offering. But they have yet to come up with the winning formula.

LivingSocial’s Financials

Meanwhile, LivingSocial continues to ring up losses. For the first nine months this year, the company saw revenues remain relatively flat at $384 million compared with $387 million reported a year ago. Efforts to contain operating expenses have helped lower losses to $110 million during the nine-month period. Continuing losses have helped put to rest IPO plans, at least for now.

LivingSocial’s Marketing Platform

The recent Google algorithm change for Gmail users which categorizes promotional mails into a separate folder has not helped them either. Over the last year, LivingSocial has tried to reorganize itself from a daily deals seller to an online marketplace for experiences, products, and services. It aspires to become a single-stop shop for consumers to come to select offers that are more long-term in nature than the time-bound, daily coupons. LivingSocial expects this move to help grow traffic to the website and will also help its merchants to create more flexible deal structures to help them generate a steady flow of traffic to their set-ups as well.

Meanwhile, LivingSocial continued to revamp its offerings to become an online marketplace for merchants enabling them to open digital storefronts and manage marketing campaigns. LivingSocial will help these merchants receive customer’s orders. As CEO Tim O’Shaughnessy puts it, LivingSocial is a “marketing platform” for merchants. As part of this focus, merchants are able to select deals that are offered for longer periods and benefit from features such as the ability to directly communicate with customers and respond to customer feedback, access deal analytics to understand user engagement, purchaser insights and payments information and use tools that will help them track the impact of their social media campaigns.

Other marketing focused tools launched recently include the Amplifier Ads that work for major national retailers where LivingSocial helps to increase the exposure and resulting purchases by offering the retailer’s existing promotions for premium distribution on LivingSocial’s channels. Another product, Stampede, is a product made available to customers for free. Stampede lets customers claim discounted offers without any upfront payment. Payment is made at the time of the redemption of the offer. Finally, the company is beta testing Coupons, a portal that will feature discounted offers and money-saving coupons from retailers free. The service has already attracted coupon codes from more than 3,000 retailers across the country

Till date, LivingSocial has received $924 million in funding so far from investors that include Steve Case, Grotech Ventures, Revolution LLC, US Venture Partners, Lightspeed Venture Partners, Amazon, T. Rowe Price, and J.P. Morgan Securities Inc. Its latest round of funding was held earlier this year to help it raise $110 million. The company is striving to find a business model that works, but in doing so, it is burning through its cash. It recently sold its Korean investment, Ticket Monster, to rival Groupon for $260 million to generate more cash for operations. Will they succeed before the cash runs out?

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