I knew that LivingSocial's deal for Amazon.com
By the time midnight rolled around in Honolulu, the social coupon website had sold more than 1.3 million $20 gift cards for just $10 apiece. The $13 million in voucher sales tops rival Groupon's record of $11 million when it sold 441,000 Gap
Cynics will wonder if Amazon committed a big mistake here. Selling merchandise for $0.50 on the dollar isn't going to pan out for an established company sporting gross margins of 24% through the first nine months of last year. We'd have to be looking at a dramatic uptick in incremental sales for bigger ticket items for the math to play out in Amazon's favor and that's unlikely to happen.
However, Amazon knew exactly what it was doing. It limited the deal to one per person (though some have reportedly used multiple credit cards to load up on the offer). It also violated the viral rule of group-buying by prohibiting additional vouchers to be purchased as gifts. This deal was never about Amazon trying to drum up new business. The leading e-tailer was simply trying to drum up the value of last month's $175 million investment in LivingSocial.
After all, just as Groupon arrived after the Gap deal, yesterday is the day that LivingSocial became a worthy competitor.
LivingSocial has been a distant silver medalist in this race. Web trends watcher Hitwise reported last month that LivingSocial was drawing just a tenth of Groupon's traffic. Yesterday's deal is going to dramatically narrow the gap going forward.
The network effect was playing into Groupon's dominance in this nascent space. Buyers go where the deals are, and merchants go where the buyers are. Groupon was leaving LivingSocial, BuyWithMe, and the countless other rivals in the dust. LivingSocial's sales team is going to have an easier time with merchants now: "Why, yes, we are the site that moved 1.3 million Amazon gift cards in a day. How can I discount you?"
This naturally brings me back to Groupon's decision to reportedly back away from Google's
There are also cracks beginning to appear in the Groupon model. As a penny pincher monitoring deals in my home state of Florida, this week has seen more than a few hiccups.
- A travel deal in Miami yesterday from a Caribbean vacation discounter began to unravel when folks spotted even better deals on the travel website without having to fork over $20 for the certificate.
- In Orlando, a limo operator with a great $45 hourly rate was also asking buyers to pay $35 in gratuity (or 20% of charge-laden $180 hypothetical rate). That's somewhat understandable, but the operator was also tacking on a $15 tax based on the $180 hypothetical rate. I'm no accountant, but that's not how taxes are calculated.
- Back in Miami, a cupcake maker advising buyers to order a day ahead of time bumped the lead time to a week or two after the voucher purchases began to stack up.
Groupon has also suffered recent embarrassments overseas, including a Japanese meal that wasn't up to snuff and a Brazilian club that didn't honor all of the vouchers that were sold.
It's widely believed that price alone wasn't a factor in the Goo-pon deal unraveling. Gaining antitrust approval would have been a challenge. However, now that LivingSocial is a serious contender, regulators will be more likely to sign off on a deal.
Google needs Groupon, especially if this is more than just a passing fad in online lead generation. Groupon now needs Google, using Big G's Rolodex as a way to pull away from LivingSocial again.
If the two companies aren't talking again this morning it would be a shame.
Did you take advantage of LivingSocial's deal yesterday? Share your thoughts in the comment box below.
