LivingSocial's deal of the day this morning is a $20 Amazon.com gift card for $10. The national offer is selling briskly, with nearly 250,000 half-priced offers gobbled up by 10 a.m.
Amazon doesn't necessarily need the business after wrapping up another monstrous holiday season. Given the e-tail giant's modest margins, it'll probably take a loss on many -- if not most -- of these gift certificates.
Keep in mind that Amazon isn't making $10 for every $20 shopping spree being snapped up today. Social coupon sites like Groupon, LivingSocial, and BuyWithMe keep as much as half of the voucher revenue. Even if Amazon's allure is enough to have LivingSocial keep just 30% of today's offer, Amazon's still selling $20 gift cards for $7 apiece.
An unknown e-tailer, local spa, or upstart eatery usually has no problem collecting pocket change on the dollar to drum up new leads. Amazon's already a well-entrenched brand. It doesn't need to make this kind of offer -- unless, of course, it's doing this to give LivingSocial a boost.
Long before Google
Groupon wound up selling 441,000 vouchers good for $50 of Gap merchandise for $25 apiece. The $11 million national offer turned heads. Groupon's cut would be roughly $5 million in high-margin revenue.
The deal was probably beneficial for Gap. The vouchers had to be redeemed at physical stores, so Gap was locking in store traffic ahead of the telltale back-to-school shopping season. Groupon, though, was the real winner here. The financial press began to realize the power of group-buying websites. Social coupons were a hit, and shares of Travelzoo
By the time that today is done, LivingSocial will probably sell more Amazon vouchers than Groupon's Gap promo five months ago. How many of the hundreds of thousands of buyers will be first time LivingSocial buyers? How many will now begin tracking the site's city-centric offerings?
Amazon may not seem as lucky today, but today's sacrifice will probably make its $175 million investment that much more valuable.
Everybody wins, somehow.
Should Amazon have bought all of LivingSocial or is a stake enough to kick the tires? Share your thoughts in the comment box below.
Google is a Motley Fool Inside Value selection. Google, The Knot, and OpenTable are Motley Fool Rule Breakers picks. Amazon.com is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Longtime Fool contributor Rick Munarriz wonders if social coupons will be a passing craze or if thriftiness is forever. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
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