The news came toward the end of 2016: Groupon buys LivingSocial. When asked how much they paid for their primary competitor in the early days of daily deals, Groupon just said that it was not a material amount.
At one point, the Washington Post claimed the buyout figure was $0. If that were true, it leads to many questions as to what concessions the owners of LivingSocial received. Now, do keep in mind that Amazon invested heavily in LivingSocial and Jeff Bezos does own the Washington Post. So could it possibly be anger and frustration talking?
Groupon stock owners seemed to not be impressed as a large Groupon stock sell-off happened immediately after the acquisition. Groupon shares dropped around 19% after the purchase.
LivingSocial and Groupon were the major competitors in the field of working with vendors to offer extreme discounts and “deals” to the large databases of consumers each company carried.
When the idea first started, there was a “craze” to get involved. Many small businesses saw a perfect marketing opportunity and it became like a Pepsi vs Coke phenomenon. It was LivingSocial vs Groupon and there was very little other competition.
Groupon and LivingSocial took advantage of their dualopoly and the common adjective that was used for either/or was “fleecing.”
Now, there are other options for small businesses, but so many have not realized so because they are still attempting to break even from the losses incurred from running LivingSocial or Groupon campaigns.
These businesses could cut their losses and discover a fair marketing system that won’t squeeze the profits from the till…if they wanted to.
So Groupon bought LivingSocial. What does that mean for you as a small business owner? Well, let’s take a look at the history of each of these companies first.
The History Behind LivingSocial
In 2007, 4 guys started Hungry Machine which was essentially a book sharing application for Facebook. The idea was popular and the name was changed to LivingSocial after they started releasing more Facebook apps.
In 2009, LivingSocial acquired buyyourfriendadrink.com and soon they delved into daily deals by working with business owners to market their business using the extremely popular deals offered to the huge LivingSocial Facebook database.
It became a race to the top of “daily deal mountain” between LivingSocial and Groupon. LivingSocial began expanding worldwide trying to keep pace with the competitor. Along the way, LivingSocial made some other moves:
- In 2010, the company bought Urban Escapes and developed LivingSocial Escapes
- LivingSocial acquired majority stakes in the Latin LetsBonus.
- 2 months later, the company acquired InfoEther
- Further on in 2011, LivingSocial began purchasing various daily deal companies around the world: the Arab GoNabit, Indonesian DealKeren, Filipino Ensogo and South Korean TicketMonster.
- In 2011, revenues were $238,000,000 but losses were $499,000,000.
- And in 2012, LivingSocial acquired the mobile ordering provider ONOSYS
It seemed that LivingSocial was pulling strong competition against Groupon, but in April of 2013, the LivingSocial database was hacked and put around 50,000,000 registered users at risk.
It was downhill from there.
The History Behind Groupon
In 2007, Andrew Mason who had worked with, and for Chicago entrepreneur Eric Lefkofsky, had started a web platform called The Point. His idea was in bringing many people together over one single cause.
What happened is many people came together in the hopes they could get lower prices if they bought as a team.
Lefkofsky saw the dollar signs and he worked with Mason and Groupon was launched in late 2008.
Groupon simply is a cross between words ‘group’ and ‘coupon.’
They first offered a deal with a pizza half-price offer with a restaurant in the same building.
The idea grabbed hold in Chicago immediately. In 16 months, Groupon gained a value of $1,000,000,000 and continued to expand. In 2011, Groupon went public. They also started venturing internationally.
Starting as a “deal of the day” website, Groupon added a marketplace in 2013. In 2014, shares in the company rose substantially.
Like LivingSocial, Groupon started to grab smaller companies:
- In 2010, Groupon acquired the European MyCityDeal, ClanDescuento in South America, Qpod in Japan, Darberry in Russia and the Singapore based Beeconomic.
- In 2011, the company purchased Obtiva, the India based SoSasta, Hong Kong based uBuyiBuy and GroupsMore in Malaysia.
- In 2012, Groupon acquired the Facebook social shopping Mertado, the iPad app, Breadcrumb and the restaurant discount site Savored.
- And in 2013, Groupon kept buying when they purchased Boomerang, Glassmap and the European app called Blink.
- In 2014, Groupon started an app called Snap and they also bought Swarm Mobile.
Groupon continues to contract and expand. It seems they attempt to predict buying conditions across many markets.
It also seems that when the negative response hits, Groupon runs and hides. They have shut down operations in various countries while adding new operations in others.
Now Groupon Has The LivingSocial Database
If you have used LivingSocial in the past, you can expect that Groupon will be contacting you with offers that seem too good to pass up.
All we can say is: look at the fine print.
As a vendor, the pricing is outrageous. But Groupon sales staff simply “gloss by” the pricing and if you do not pay close attention, you could find yourself in deep debt.
Their basic pricing structure says that as a vendor, you have to pay 50% of the revenues on any deal run through the Groupon platform. So if you go along with running a 50% off deal… Let’s say the normal price is $10 for the item. Consumers are able to get it through the Groupon deal for $5. Now Groupon takes $2.50 of each sale as well (50%), and you get the other $2.50 as the business owner…all on an item that normally sells for $10.
The real question is: How much are you paying wholesale for that item and do your margins support this type of contractual agreement?
Many vendors have discovered they were deep in the red after running a Groupon campaign. Groupon representatives will say that many of these consumers will purchase more than just the “deal,” but in a lot of cases, that is not true.
Groupon reps will also say that these people will keep coming back, but statistics show that isn’t the case either.
50% is similar to a loan shark stance. A vendor should never have to pay over 10% of their revenues.
And there’s another situation that is not being addressed… LivingSocial was hacked. No one has ever really understood the complete damage, but now Groupon has that database and we have to question if malware or Trojan horses exist inside that database.
If hackers were to attain all the information in the Groupon system, it could harm a population of well over, I would guess, 10,000,000+.
The Primary Idea Is Great
Don’t get me wrong… I don’t believe that the original ideas behind LivingSocial or Groupon were meant to “fleece” vendors, but it ended up that way in many instances.
And when some of these vendors were hard-hit, they lashed back. In the end these situations really ended up harming the consumer. Most customers who already paid for a Groupon or LivingSocial “deal” could not get their deals honored.
Just look at some of the comments from vendors and consumers:
I purchased 2 coupons from LivingSocial which were supposed to be valid at Staples for shredding services, after 19 days of fighting with LivingSocial customer service and tech support, and Staples store and corporate staff, after 4 visits to the local Staples store, 2 phone calls to Staples corporate, countless hours on hold and on the phone with LivingSocial customer service and many false promises from LivingSocial customer service and tech support, they have finally worn me down, I just gave up. Staples will not honor the coupons and I even had the store manager call their corporate office with me standing there, that still failed.
I am very frustrated and angry about how LivingSocial can sell something that is clearly a scam then they lead you on promising to make it work maybe hoping that you will give up or that the value of the coupon will expire. The support staff in LivingSocial is in the Philippines and they NEVER let you talk to a supervisor, if you ask for a supervisor they give you many excuses hoping to wear you down then they put you on a 28-minute hold and then they eventually just hang up on you.
I did a deal with LivingSocial for my restaurant about a year ago. We kinda-sorta tracked whether LS customers ever came back. My staff thought basically none of the 300 ever did. They did recognize some regular customers who were happily (if a bit shamefacedly) eating their usual fare at half price.
From this experience, I realized that only lousy businesses such as my restaurant would ever do a deal with LS. Shake Shack [a popular New York restaurant] doesn’t need to give away burgers at half price. LS mates lousy businesses (like mine) with cheap customers who never have any intention of coming back and paying full price. Why should they? They are busy stuffing their maws with half-priced Sushi, Mexican, etc. from the other deals they bought.
After purchasing several Groupons during my 3 week stay on Oahu even with a very flexible schedule I’m out the money! $300 wasted!! No refunds or exchanges. The Groupon says you need to make reservation 5 days ahead. Like I stated I am trying to make reservations 2-3 weeks ahead and all the “Groupon” seats are taken for every day I’m here. Difficult to deal with live chat and no actual phone number that works. My review of Groupon is going on every site I can put it on. I don’t want anyone to have to have this experience. Better off buying tickets (which I now have to do) there and know you’ll get what you are paying for. Disappointing for family taking advantage of elderly and handicapped family members. BIG RIP-OFF!!!
Here is the problem. It’s been 3 weeks since Groupon was scheduled to pay us our first payment for the second deal. We have serviced 72 people free of charge! Groupon continues to give us the run-around regarding payment. We got fed up and told the rep we will not continue to honor the deal without payment. His reply was to threaten us with a lawsuit. What should we do?
There Is A Better Way
As I said earlier, I don’t believe these companies started with the thought of hurting people’s businesses.
But at the end of the day, their business model ended up facilitating that.
As you can see by the bad reviews, one bad acting company acquired another bad acting company so the result surely cannot be good for those who use either LivingSocial or Groupon.
There is a better way, a cost-efficient way to market your business and gain profits. At Vionic, we leverage a monstrous Facebook database and we allow you the full control of your promotions. And the best part, Vionic won’t “fleece” you.
Your customers will be delighted and will return to continue shopping.
We hope this post helps you make a wise decision in your marketing means and methods. Please share it with others who are researching methods to market their wares.
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