After Bust, LivingSocial Looks to Boom Again

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livingsocial-logoLivingSocial isn’t quite the rocketship it was a few years ago. But, after a year of pulling back, and with a change in leadership in the works, the company is looking for a second wind.

To a certain extent, the Washington-D.C. firm was a victim of its own success. During 2010 and 2011, small businesses across the country poured money into the pre-paid vouchers that companies like Groupon and LivingSocial peddled, offering steep discounts to draw digital customers in the door. The market seem to be open for the taking, so LivingSocial responded: between December 2010 and November 2011, the company raised $759 million in three, nine-digit rounds of funding to fuel what was literally a race across the world.

Then suddenly, the market changed, and the startup was left managing a global brand supported by a strained infrastructure that sold a product with waning demand. A few hundred million dollars earlier and the company may have been able to pivot into the next product, but big companies do not corner like startups. So a year ago, the company raised another $110 million after posting a massive $653 million loss in 2012.

Today, things on New York Avenue are a bit more stable — but, still painful. Last year, the company tightened its belt, reducing the amount it spent on marketing and killing its live events business, which was intended to help differentiate LivingSocial from competitors. All in all, the company slimmed losses to $183 million in 2013, which included charges related to the sale of Korean deals site Tmon to Groupon late last year.

Street Fight recently caught up with Doug Miller, chief revenue officer at LivingSocial, to talk about where the company went wrong, how it plans to get back on track, and what wave it looks to ride next.

What went wrong and how do you plan to fix the mistakes?
There are parts of the business that in the course of 2012 and 2013 we experimented with. We experimented with delivery of food locally and connecting people with the operational side of getting their food. We experimented with creating events and experiences because we saw in the day that there was so much demand for those events and experiences. But as we entered 2014, we took a step back and said, well, what is it that we do best of all, what are we arguably best in the world at — and we get back to this idea of creating demand.

What LivingSocial has always done very well is inspiring customers to do more, to get out from behind their screen, to discover their cities, to get more done every day. Yes, we scaled very fast and any company that scales at that speed and rate around the world isn’t going to get everything right. There are going to be mistakes made in execution, but the business now has the scale, and we’re moving forward with focus.

Give us a little insight into the thinking behind LivingSocial’s decision to pull out of the events business, which it entered in 2012. What went wrong?
In 2012, we set out, in part, to differentiate LivingSocial from others by having unique, original content. It’s the kind of HBO Original Series type of strategy. And, in so doing, we went out in 30 markets and had teams on the ground that were creating one-of-a-kind events. The data showed that there was plenty of demand for that type of content. We sold a lot of tickets and our audience really responded well. Our net promoter scores were very high and there was a lot customer emotion connected to the brand experience.

But there were a couple of things that we learned in the experience. One: events are expensive. Two: it didn’t scale at the speed with which the rest of our business was scaling. The whole demand-generation piece was moving so fast, and continues to move so fast, that it just dwarfed the opportunity for us to be creator of events. But, I do think that we are a much better company at marketing events as a result of having been a producer of those events.

To a certain extent, the daily deal was a victim of its own success. Now that the bubble has burst, and the smoke has cleared a bit, where does the pre-paid voucher stand in the wider local marketing mix?
It is and remains a big opportunity. It doesn’t work for every merchant that we work with, and so we’re also very focused on flexibility going forth so the higher order idea is creating demand. The prepaid voucher model is still very much at our core, and it’s our primary model today. As we evolve going forward, we’ll see an increased diversity in the ways and sort of suite of solutions that we can bring the merchant and how they work with us.

In general, you can look at traditional media and see that there’s a real connection between promotions and advertising. The newspaper circular has always been a multi-billion dollar space, and it’s changing and evolving in the digital world, but there is still a strong connection between promotion and advertising. An offer can mean a lot of different things. It can be a straight discount. It can be a unique package or ticket type. We want to drive trial and we have an awareness mechanism for driving trial and there’s always a relationship between promotion and that initial awareness driving mechanism.

Groupon’s leadership has been vocal about the impact which mobile has had on consumer behavior. How has mobile changed the way LivingSocial’s customers use the service, and how does that impact the type of content, which the company produces?
The transaction volumes which we’ve seen on mobile are very large and there is this interconnectedness between how our users consume the stream of information that we deliver via email and then how the search the mobile app or just browse the mobile web. Once she begins to have a relationship with us and wants to make that next transaction, we need to make it so seamless and so simple for her to do that on the small screen as well as a desktop screen.

The engagement often still begins — and I’m sure that this is true across the board in our segment — with email today and yet we’re starting to see that the amount of engagement, and the percentage of the transactions, that actually start on mobile continue to rise, so that speaks a little bit to that push/pull notion. For all of us in this space, there’s a large amount of user engagement that still begins with that email. But it’s still much different than where we were in 2011 or even 2012.

Okay, so LivingSocial has wrapped up the first phase of its company. What’s the key trend, the wave, which the company will ride over the next two years?
One of the big trends that I saw when I was working with Barry Diller company’s before I came to LivingSocial, and what I was sort of working on most at Expedia, was the intersection of being a retailer and creating a media product on top of it. LivingSocial is in a very similar space, just coming at the problem a little bit differently. I think you’ll see increasingly that e-commerce companies will mashing up or blurring the lines, with e-commerce companies like Amazon and Expedia increasingly looking like media companies and classic media companies increasingly trying to become transactional. Whoever it may be, there won’t be clean division between the two anymore.

So, I tend to think of the company in terms of retail. We’ve been really good at the end aisle display. We create an awesome end-aisle display and present it daily to you based on where you live. But, sometimes when you’re looking for that trip to Cancun, it’s not the one that was on the end of the aisle. Rather it’s something else that’s among the more evergreen products, which are available to you.

Steven Jacobs is Street Fight’s deputy editor.