LivingSocial Sells Off Australian Assets, Looks to ‘Refound’ Its Core Business

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LivingSocial finally has something that Groupon, its long-time competitor, has had for some time: cash — and lots of it. Over the course of the past 18 months, the struggling daily deals company has sold off nearly all of its international assets, exiting countries and categories in an effort to create a nest egg for the “refounding” of the firm under new chief executive Gautam Thakar.

“In some sense, we are going back to our roots,” said Thakar, the former eBay executive and turnaround expert who joined LivingSocial last fall. “The word ‘refounding’ is extremely important because it’s not as if we’re going to reinvent our business. What is different is how we are attacking the problem.”

In an interview with Street Fight, Thakar laid out a new vision for LivingSocial that will center around what he calls an “experience marketplace.” He believes that the company, which has always gravitated toward more event-driven deals, has an opportunity to a package and sell experiences — a weekend trip or tasting at a local eatery — online to its wealthy, mostly female, audience at a discount (but without necessarily the 50% off that came to define daily deals).

“If eBay is a goods marketplace and Angie’s List is the services marketplace, we want to be a marketplace for experiences,” said Thakar. “These are experiential products — not physical products — they’re things that create memories and people talk about, and not all of those have to be at the 50% discount.”

Why LivingSocial was forced to pull back
To pay for that refounding, LivingSocial has unwound one of the most aggressive international expansions among venture-backed startups in recent memory. The Washington D.C.-based company has divested a portfolio of international deals businesses that at its peak in 2012 put the company in over 20 countries across North America, Europe, Asia and the Middle East.

This morning, that nearly two-year-long divestiture effort came to an end. The company has announced the sale of its Australian operations — the last of the international markets which the company entered through acquisitions — to AussieCommerce for an undisclosed sum. The company will continue in the United Kingdom and Ireland where it has operated organically since first moving beyond North America in 2011.

“Over the course of the past few years, due in part to consolidation and changing dynamics [in the deals business,’] we’ve had to revisit what business we are fundamentally in,” Jim Bramson, head of corporate affairs and international operations, told me yesterday. “In doing that, it causes a rethinking of some of the technology and platforms and if you don’t have that right it makes it more difficult to extend that into different markets effectively.”

The company’s torrid international expansion began with the opening of its London office in 2010, but accelerated dramatically after the company raised a pair of massive funding rounds in the winter and spring of 2011. In the six months following its largest round in April 2011, the company bought deals companies in Dubai, Indonesia, Australia, and Chile. The largest of the deals — the company’s acquisition of Korean site TicketMonster — cost the company a reported $350 million in cash and stock. Within a few years, it would sell the same property to Groupon for $260 million.

“The economy changed fundamentally in late 2011 into 2012 and it deeply affected our international business,” said Bramson, who has headed up the sale of the assets. But something else happened in the U.S. that deeply compounded these issues for the company: Groupon had accounting problems. In the weeks after Groupon went public, concern that Groupon was misreporting key statistics sent investors running for the exits in a remarkable way. Between February and November of 2012, Groupon saw its share price cut by nearly 90%.

While the companies were competitors, LivingSocial’s valuation was directly tied to Groupon’s.  “[LivingSocial] had a perfect comp in the market that was now valued a fraction of what it was a year earlier,” one of the company’s investors, Tige Savage, told me in an interview last week. “One of the effects of this perception issue was to limit LivingSocial’s access to capital in the private markets.”

Without the capital to support a full rollout of its international businesses, the company was forced to begin a sell-off of its assets. In addition to scaling back geographically, the company has also exited categories such as food delivery and group adventures. The scale-back has left LivingSocial a shadow of its former self. A spokesperson says that the company now employs 1,100 people worldwide — less than a quarter of the number it had at its height in 2012.

But the sale of its international assets — most notably, Korean deals giant TicketMonster to Groupon — had also created new, albeit smaller, nest egg for the company. The company posted a net loss from continuing operations of $73 million last year, but revenues from the sale of its assets allowed the company to post $100 million profit in 2014. The capital allowed the company to recruit Thakar, a turnaround expert who had spent the past decade at eBay helping first run its operations in India and then reinvigorating its segment.

Finding a new vision for a post-startup life
Fast forward to the fall of 2014, and Thakar, the company’s new chief executive, was still making tough decisions. In November, the company laid off 400 employees, mostly in sales, in a continued effort to slim down its costs and narrow its focus to only a handful of core businesses. The layoffs were painful, but necessary, Thakar told Recode at the time, so the company could begin to move put its newly “very strong cash position to use.”

A big part of what Thakar has done at the DC-based company since arriving in September has been to realign the company’s strategy to the realities of a much smaller business than it was at its heyday.

“Over time we had become a little more unfocused with respect to how we entered into new verticals and multiple countries and spread ourselves too thin,” said Thakar. “Perhaps we took the notion of daily deal too literally. It wa always a mechanism to get things in front of people and maybe we over invested in that becoming the model itself.”

Thakar insists on calling his new vision for LivingSocial a refounding, in part because the concept of a marketplace for experiences touches on some core aspects explored by the company in its earlier years. There are marketplace elements in his vision —  a focus on connecting local supply and demand — but he’s not tethered to the success of the on-demand models which have become popular among startups in the wake of Uber’s success.

The very concept of what it means to sell an experiences remains somewhat loose. Today, the vision is seen best through the businesses which the company has already shutdown, or is in the process of exiting. In addition to scaling back its international operations, Thakar says that the company would begin to stop sourcing deals in more commoditized verticals such as plumbing, and even hinted that the company may eventually split its ecommerce business into a different brand.

“If you want to help people discover fun things around them, you have to stand for those kind of things. You can’t have a gutter cleaning offering next to a fine dining experience or hot air balloon ride,” said Thakar. “We’re going to get out of a lot of those categories that are home categories or services that are not experiential. Over time, unlike Groupon, we’re not going to focus on physical products. We’re not going to focus on home services.”

[A spokesperson for LivingSocial said the company is “evaluating how Shop fits with the focus on an experiences marketplace” but declined to comment on whether the company planned to spin the ecommerce business into its own brand.]

Capital and focus are not the only challenges facing LivingSocial. The company, like Groupon, was largely built around an email marketing business that has experienced headwinds recently as email providers introduced sorting methods that tend to hide bulk messages. Notifications through mobile applications may offer a brief reprise, but the cost of retaining — not just acquiring — becomes much higher with a branded mobile apps than email.

To an extent, the deeper relationship with the consumer that comes with mobile lies at the heart of the new vision for the company. In our conversation, Thakar, a product of ecommerce, said that he believed that in developing a local marketplace, consumer demand will always attract merchants.  “What’s different about the LivingSocial three years from now] is that we really coming at the business from consumer  lens — we solving the pain point,” he added.

In many ways, Thakar’s emphasis on the consumer is both an asset and a risk for LivingSocial. Often, executive like Thakar who grew out of an ecommerce background, can overlook the distinct challenges posed by the supply side of local commerce businesses. The successful companies in local commerce today more often than not succeed because of innovations on the supply side, not the consumer side, of the business.

That doesn’t mean that a consumer-first mentality will not succeed. The question for Thakar and LivingSocial is whether the company can articulate the vision of selling experiences — a somewhat less solid concept than selling a service of a product — to merchants.

The story of LivingSocial’s unraveling — as well as its nascent comeback — says as much about the challenges implicit in the local technology industry as it does about the execution of the company. The mistakes and misfortunes that turned the company from one of the most sought-after investments to a company in retreat offers a cautionary tale for fast-growing startups. But its survival also underscores that the local sector, unlike more traditional technology industries, is not a zero-sum game.

Steven Jacobs is Street Fight’s deputy editor.