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Posted at 11:00 AM ET, 01/19/2011

LivingSocial evokes dot-com boom with $20-for-$10 Amazon deal

By Rob Pegoraro

Is it 1999 again? Should I order up a pint of Ben & Jerry's from Kozmo.com, play with a Pets.com sock puppet and pick out some spring outfits at Boo.com?

No. But the sight of a Web start-up essentially giving away money reminds me of those days. GeorgetownChinatown-based LivingSocial's offer for the day is a $20 Amazon gift card on sale for $10.

As of 11 a.m., it had sold 338,405 cards. The deal expires at 8 a.m. tomorrow, with the only other limit being a one-card-per-account rule.

(Chief executive and co-founder Tim O'Shaughnessy is the son-in-law of Post Co. chairman Donald E. Graham. The Post also has a marketing partnership with the firm, as seen on this site's home page.)

We're used to seeing group-buying sites like LivingSocial's better-known competitor Groupon offer half-off deals from merchants looking for extra publicity and new customers. The biggest retailer on the Web does not fall into that category. Furthermore, it's not as if Amazon can expect to keep some money from people who buy these cards and forget to redeem them in time--Amazon gift cards don't expire, and it is essentially impossible not to find something to buy at the site.

Amazon, however, thinks LivingSocial is on to something, investing $175 million in the firm in December. That capped off a year that saw the firm hit 10 million subscribers.

Spokeswoman Maire Griffin didn't say if Amazon was underwriting part of this offer, saying only, "We're always looking for great deals... Amazon thought it was going to be a great offer as well." She did note the site's overall goals: It operates in 170 markets now and wants to hit 300 this year.

By contrast, Groupon has more than 50 million subscribers signed up for deals in more than 400 markets. The Chicago firm completed a $950 million round of venture-capital financing in January, not long after rejecting a $6 billion buyout offer from Google.

That's the context in which you should read today's lighter-than-air offer: LivingSocial is basically throwing money at the customer-acquisition problem. And when you look at how investors see firms like this--the round led by Amazon's investment put its value at $1 billion--it can afford to do so. At least for one day.

I can attest that LivingSocial's bribe worked on me. I hadn't signed up for LivingSocial's e-mails before; not only did I do that, I forwarded my personalized sharing link to a few friends in the hope that three of them will buy a card and, under the site's marketing offer, make my own purchase free. LivingSocial may wake up with a colossal dot-bomb hangover later on, but if it's going to go on a dot-com marketing binge today it would be rude of me not to take part.

3 p.m. The total sold is now up to 699,869. I've also put LivingSocial in the right neighborhood.

6 p.m. And it's now at 892,720. By way of comparison, until today the group-buying record--as far as I can tell--belonged to Groupon, which in August sold 445,000 $50-for-$25 Gap vouchers in its first nationwide promotion.

Also, note that I've expanded the disclaimer above.

1/20, 8:57 a.m. The final number, as listed on LivingSocial's past-deals page: 1,378,938. Then again, the page for yesterday's deal shows a slightly lower total of 1,301,296.

A blog post by Martin Tobias, who runs a smaller competitor of LivingSocial, gives reason to think that the number could shrink further: He writes that buyers could use a browser debugging mode to spoof the site into allowing multiple purchases. LivingSocial's response is that the site doesn't settle each purchase and bill each buyer's credit card until after an offer closes, both to check against attempts to game the system and to ensure that three-for-free winners don't get charged.

Griffin wrote that the site's management doesn't see this as a widespread problem, adding in a later e-mail that she would provide a final, audited total but didn't expect "a drastic change." You'll see that number here when I have it.

By Rob Pegoraro  | January 19, 2011; 11:00 AM ET
Categories:  Shopping, Tips  
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Comments

How might those companies differ from LivingSocial or Groupon? Might they have over extended on the infrastructure side (Kozmo?)? Might they have been selling products with low margins (pets.com)? Did they do multi millions in sales daily?

Posted by: stevebicker | January 19, 2011 11:52 AM | Report abuse

Great blog. Just a heads up LivingSocial is based in Chinatown, not Georgetown.

Posted by: SallyD5 | January 19, 2011 1:44 PM | Report abuse

@SallyD5: Good catch. That Georgetown backdrop on their D.C. home page must have gotten stuck in my brain.

- RP

Posted by: robpegoraro | January 19, 2011 3:12 PM | Report abuse

I'm wondering what is going to happen to users who are trying to game the system, such as the user on SlickDeals who is claiming they took a day off work to create "127 livingsocial accounts" to take advantage of the deal along with referrals in order to collect roughly $1,500 in free Amazon gift cards in one day.

Posted by: paulflorez | January 19, 2011 3:50 PM | Report abuse

The just hit one million sold and still counting! This deal is exactly what social marketing is all about and it's a great win for both Amazon and LivingSocial. Go big or go home! I started a site to track all of the Groupon clone sites that are springing up.... I've got 130 group buying sites so far and you can sort to see which have offers for your city. If you know of any I'm missing, please submit them through my site. http://www.localdealsites.com/

Posted by: cogrep | January 19, 2011 9:20 PM | Report abuse

This deal offered by LivingSocial really worked out well for them. Their partnership with Amazon has worked out really well in their favor.

A great site to use to find deals and sales in your area is http://www.dailydealpool.com. They'll send you a daily email with the best buys around you.

Posted by: megamelfina | January 21, 2011 8:32 AM | Report abuse

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