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We’ve written before that the daily deals industry, with low barriers to entry but high barriers to scale, seems to have “Glengarry Economics”, from the famous line in the movie Glengarry Glen Ross: “First prize is a Cadillac, second prize is a set of steak knives, third prize is you’re fired.”
So far, it looks like Groupon is going to win the Cadillac, and LivingSocial the steak knives: according to industry-data firm Yipit, it outperforms all competitors in all the top 30 US markets (see the great chart below).
There are some things that should make LivingSocial bulls smile, however.
The big one is that LivingSocial seems to be catching up in traffic, according to comScore (see the chart below; also note that everyone else is tanking, which seems to confirm our “Glengarry Economics” thesis that being #3 is about as good as being #30).
An important point here is that traffic growth does not equal subscriber growth, let alone revenue growth. As the Yipit chart indicates, Groupon seems to be the best at generating revenue per deal. Still, the trend can’t be good for Groupon.
What’s more, Groupon seems to be scared: as we noted yesterday, Groupon failed to mention LivingSocial as a competitor during its IPO roadshow.
LivingSocial seems to be benefitting from its partnership with Amazon. Amazon seems to be taking the aggregation route in the daily deals space. It would make sense that it would favour investee LivingSocial by driving subscribers to them. What’s more, Amazon’s Kindles come with “special offers” (i.e. ads), and many of these offers are local, i.e. daily deals. As Amazon sells zillions of Kindles, more people will be exposed to LivingSocial offers.
Perhaps anecdotally, LivingSocial also seems to be better-run than Groupon. Groupon has had missteps, consumer backlash and executive turnover, which is understandable in any company, particularly one as fast-growing as Groupon. That being said, this seems to have happened much less at LivingSocial, which is also growing plenty fast.
THE BOTTOM LINE: We stand by our thesis that a) the daily deals business is viable and defensible and that b) Groupon will eventually build a strong, profitable franchise. That being said, we also believe that LivingSocial is building a very strong business, and that prospective Groupon investors should be aware that it is eminently possible for LivingSocial to catch up, even overtake Groupon.
This note was published as part of BI Research, a new industry intelligence service from Business Insider. The service is currently in beta and is free. To learn more and sign up, please click here.
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