LivingSocial is the second biggest daily deal company out there, on pace to book $500 million in revenue this year, and yet, it feels like it’s flying under the radar.Granted, LivingSocial’s profile got a shot in the arm when it sold 1.16 million $20 Amazon gift cards for $10 a piece in January, but compared to Groupon, we don’t think LivingSocial is a household name yet.
It doesn’t seem to bother LivingSocial CEO Tim O’Shaugnessy.
We spoke with him last week to see what his company is up to. Below is our full transcript.
Some key points:
- O’Shaugnessy doesn’t think of LivingSocial as a daily deal company, he views it as a local ecommerce play. To that end, he’s diversifying LivingSocial’s offerings. It has vacation deals, deals around events for the day, and real-time offers.
- LivingSocial Escapes, which started in November, is already on a $100 million revenue run rate. That’s an impressive ramp, as it means it already accounts for 20% of the company’s business.
- Coincidentally, this is how it can compete with Groupon. It’s trying to attact a number of verticals in the local eCommerce space.
- LivingSocial is hiring 150 employees per month!
And, here’s the full thing:
Business Insider: How did LivingSocial start?
Tim O’Shaugnessy, CEO LivingSocial: The company first started when the Facebook platform opened up and third party developers could build on it. That was the summer of 2007. We had a concept of “you might be able to acquire users faster and cheaper than you ever could in the history of the web. Can we build engaging applications around these different commerce verticals and figure out how to help people engage around these commerce verticals in a transactional way?” That was what we initially started with and we built a bunch of really successful Facebook applications. Nearly a hundred million users added our Facebook applications over time and we, over time, transitioned into this business.
BI: Why did you shift away from Facebook?
TO: I think you look at what’s working, how well things are working, how much you can scale. We actually had a pretty solid, viable business that was pretty advertising-based, but it was the ability to go from a million dollars a month to $10 million a month and from $10 million a month to $100 million a month. I think we were playing around in some of the same philosophical areas that we do today, but we kept trying to find the things that could go from one a month to 10 a month to 100 a month. That’s what drove us to keep exploring and testing out different models.
BI: When you decided to tested out different models, how did it work? From a Facebook application to an email? What was the next step?
TO: We had a pretty consistent theme of commerce interest areas in what we’ve done. And how we sort of transitioned from an advertising to an e-commerce-based model was we acquired a company in early 2009 that had a local sales force on the ground in a couple different markets. Boston, New York, and DC. And they had a model where Bacardi would go and say, “Hey, I want a thousand people to try Bacardi and Coke in New York in the next 30 days. We’ll pay for the cost of the drink and we’ll give you $20 for every person you can track that goes and does this.” So our sales team would go and sign up bars and restaurants and say, “Hey, do you want new customers to come in? If you do, all you need to do is accept this sheet of paper that people will print out, keep track of them, and at the end of every month we’ll cut you a check for every person that bought a drink, and you get more if they brought someone else with them, if they ordered food, if they ordered a second drink, you get all that upside.” And we would target our audience base.
We had tens of millions that used our Facebook applications and we had people that had told us what their favourite restaurants were that lived in New York and we would say, “Hey, do you want a free drink? If you do, you can pick from any of these bars or restaurants. Just send this to your phone or print out this sheet of paper and you can walk in.”
So we actually had that business model where we were promoting things online and people would literally go and walk through the door of a local business. We got into the model. That was our first version of doing offline-to-online commerce. We’ve obviously kind of continued to evolve since that point in time.
BI: How many subscribers does LivingSocial have today?
TO: We’re over 20 million. We added about 6 million new subscribers in January, so it’s growing fast.
BI: What’s driving it?
TO: There are several things that are key components. First and foremost, I think that it’s the quality of the product and the offers that we have. If you get the right things, people inherently want to share. We see that our organic lift that comes off of sharing has been pretty substantial.
I think a second piece is that our brand has reached some degree of a tipping point. There’s a lot of folks that know us. When people sign up, our conversions are really strong. Any kind of paid advertising we’re doing, we see our clickthrough rates going up. The brand has really been strengthening. We’ve been expanding pretty aggressively internationally, so there’s been a good amount of growth there.
BI: What were you doing before you started this company?
TO: I was thinking about, “Boy, how can I actually start a company?” I ran the product group at a company called Revolution Health, which is where I met my cofounders. There are four of us and we made up a lot of the core product development team at Revolution Health.
BI: That’s Steve Case’s thing?
TO: Steve has something called Revolution LLC, which is an investment vehicle of which there are a whole host of companies underneath it. Revolution Health was one of them. ZipCar is another one.
BI: Does he work closely with you? He’s an investor, correct?
TO: Yes, he’s an investor through Revolution. I’m certainly not going to put words in Steve’s mouth, but I think he has frequently said that he likes being involved in a number of ways, whether it’s financially or actively involved in boards or that type of thing in businesses that can be disruptive. I think he views what we’re doing as being disruptive in the local commerce space.
He’s certainly engaged. We had a national sales conference a couple months ago and he came and talked to pretty much the entire company. He certainly has lots of perspective on growth and he took a company public and took over a $100 million market cap valuation, so he’s seen a lot of things from that perspective. He’s definitely engaged in more technical items, for example, coming in to speak to the company.
BI: What are the chances that LivingSocial will go public in the next two to three years?
TO: It’s hard to comment on that. I think that right now we’re pretty heads down. One of the things that’s super-exciting about LivingSocial is that over the last couple of years I’ve seen between two and four plays that we could run and if one or two of them hit, the company could become 10 times bigger. One of the most amazing things is that we feel like we still have that. We feel like there are still several things that could work to make the company a lot bigger than it is right now. Because of that we are still focused on hyper-growth mode and so not really viewing public markets in any sort of serious way.
BI: What are some of the things you see that you can do to make the company larger?
TO: Can’t give away all the future strategy, but I think you can see some of the initiatives that we’ve been working on have been very successful. The daily deals business has been growing substantially but we tend to view the business we’re in as local commerce instead of daily deals. And so we have a couple different business lines that are growing very rapidly right now.
The daily deals business continues to have very strong growth in the US. We’ve been taking a lot of market share and it continues to grow internationally as well.
We also have LivingSocial Escapes, which was a business that we launched three months ago in the staycation/nearcation world. That’s something that’s been growing leaps and bounds. It’s already approaching a nine-figure run rate. It’s really a very impressively-run business by that team. It’s pretty amazing that they launched in November and they’ve gone from zero to a nearly $100 million run rate and will probably pass through that in three months. That’s a pretty impressive thing. That team is really executing very well. The amazing thing is that many people still aren’t even familiar with LivingSocial. So if we can continue to grow that brand and that product, there’s a lot of growth ahead of it.
We have another business line called LivingSocial Adventures, which are events that are operated by us. We have people in various cities that are working with merchants in very different ways. We did something recently in New York that was called ‘Snowtubin’ and Tastin’.'” We actually pick you up in Midtown and we put you on a bus and then we take you to a ski resort. There’s a slope completely reserved for us for tubing. Then we take you to a microbrewery for a tour and tasting. Then we bring you back to the city. We’re working with three different merchants for that – the bus company, the ski resort, and the microbrewery. There’s actually a LivingSocial employee that is on that to make sure you have a great time and that business is growing.
BI: How have things changed since you took that Amazon investment? I imagine it raised your profile.
TO: We’ve grown leaps and bounds, is the easiest way to put it. We were already on a phenomenal trajectory and that’s continued. I think what you’ve seen over the past few months is really a continuation of our existing trajectory. I think there are definitely some visibility items that that was very helpful with. Now that we’re a couple months into that relationship, you know, you do something in December, you don’t immediately feel the impact of it. The rest of 2011 will really be where the benefits of that will show. I think that visibility has certainly been raised but the true impacts haven’t even been seen yet.
BI: What is the competitive advantage you have over Groupon or any of the other companies out there?
TO: I don’t know how other companies view themselves, but we view ourselves as wanting to win the local commerce space. That means providing great things to do at great value. Whether that means escapes or daily deals or adventures, those are the epitome of that. We’re not a daily deals business, we’re a local commerce business. That is becoming more evident as the story unfolds. Because of that we’re really optimised around local. We’ve got feet on the street in every market we’re in. We’re building up those really strong merchant relationships and we can work with them in every vertical. I think you put our perspective and our business line and our assets and I think it’s a pretty interesting story.
BI: How many people are you hiring on a monthly basis?
TO: Square feet per person is going down at an alarming rate. We’re hiring around 150 per month.
BI: How does a company do that? How do you bring on these people and maintain a culture and find people?
TO: Hiring great people and maintaining the culture is one of the things we’ve focused on. We couldn’t do what we’ve done unless we had great people operating. And we won’t be able to do that in the future without great people. There’s probably a whole other story around this piece, but we put a very high emphasis around a couple items – making sure that we keep the equality of our hiring very high. The adage “A players hire A players and B players hire C players,” we feel very strongly in that. So making sure that that can occur.
And doing some very unconventional things to make sure that that is something that can happen. For example, somebody in our product team may interview someone on our HR team, and that’s because we know there’s a cultural interview that almost has to occur. Second is taking a little bit of an engineering approach to hiring – in order to do this, how many candidates do we need? How many resumes do we need? How many phone screenings do we need? And really building a system to be able to support that. Last is, with so much growth I think we realise that our culture is very strong. I think we have stated core values and just kind of making sure that everybody knows those.
When you’re adding a few hundred people every couple months, you kind of realise that these people are getting taught by the people who have only been here three months, and three months later they’re going to be taught by the people who have been hired now. So being very forward with “this is what the company stands for, this is what our core beliefs are,” and trying to do things throughout the organisation to make sure that people understand that and live that is that third thing we’ve really focused on a lot.
BI: Can you comment on international expansion? You said you’re doing a lot of that. How does that work? Is there a cultural difference?
TO: We think the international space is going to be very receptive to the model and you can see some of that already. I think the core items in which this business works transfer across culture very well. The implementation will vary by culture quite a bit, but people like saving money and people like finding out new things to do. And that is a pretty cross-cultural phenomenon. We’re in 11 countries right now. That’s growing quite fast. We’ll likely be in a significant multiple of that by the end of the year. Some of that is acquisition – we recently acquired a company called Let’s Bonus, which is based in Spain and has a presence in Europe and South America. But we’ve also gone organically and expanded on our own and our UK team was an entirely organic endeavour. It depends on the country and what we think we can do there.
BI: Have you disclosed any revenue figures or sales numbers public, or are there any that you would like to disclose to me? This can be background or off the record.
TO: Publicly we’ve said that we’ll do $500 million in revenue in 2011.
BI: Are you guys profitable? Does that even matter to you?
TO: We’re not really disclosing that.
BI: I was just curious about how that worked. A company like you probably wants to dump as much as you can on the fire to keep it growing.
TO: We’re operating the business in a very smart way. We clearly have the balance sheet to be able to do that?
BI: What’s next for LivingSocial?
TO: We’re actually launching a new product next week called LivingSocial Instant, which is a realtime local deal offering for consumers and merchants. You guys are near Union Square?
TO: So you’re gonna go grab lunch after this. There’s probably 30 places you could go within a couple blocks to grab a sandwich or whatever to be in and out in a couple minutes. All 30 of those places probably want your business. Some of them are a little full, some are probably empty, but they all want your business and have no way to communicate with you about that.
We’re building a very large mobile presence. Millions of users either have our Android or iPhone app. You’ll be able to essentially pull up the app and see realtime offers that might only be up for two hours for the merchant to – you look and see Chipotle is offering “pay $5 and you can get any burrito you want.” You can actually buy right there on your phone and then the merchant will have a hardware device in their store where it shows up that you’ve bought this instantaneously. You can walk right up and you’ve made that purchase already.
BI: Is that you installing the hardware or is it put right into their registers?
TO: It’s a hardware system that we’ll be giving to them.
BI: That’s going to be rolling out this week?
TO: We’re piloting it in DC and yeah, that rolls out this week. It’s gonna be pretty cool. If you look at it from a consumer perspective, merchants can basically tell you how much they want your business, and if you look at it from a merchant perspective, if they’re having a slow lunch rush and it’s 12:30, they have an immediate way to juice that. Or if between 2 and 5 PM is always slow for them, they can always have some sort of offer to incentivise you to come in. It’s creating a really efficient marketplace.
BI: It sounds like you guys are trying to build a broader base of verticals to attack within your model.
TO: This is probably a good way to tie everything together. We very much view ourselves in the local commerce business. We’re all about providing great things to do at great value to our customers. And we think there are a lot of ways to do that. We have a great daily deal product and business line, but we’re not a daily deal business, we’re a local commerce business.
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