London First Stop for LivingSocial Expansion

LivingSocial has begun an international expansion, starting with London. That launch will apparently be followed by Birmingham, Manchester and Liverpool.

This brings to 27 the number of markets that LivingSocial operates in. By contrast, market leader Groupon will be in 150 markets by the end of the year, according to President Rob Solomon.

To date LivingSocial has received $44 million in VC funding.

There are a wide range of competitors and copycats in the US and Europe. After LBS gaming (e.g., Foursquare) group buying or “social commerce” is the hottest thing in local.

I spoke the other day with a LivingSocial advertiser, San Francisco Sailing Company, which is also a relatively sophisticated online marketer:

I asked, “Between search marketing and daily deals, if you could only do one, what would you do?” The representative from the company hesitated and then said search. But he was quite satisfied with the performance of the LivingSocial ad and wanted to run another one. He also saw the two marketing methods as complementary rather than competitive.

Groupon claims 97% satisfaction among SMBs using the service. Solomon told me that if you think about this in the larger context of SMB marketing churn it’s the smallest churn of any marketing product out there. This 97% figure is probably based on a limited sample. But there’s broader empirical evidence that satisfaction is over 90%.

The model used in group buying, “pay for customers not clicks,” could potentially have a long-term impact on SMB attitudes toward online advertising. It’s not being used in all categories and probably wouldn’t work across the board accordingly. But it has proven extremely effective in some categories: restaurants & bars, entertainment, health & beauty, recreation & outdoor, among a few others.

While the market seems to be full of dozens and dozens of these daily deal companies — giving rise to aggregators Yipit, TheDealMap, 8Coupons — there will be consolidation and a few winners will emerge over the next year. In addition traditional media companies will start doing this with white label vendors like Analog Analytics and some of the consumer-facing companies will turn to white labeling as they fail to gain momentum.

Demographically focused and vertical-focused deal providers will also emerge; Gilt Groupe is an example of one or both arguably.

While there are questions in my mind about “deal fatigue” and sustainability over time I think this phenomenon is far from a fad and everyone in the local space needs to think carefully about group buying and take it seriously.