The same week that Google (GOOG) reportedly offered $6 billion to buy social-shopping site Groupon, Amazon (AMZN) has purchased a major stake in the No. 2 group-buying site, LivingSocial. The world's largest e-tailer Thursday confirmed it had invested $175 million in LivingSocial. Along with an $8 million round from Lightspeed Ventures, the deal gives LivingSocial a one-day cash infusion of $183 million.

By most accounts, LivingSocial is a distant second, with less than 20% of the total group-buying market. That said, LivingSocial is apparently on a run rate of $500 million in revenues for 2010, an impressive number that would justify a $1 billion valuation.

The news could silence naysayers who have pointed to group buying as a faddish venture-capital frenzy with zero barriers to entry and guaranteed margin erosion. In an earlier post, I argued that the hundreds of group-buying clones have actually insulated Groupon and LivingSocial. Having so many options has essentially diluted the market, making it harder for any of the smaller services to be able to guarantee enough customer volume to attract the most sought-after merchants.

Growing Through Acquisition

Aside from the cash boost, LivingSocial sees Amazon as a valuable partner that could help it grow. "To be the biggest player in the local commerce space, there is no one better to work with than Amazon," LivingSocial CEO Tim O'Shaghnessy said in a press release Thursday.

That may be true, but if Google ends up buying Groupon, Google would likely give Groupon an advantage as well. The search engine and media giant has a massive advertising reach via AdWords, AdSense, DoubleClick and YouTube, and a big audience with Gmail -- all of which could be extremely helpful to Groupon.

And even as they are courted by investors and would-be buyers, LivingSocial and Groupon are also involved in their own acquisition war: Each is buying up smaller rivals (primarily outside of the U.S.) to grab marketshare and subscriber lists.

With so many pieces in play, it's too early to tell who will ultimately win. But at least one thing is certain. All those Groupon and LivingSocial ads that are following you everywhere around the Internet? They aren't going away any time soon.

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joebloom1976

You should also write about how companies like Living Social use other companies’ trademarks illegally to profit for themselves, and when caught don’t even pass the revenues to the companies’ whose trademarks they infringed upon. For example, Living Social ran a couple of deals with a teeth whitening company that called itself Beaming White USA, but which had no affiliation with the Beaming White trademark owner, which is Beaming White, LLC. Now Beaming White, LLC is going after Living Social for payment of the revenues generated by the deals they ran, but Living Social isn’t paying Beaming White, LLC even though they know they screwed up. Of course, the Beaming White USA people probably won't indemnify Living Social, leaving them holding the bag, plus the bad reputation they will get when people can’t redeem the coupons they paid for. These companies need to do better due diligence as to trademark ownership when it comes to selling products and services from other companies.

December 12 2010 at 7:09 PM Report abuse rate up rate down Reply
SlickLickRick

Don't forget, Amazon.com just recently sold and distributed a How-to-Manual for pedophiles, until public outcry forced them to withdraw it. I recommend using them and any of their subsidiaries NEVER!!!!!

December 03 2010 at 4:52 PM Report abuse rate up rate down Reply
crimson00king

who voted these GOP senators in that are crying for tax breaks for the rich and voted down tax breaks for the middle class. THey are crying tears for the rich and their foriegn intrests. We must send them packing in 2012 when the younger voters are back to the polls.

December 03 2010 at 3:14 PM Report abuse rate up rate down Reply
crimson00king

Tax breaks for the rich have gone on long enough and still have not created jobs. In fact these tax breaks we gave companies sent jobs into other countries. The rich and their paid off Senators are shameful and un-American. Time to call or e-mail your congressmen senators and the White House and tell them NO MORE TAX BREAKS FOR THE RICH PERIOD. NO 2 year extensions either.

December 03 2010 at 3:13 PM Report abuse +1 rate up rate down Reply
Nate Bird

If they are approaching $500 million in revenues and still need $183 million in venture capital just to keep their doors open I don't see how they are actually sustainable. If they can't turn a profit with $500 million in revenues I don't think they ever will. They aren't good at making money, only spending it.

December 03 2010 at 7:20 AM Report abuse -3 rate up rate down Reply
1 reply to Nate Bird's comment
ED

Just go on the site it will tell you they have it togeather and someone like Amazon is not going to back a loser! I am a member and cant wate for it to open in the Hartford ,CT area.

December 03 2010 at 10:00 AM Report abuse +2 rate up rate down Reply