Salkever's Valley on LivingSocialLast week, No. 2 group-buying company LivingSocial sent out an email announcing a new policy that it will stop paying commissions to daily-deal aggregators like Yipit, DealGator and Dealery. These affiliate fees have so far been the aggregators' lifeblood and their only real revenue stream. The people I know who run smaller group-buying sites say the aggregators are by far the best source of new customers and new traffic.

And last time I checked LivingSocial, while big and valued at $1 billion, it was still a whole lot smaller than the big kahuna Groupon. So why would LivingSocial take this tack?

This is particulary mystifying because Groupon itself continues to offer affiliate deals. On the face of it, LivingSocial likely feels it's big enough, has enough money and enough momentum that its own marketing efforts can sustain torrid growth. The company has said it plans to double in size over the next year.

Is It All About Amazon?


In the wake of a $175 million capital injection from e-tailer Amazon (AMZN), LivingSocial also hired a new chief financial officer, indicating it's ready to make a serious run for either additional capital or an initial public offering (which is unlikely, considering the Facebook situation). Yes, LivingSocial can certainly count on aggregators to continue listing its deals in the short term, but as the number of daily-deal sites continues to proliferate, users of aggregators likely won't even notice if LivingSocial drops off the list.

Unless, of course, the Amazon tie-up is about to yield exactly what my DailyFinance colleague Kevin Kelleher suggested in a previous column -- namely, that Amazon would allow LivingSocial to promote its offerings via the e-tailer's enormous email newsletter offerings, which reach many millions of customers. If that's the case, then LivingSocial could well end up giving Groupon a serious run for its money.

Even though Groupon is growing furiously, it has begun to slow as the group-buying phenomenon has reached near-saturation in major markets like New York, San Francisco and Los Angeles. As I noted earlier, merchants are now getting deluged with group-buying sites trying to sign them up for their service. And some other big guns with huge, loyal customer roles and millions of email recipients, like ratings site Yelp! and restaurant reservations site OpenTable (OPEN), are also plowing into the group-buying scene.

Still, I would bet that LivingSocial will be forced to reverse its decision as the market grows even more mature. The simple fact is that everything moves to aggregation after the novelty of these types of services wear off. Even the biggest players in e-tailing offer affiliate deals. Witness Amazon, which boasts an enormous affiliate program that puts its listings into nearly every major shopping search engine and e-commerce aggregation site. Amazon, of course, is known as the savviest merchant online. So if Jeff Bezos & Co. did the math and decided affiliates were a good deal, they probably had good reason.

Watch closely, also, whether this affects LivingSocial's subscriber growth in any way. A quick glance at Google (GOOG) search results indicate it might. LivingSocial is already getting a lower search ranking in many major metro areas that mom-and-pop group-buying startups target. Yes, LivingSocial is buying the top AdWords results on those pages. But that's a very expensive marketing strategy to pursue considering the likely cost of these placements -- and that these costs will probably escalate further.


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Cvbcvb Vbcvbv

If you are looking for national deals from Groupon, Livingsocial and more, check out http://DailyNationalDeals.com
They update deals daily.

October 04 2011 at 6:45 PM Report abuse rate up rate down Reply
D

Living Social is trying to limit the growth of aggregators which are good for consumers but bad for their business model in that it makes it easier for consumers to switch daily deal provider and increases the attrition rate. A great site where you can find all the deals from Groupon, LivingSocial and the other top daily deal sites is http://TheDealPages.com. You can browse deals based on category and location.

September 26 2011 at 8:09 PM Report abuse rate up rate down Reply
marcialh1

I HAVE NO INTEREST IN THIS COMPANY. How did they get my email address? Each time they send me something I put it straight into spam. I have yet been unable to keep them from clogging my in-box. I have never given the company any indication that I want anything to do with their offerings.

Does anyone know how to put an end to this unsolicited mail? This is now, in my opinion, a case of harrassment

January 11 2011 at 9:40 PM Report abuse rate up rate down Reply
Iselin007

Is an aggregator related to alligators or some mode of self-gratification ?

January 11 2011 at 6:39 PM Report abuse +1 rate up rate down Reply
Iselin007

Must be some really warped people. I have no idea what the heck their talking about. I think most other people couldn't understand this story either.

January 11 2011 at 6:38 PM Report abuse +1 rate up rate down Reply
pmac

...I don't have a clue what this article is about...the only word I recognize is "Amazon"...

January 11 2011 at 1:31 PM Report abuse +5 rate up rate down Reply
ssavad

I too am both surprised and perplexed by this action. It seems the natural maturation of the industry for Aggregators to become of increasing importance in the deal-space eco-system. With all the choices and the growing disdain for over-full in-boxes, it appears that the Yipit's of the game serve a very useful function.

Whether the Amazon tie-up will provide a large new consumer audience or not, it seems unwise to slight the very partners that helped lead to your consumer prominence. Plus, others will surely fill the void, possibly rendering it difficult for Living Social to re-join with the Aggregators at some later date. Indeed, they may now be part owned by Amazon but this latest move seems very anti-Amazon in nature.

While I am no prognosticator, I will hedge a guess that it is only a matter of time before the Aggregators start partnering with the deal providers to offer their OWN Private Label deals. Much the way WalMart aggregates so many brand name manufacturers and then positions their wares right next to the Great Value Brand -same (if not better quality) at much lower prices.

Lastly, regarding the proliferation of new entrants to the space, it is only a matter of time until merchants have heard enough from them. The real prize will go to the Deal Provider that sees the merchant as the key to the game and focuses on him as the most important part of the cycle. When that happens, the winner will build in a host of other value added features that will demonstrate that they are looking at the merchant as a long-term partner and not just a source of cheap deals that they can flood the market with, just so they can do the same thing for the merchant's competitor days later.

January 10 2011 at 9:37 PM Report abuse rate up rate down Reply
2 replies to ssavad's comment
Donald G

That was what I was thinking

January 11 2011 at 9:15 PM Report abuse rate up rate down Reply
L R Adams

The deal is going to be with Wal_Mart and Humana

January 11 2011 at 10:11 PM Report abuse rate up rate down Reply