LivingSocial Gets More Money, Goes ‘Hyperlocal’

On March 11 group buying site LivingSocial announced a $25 million “B” round. Today, a little over a month later, the company is announcing a new $14 million “C” round.

In addition the company is launching in several new markets — Portland, Orange County, Charlotte and Philadelphia — bringing the total in which it operates its daily deal offering to 18.

In Seattle LivingSocial is introducing “hyperlocal,” which in this case is not the neighborhood but sub-DMA-level targeting within the larger metro market. Here’s what the press materials said about this new capability:

Now consumers in areas like Tacoma and Bellevue will start getting deals targeted to their location, in addition to Seattle proper. Hyperlocal deals not only help more consumers explore new things in their city, but these deals also provide merchants with a greater opportunity to reach local audiences on the LivingSocial Deals platform.

I spoke yesterday with LivingSocial CEO and Co-founder Tim O’Shaughnessy about the announcements and a range of issues related to the group buying phenomenon.

O’Shaughnessy told me that “hyperlocal” areas are self-selected by users and that the targeting may become more granular or narrow over time. Seattle is a test market of sorts but the company intends to roll it out more broadly.

I asked O’Shaughnessy about the “noise” in the market, though not yet mainstream, on both the consumer and SMB-advertiser sides. I also asked how LivingSocial was different or would differentiate from other competitors. He told me that the group buying market in his view was an easy market to enter but one in which it is very hard to scale.

He sees LivingSocial and Groupon perhaps as the only ones in the market now doing that. LivingSocial Competitor Groupon just raised a massive ($100+  million round) at a valuation of more than $1 billion. Groupon’s total funding is now reportedly over $170 million.

O’Shaughnessy said that in every market the company has “feet on the street” — at least a couple of reps that can negotiate deals and who know the market well. He felt that this is and would increasingly be a differentiator for the site, for “advertisers” and consumers.

I walked O’Shaughnessy through my “Dark Side” post and we discussed the various issues raised. In particular he said that LivingSocial does allow caps. He also said that businesses that use the service have high satisfaction levels. Indeed, there’s a growing body of anecdotal evidence that these programs work.

The race is on for these sites to get the deals, the scale and to some degree to develop themselves as “brands” that consumers recognize. Right now LivingSocial and Groupon are the two providers that are arguably best positioned from a consumer “brand perspective.” However, because businesses are buying new customers and there’s zero risk — this is not “advertising” in a conventional sense — it’s easier for a new company to sell group buying into the SMB market without a recognized brand.

As the phenomenon becomes more mainstream how will it evolve? And will it put pressure on other media because of this zero-risk proposition?

This second issue was a question that O’Shaughnessy and I discussed at some length. He believes that in many cases this is new local money coming into the market and not a substitution of group buying for other media. He also said that the WashingtonPost is a partner and saw that as a model for other LivingSocial-traditional media relationships potentially in the future.

O’Shaughnessy also told me that many of the local businesses that work with LivingSocial as clients/customers see it as a “branding play” in addition to being about new customer acquisition. That was interesting and something I hadn’t thought about before.

On the point about new customer acquisition, I raised the “one night stand” metaphor. He emphasized that LivingSocial wants its local business customers to be happy and to utilize their services again. He also  said that he sees opportunities for additional kinds of products in the future to more fully serve the local market.

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