February 1, 2011, 12:00 AM

Groupon and LivingSocial duke it out for daily-deal dominance on a world scale

With new money behind each of them, the two leading daily-deal sites appear to be going head to head this year as they focus on attracting new customers throughout the world in a race to lay claim to global daily-deal dominance.

The two leading daily deal sites, Groupon and LivingSocial, kicked off 2011 with a bang, as both sites expanded their international reach and Groupon Inc. closed $950 million in new financing amid reports that an IPO may be on the way. Meanwhile, LivingSocial flexed its marketing muscles by running the most successful one-day deal ever, selling Amazon gift cards at half price. Amazon invested $175 million in LivingSocial last year.

Suffice to say, it looks like the two operators will continue to go head to head in 2011 as they race to lay claim to global daily deal dominance. "We're really in the very early days of a brand new market that's likely to evolve rapidly for the foreseeable future in ways we can't fully anticipate now," says Lou Kerner, vice president of equity research at Wedbush Securities.

Groupon closed a $950 million funding round in mid-January and is reportedly meeting with bankers to discuss an initial public offering that could have a valuation of as much as $15 billion. Those talks follow the company's rejection of a buyout offer from Google Inc. said to have been in the range of $6 billion.

Meanwhile, the daily deal sites focused on attracting new customers around the world. In the same week it closed its funding round, Groupon announced it had bought daily deal operations in India, Israel and South Africa that it intends to rebrand under the Groupon name. Meanwhile, LivingSocial, the No. 2 daily deal site in the U.S. by traffic, announced it had acquired a majority stake in LetsBonus, a provider of daily discounts launched in 2009 that operates in Spain, Italy, Portugal, Argentina and Mexico. LivingSocial also added nine more domestic markets.

LivingSocial then ran an offer Jan. 19 selling $20 Amazon.com gift cards for $10, in each of its more than 170 U.S. markets. More than 1.3 million consumers bought the deal during the 24 hours it was available, making it the most-purchased daily deal offer ever. A customer could only buy the offer once. The deal far surpasses Groupon's most popular offer, which last August sold 441,000 discount vouchers redeemable for merchandise at Gap stores.

Groupon's and LivingSocial's rapid expansion leaves analysts wondering when profitability will catch up with expansion.

Forrester Research analyst Sucharita Mulpuru says it's tough to assess just how these companies will fare in the long term. "I don't think we have a lot of history with hyper-growth. We know that Facebook, Zynga and Groupon have grown their user bases very rapidly. Their revenues haven't matched that, and that's the unknown. Will getting a lot of non-paying accounts early on ultimately help you develop a viable business model over time?" she says. To be sure, the online retail industry will be watching.


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