What’s better than 50% off khakis at The Gap? How about 50% off anything on Amazon?
As of Wednesday evening, LivingSocial has sold more than one million deals for $10 off of a $20 Amazon gift card—and that was only 12 hours into the promotion, with another 12 hours to go. It’s the deal that can be whatever you want it to be! Books, movies, music, clothes, bedroom décor, pet accessories, pool supplies, diapers—whatever (but not as a gift, even though it is a GIFT card). It’s brilliant!
LivingSocial’s Amazon promotion has swamped Groupon’s Gap deal, which sold 440,000 deals and raked in $11 million. But there’s a surprising twist to the LivingSocial deal: LivingSocial is fronting the bill. Normally, the merchant offers the product at a discount and absorbs the loss in exchange for higher traffic which essentially generates more revenue. But in this case, LivingSocial actually purchased the gift cards from Amazon first and then sold them for half their purchase price (assuming LivingSocial paid full price for the cards—neither LivingSocial nor Amazon will disclose how much the company paid for the gift cards).
At the rate that the gift cards are flying off the virtual shelf, LivingSocial is likely to sell somewhere around two million cards. If LivingSocial paid the full $20 per gift card, the promotion could potentially mean a $20 million loss. That’s…infuriating.
One might look at it as a sort of…thank you for the $175 million Amazon shoveled into LivingSocial back in December. The financing, which also included another $8 million from Lightspeed Ventures, brought LivingSocial’s total funds raised to $232 million right around the time that Google and Groupon were in acquisition talks.
But the promotion won’t be a huge loss (what’s $20 million anyway? Pfft). While LivingSocial is doing Amazon the favor of sending anywhere from one to two million customers to its site, who will likely purchase more than $20 worth of merchandise, it won’t be walking away without anything to show for the promotion. All of those customers are going to remember where the deal came from—not Groupon, the undisputed leader in the group-buying/daily deal space, and LivingSocial’s main competition. LivingSocial is likely to garner a hefty store of new subscribers which will make it that much more competitive with Groupon—at least in North America.
(In the time it took me to write this, LivingSocial sold another 50,000 gift cards.)
Image source: Livingsocial.com