LivingSocial & Groupon — O2O business model at a glimpse

In case you never heard of LivingSocial: it’s an online marketplace that allows its registered users to buy and share things to do by providing coupon deals based on geographic locations. The overarching idea was to create online platform designed to enliven offline activities. You can think of it as a counterpart of the famous industry leader Groupon.

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In fact, Groupon and LivingSocial were almost the first to almost crack the Daily Deals O2O code. Groupon was given $20B public valuation only 3 years after its launch, while LivingSocial raised more than $30 million in capital after 2 years of its launch. The Daily Deals O2O seemed to have great potential.

But today Groupon is worth less than 10% of that value ($1.75 billion as of 1/10/16) and there is a graveyard full of failed daily deal sites. Continuous discount offer doesn’t seem to be sustainable and appealing anymore for offline merchants.

On the other hand, ‘on demand’ companies continued to grow fast: Uber had a $60B valuation and Airbnb had a $31B valuation recently. The O2O on demand model is soaring.

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Although ‘on demand’ model outcompete Daily Deals model here in the United States, China has been leading the O2O revolution in all areas. Here is how fast it is growing:

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Here is a conclusion I draw: China makes O2O model easier to grow in general. Why? First, mobile payment is heavily used in China. The growth of O2O model relies heavily on connecting software platform to physical brick and mortar stores that are providing actual services. Mobile payment facilitates the process, making transactions much likely to happen.

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Secondly, Wechat, China’s most used messenger, allows third parties to integrate their apps within the Wechat platform. The seamless experience of O2O service with mobile payment and Wechat’s large user base make O2O businesses much easier.

There are many other factors that are conducive to the growth of Daily Deals O2O.  Maybe we can’t really blame the model LivingSocial and Groupon have, after all, once things like mobile payment are widely adopted, the landscape of this business model might change.

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