That didn't take long. In December 2010, Amazon invested $175 million for a minority stake in daily-deal site LivingSocial, right around the time rival Groupon turned down a $6 billion buyout offer from Google. The next big thing in selling online had arrived. Yet last week Amazon wrote down the value of its LivingSocial stake by $169 million, and Groupon's stock is down more than 75% from its initial public offering price of $20 a year ago. Apart from the cash on its balance sheet, Groupon is worth less than $2 billion. Pretty quick fall from grace.
Millions know that daily-deal sites collect emails and pitch 50% off local sky diving lessons or 40% off aromatherapy sessions if enough people sign up. So LivingSocial and Groupon were smack dab in the center of three hot trends: social, mobile and local. Amazon CEO Jeff Bezos has a pretty good nose for what works. So why the return to earth?
First, neither LivingSocial nor Groupon was really a technology company even though both were valued like one. Groupon has 10,000 employees, most of whom are sales people who solicit deals and write up enticing offers. This doesn't scale well because if you want to grow in Cleveland, you have to hire lots of people in Cleveland.