The Expiring Value of LivingSocial

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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The chief executive officer of LivingSocial Inc., Tim O'Shaughnessy, will be stepping down as soon as a replacement can be found. On the company's blog, he wrote that "now is the best time to transition leadership" that is suited to lead the company "into its next stage of growth," by which I assume he means the phase where the company runs through its remaining cash and shuts down. Unfortunately for LivingSocial's employees, unless they are planning to recruit Joshua, I doubt there's anyone capable of leading them to sustainable profitability and growth.

The social-coupon model doesn't work. The social-coupon model never worked. There's just not enough value in what these companies do for them to be profitable, and even if there were, it's too easy for competitors to get into the coupon business. As if all that weren't bad enough, the new Gmail inboxes, which segregate promotions, seem likely to hammer their uptake even further. Groupon Inc., the company that started all of this, seems to be planning to survive by finding a different business to be in as quickly as possible. But many of the businesses it is exploring are already being conducted by other companies with long experience in the area, so I'm not sure how well this is going to work out.

That doesn't make me happy; I've had a good experience with LivingSocial, and I wish that there were a viable business model there. But at the end of the day, hordes of discount-driven customers who use exactly the value of the coupon and never come back are just not that valuable to businesses, and the longer the saga of these companies stretches on, the more obvious this becomes.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net