Much buzz was created recently when LivingSocial offered Amazon.com $20 gift cards for $10. However, one commonly overlooked and even misreported aspect of the deal is Amazon’s role. In fact, they are not a sponsor of the deal – which most likely means that LivingSocial ate the ~$13M cost of the promotion. Why would they do this? Because they’ve calculated that the average life time value (LTV) of a customer is way north of $10, meaning that the average LivingSocial customer will generate more than $10 of present day value over the lifetime of their relationship with LivingSocial. The $10 CCA figure is probably low, given that the majority of customers who took advantage of the offer were existing LivingSocial customers – but it’s also likely that any breakage in the deal accrues to LivingSocial (meaning that LS doesn’t pay for the gift card until it’s actually redeemed on Amazon). All in all, LivingSocial probably netted a few hundred thousand new names/email addresses, in addition to a hell of a lot of PR.
But a much more interesting angle could be how this deal catapults LivingSocial forward in the long-term battle with Groupon. Could part of LivingSocial’s deal with Amazon involve Amazon sharing the eventual purchase data from the resulting gift card redemptions? This data could then be used to better personalize future deals for each user based on previous purchasing history (selling Amazon gift cards isn’t really adding much value to this data, if the eventual purchase is opaque). In this case, the real question becomes not just how many new customers they acquired, but now how many dormant customers they’ve engaged and can start building purchase profiles for. This makes a ton of sense to me – especially given that the real prize in the group buying space will be awarded to the company who can build the deepest purchasing/preference profiles of customers. It’s also a great reason for Amazon to finish what they started, and outright acquire LivingSocial.