Deals retailer LivingSocial announced Thursday afternoon a deal which pretty much everyone saw coming: a $175 million investment from e-commerce giant Amazon. The investment comes at a time when LivingSocial's bigger competitor, Groupon, is widely reported to be on the verge of a multibillion-dollar acquisition by Google.
In addition, LivingSocial's new funding round includes an $8 million dollar investment on behalf of Lightspeed Venture Partners. A story Wednesday in the Washington Post said that LivingSocial's paper valuation is now around $1 billion, but that may not be completely precise given the fact that the same story underestimated the amount of funding in the first place.
LivingSocial says that it's "currently booking revenues of more than $1 million a day on average and is projected to book well over $500 million in revenue in 2011," and that the massive amount of funding is needed to continue expanding to more regions in both the U.S. and overseas quickly. For Amazon, it gives the company a stake in a solid niche in one of the hottest sectors of e-commerce--local deals and discounts--at a time when Google, which has never been a significant player in the e-commerce business (especially not direct sales), may be fast encroaching upon it. Amazon, meanwhile, has been focused on having a massive national commerce operation and does not have many offerings that can be considered "local."
It's unclear as to how LivingSocial may factor into Amazon's local sales plans--it's an investment rather than an outright acquisition, after all. Amazon bought Woot.com, a limited-inventory "fire sale" retailer, this June. LivingSocial is different because, like Groupon, a minimum number of buyers are required for a deal to "tip," and inventory is not typically limited.
It'll be an uphill climb for the Washington, D.C.-based LivingSocial to gain on the Chicago-based Groupon in market share, and at least one market research company is saying that it may actually be more difficult than previously thought: Experian Hitwise, in numbers released Wednesday, said that in the U.S., measurement of traffic to 81 "group buying" sites yielded a 79 percent market share for Groupon and 8 percent for LivingSocial. In the spring, as LivingSocial was making the transition from Facebook app developer to daily-deal broker, it was outpacing Groupon in growth and was within shooting distance of the bigger site for several months, but the same numbers show that Groupon's growth has been so exponential that it's now an order of magnitude bigger.
The same numbers showed that LivingSocial is notably strong among young professionals in cities but has not crossed over into suburban and small-town markets the way Groupon has, which would explain the funding round's focus on growth. It currently operates in 120 markets in the U.S., Canada, U.K., Ireland, and Australia, and has about 10 million subscribers overall.
One grain of salt for us all, as entrepreneur and former venture capitalist Seth Goldstein posted to his blog: In 2000, Amazon pumped $60 million into Kozmo, a local delivery service that's now remembered as one of the biggest belly-up flops of the dot-com era. (Goldstein had been entrepreneur-in-residence at Flatiron Partners, another Kozmo investor.)
This post was updated at 4:09 p.m. PT.