LivingSocial Spent Millions On an Event Space and Here’s How It’s Doing

by: on July 2, 2012
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Competition and merchant capacity are two key challenges for the daily deal industry. There are too many services providing similar offers, and the top merchants can only service so many new customers.

LivingSocial recently opened 918 F Street, a state-of-the-art live events venue near LivingSocial’s HQ in Washingon DC. Though very little has been written on this new initiative, using our own Yipit Data, it appears LivingSocial may have addressed its key business model challenges. 918 F Deals:

  • Generate more revenue: Gross billings per deal are twice the average
  • Are higher-end: Price per deal is much higher than average and there’s no discount
  • Are unique and exclusive: 918 F Street deals are uniquely curated and aren’t available anywhere else
  • Solve merchant capacity constraints: With the facility, small merchants can service hundreds of new customers on a daily basis

LivingSocial’s 918 F Street is working

918 F Street deals perform 2x better than the average LivingSocial deal.

Over the last four months, 918 F Street deals have consistently generated double the gross billings per deal of the average LivingSocial deal. And 918 F Street events have less availability, as they are concentrated over a few specific days and times, compared to the many months during which a typical LivingSocial deal can be redeemed.

Moreover, 918 F Street’s gross billings per deal have steadily grown from $18k in February to over $22k in May, for a 20% jump in just four months.

While the venue has generated roughly $1 million in gross billings in a few short months, the initiative is doing as well as the number of events LivingSocial is able to host.

918 F Street offers food, classes, and drinks

The vast majority of 918 F Street events are class-based or food-related.

While 28% of the venue’s gross billings have come from pop-up restaurants, the largest contribution to gross billings is from class-based events.  Cooking or mixology classes accounted for 36% of gross billings, while photography or art classes accounted for another 23%. Yoga and other fitness-related classes have also been featured at 918 F Street.

Curiously, 73% of 918 F Street events have included some form of drinks. The venue’s top deal so far actually paired a two-hour painting class with two glasses of wine – the combination attracted nearly 3,000 customers by the end of May and an additional 1,000 so far in June.

LivingSocial’s premium experiences 

And all of these events are curated, premium experiences.

The average price to attend a 918 F Street event has been $53, over 40% more than the average price for a standard LivingSocial deal.

918 F Street’s value proposition, challenges

While the initiative certainly has promise in becoming a big business, it also has great potential to improve LivingSocial’s brand and merchant relationships.

  • Unique, curated events: With a custom-designed venue, LivingSocial can create unique, curated events that will excite customers without the discounting that is necessary for daily deals.  In March, LivingSocial hosted a three-hour iPhone photography class that was followed by a round of beers in the venue’s bar. These types of events will keep LivingSocial top-of-mind for customers looking for local activities.
  • Merchant supply constraints: While the typical appeal for LivingSocial’s daily deal product is to draw more customers to merchants, 918 F Street allows LivingSocial to cater to merchants that cannot support more customers. Top merchants typically have supply constraints – for example, a top restaurant may be limited by the number of tables, wait staff, or even kitchen space. 918 F Street enables LivingSocial to offer excess supply to the best merchants in the city, many of who may have otherwise never entered into LivingSocial’s ecosystem.
  • Address merchant loyalty:  As generating loyalty with merchants has gained increased importance, 918 F Street will enable LivingSocial to offer something different to existing merchant partners who have run daily deals. One of 918 F Street’s first events in February featured a 60-minute yoga class, wine tasting, and live music with a merchant it had previously worked with on a daily deal. 

Given these, 918 F Street has its share of challenges.

  • Will it work elsewhere: LivingSocial is headquartered in Washington DC, which is the company’s top market. While 918 F Street has demonstrated potential there, it is less certain whether the initiative would work elsewhere.
  • High fixed costs: LivingSocial acquired 918 F Street for $3 million, which excludes costs associated with custom designing the venue to meet LivingSocial’s specifications. Should LivingSocial be interested in expanding the initiative to other markets, it would require a significant up-front investment. While LivingSocial has indicated it has no current capital constraints, the ability to finance such initiatives will put quite a bit of pressure on LivingSocial’s balance sheet.
  • Profitability: 918 F Street has generated impressive gross billings so far, but there are reasonable questions surrounding the profitability of the initiative. How much is LivingSocial sharing with its merchant partners? Is LivingSocial providing merchants with value-added services, such as its own wait staff, that adversely affects profitability?

Despite these hurdles, there’s reason for LivingSocial to be excited. Surprisingly, 918 F Street already accounts for 10% of LivingSocial’s Washington DC business… with just 10 deals per month.

Get access to Yipit Data

Yipit follows the global performance of Groupon, LivingSocial, Travelzoo, Google Offers, Amazon Local and hundreds of other sites in the daily deal space. Yipit provides its data to leading investors and daily deal companies to derive real-time updates of market and player performance. Email to inquire about Yipit’s data.

Unaiz Kabani manages Yipit’s Data Product, which provides past offer detail and competitive intelligence to the Daily Deal Industry, investors, and the media.