Groupon

LivingSocial CEO: 'We knew that not everything we do would be right'

January 17, 2014: 5:00 AM ET

We talk to Tim O'Shaughnessy, chief executive of the couponing startup, shortly after he revealed that he would step down.

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FORTUNE -- Tim O'Shaughnessy, the 32-year-old founder and CEO of the digital couponing site LivingSocial, announced last week he is stepping down from his job.

His company has been on a roller coaster, surging in value at the same time as its chief competitor, Groupon (GRPN), and falling back again just as quickly. Amazon (AMZN) owns 31% of LivingSocial and also is a competitor, a somewhat awkward position for a young company.

A few days after his resignation by blog post -- he won't leave until a replacement is found -- O'Shaughnessy reflected on what's still working at LivingSocial, what didn't work as well, and what he plans to do next.

For the uninformed, please give us the basics on LivingSocial today.

The business is largely a marketing platform, connecting consumers and merchants, usually with a promotional offer, ranging from prepaid discounts to plain offers to other things. Fifty-five to sixty-five percent of our business is with local merchants like the restaurant down the street. Another 30% to 35% is national merchants: multi-market, broad-based, sophisticated marketing teams. The remaining balance is in travel.

How do local and national merchants behave differently?

Local businesses tend to go with the pre-paid vouchers: pay $25, get $50 to spend. National merchants, because we have such a large audience base, look more at overall reach. They like the "claim" model. Bath and Body Works (LB), for example, might do a promotion where you claim an offer or coupon, but you don't have to buy anything. Instead you get a unique code to take to the store.

You initially were best known for daily deals. What is the status of that business?

We're open to lots of promotion types. Daily deals are pretty small at this point. The vast majority of the merchants we work with run with us for more than 24 hours. We've also become far better at targeting consumers for merchants. At first we were about sending deals out to everyone. Now it's, "Do you need 500 customers in a week? Then the featured e-mails is best for you. But if you really want five customers per week for the next 30 weeks, then you can be part of our marketplace."

Talk about your travel business.

It has been around for a little over three years. It's a similar type of hybrid between what local merchants and national merchants are interested in. You have B&Bs and boutique hotels. And then you've got your Starwoods (HOT) and Hiltons (HLT), which behave like national merchants. We have similar types of products. That business is much more seasonally driven and much more dependent on occupancy rates. We could be doing great in one year, and then if occupancy rates are up 4% we'll have less business. We tend to see a little bit of a reverse correlation to the economy there.

What about events?

That's been a huge growing part of our business. People love live events. You'll go to a Bruce Springsteen concert four times. We work with large partners such as Broadway producers, WWE, Cirque du Soleil, and professional sports teams. That business had huge growth for us last year. We are one of the largest places to buy tickets for live events.

Where do you get tickets inventory?

The places where you buy tickets, like Ticketmaster, may have a relationship with the building. But they are much less the marketing engine. We are first and foremost the marketing engine. If we work with a partner when they put their tickets live, they have all sorts of marketing things they can do. We'll work with a partner to figure out: What's your pre-sale plan? What's your last-minute plan? And we'll develop a whole plan.

So you have inventory directly from the exhibitor?

Yes. And sometimes we're the exclusive seller for pre-sales.

What are you major differences with Groupon?

We have developed a differentiated approach on live events. We've been more focused on being a marketing platform. They seem to be invested a lot more in becoming a direct distributor of physical goods. We want to bring customers to you, Mr. Merchant. They've [Groupon] pretty actively talked about physical goods.

As you reflect on your time at LivingSocial, what hasn't worked as well as you'd like?

We have surpassed anything I would have hoped for. We had really, really aggressive growth. We knew that not everything we do would be right. Could we have grown in a smarter way than we did? Undoubtedly. We used to do small, local, originally produced events. They were unique, and customers liked them. But we were acting as the merchant. We decided we needed to hone in on being a marketing platform.

There have been geographies we didn't reach the scale we wanted to, but thankfully more stuff has gone right than not. We had a reasonably small presence in the Middle East, for example, which became an increasingly unstable environment to work in. France we decided was going to be too expensive to get to scale.

Your thoughts on your Amazon?

We have a commercial relationship as well as financial relationship. We said, boy, if you could be partnered with the biggest e-commerce company in the world, Amazon would be a pretty good one. We've learned a lot around operating a business, from how to negotiate credit card fees to how you think about making investments. They continue to be involved. We each would like to figure out still how to sell more stuff with each other. It hasn't been for a lack of trying.

Yet your investor also competes against you with Amazon Local.

It is co-opetition. We provide a lot of the inventory, and in some markets they are competitive with that.

How is another mega-cap, Google, doing with its Offers?

Google (GOOG) as a marketing platform is potentially the most significant competitor there is. The specific Google Offers product doesn't really show up on our radar.

What kind of executive do you expect to seek as your replacement?

We are figuring some of that out right now. When you announced you are engaged, people immediately want to know when the wedding is. It's not dissimilar from that. But someone who has experience running companies, managing P&Ls [Profit and loss statements --Ed.], and who has an e-commerce background.

Despite Amazon having dramatically written down the value of its investment in LivingSocial, you have made the case the company is on sound financial footing.

This is a 4,000-plus-person company that did almost $400 million in revenue and about $1 billion in sales last year. The company has hundreds of millions in the bank. Our operating P&L has improved drastically over the last two years. One of the things that does not show in Amazon's filings are cash vs. non-cash earnings. We feel pretty good about what we've been able to do about that. Our actual operating loss is at a very good place compared to where it has been. The company has a long, long time to figure out where it is going.

What are you going to do next?

As I told my team, I'll be here on Monday. And I'll probably be here eight Mondays from now. Honestly it's just a little too early for that. I care deeply about the company.

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