Making Money Marketing

"'Money for Nothing' was a much bigger hit than anything that Dire Straits had done before; that is, Knopfler made himself into a successful rock star by way of a song about people resenting rock stars' success. He also abandoned his own opposition to making music videos, so the song was marketed with an MTV video in which computer-animated characters disparaged MTV videos—expressing what had previously been Knopfler's actual point of view—which won Video of the Year and helped make the song No. 1. And then, yes, alongside Knopfler's grumbling, working-man's-persona anti-MTV, anti-rock-star lyrics, there was another voice singing the video network's actual marketing slogan, and that voice belonged to, of all people, Sting. So. If you're looking for some moment when art and commerce, integrity and 'selling out,' class solidarity and class envy, performer and spectator, content and advertisement, and assorted other tensions all collapsed into a lucrative and critic-proof singularity*, you could do worse."

The daily deal sites Groupon and LivingSocial say they are all about local businesses. They say they can bring mom-and-pop shops new customers in exchange for  shifting their advertising budgets online.

Yet both Groupon and LivingSocial have catapulted into the mainstream with two decidedly un-local deals. Groupon’s most high-profile deal was with the Gap. And on Wednesday LivingSocial is making waves with a deal for another major, national retailer; it is selling $20 Amazon.com gift cards for $10.

But LivingSocial’s Amazon discount has an unusual wrinkle. Unlike with other deals, LivingSocial might be losing money selling the Amazon coupons.

Typically, retailers sell the coupons directly to consumers for the discounted price, and LivingSocial takes a cut, generally 30 percent. But for this deal, LivingSocial bought the gift cards from Amazon and is selling them itself.

LivingSocial declined to say how much it paid Amazon for the gift cards. Amazon also said it would not disclose the terms of the deal.

If LivingSocial paid Amazon $20, then LivingSocial is absorbing the losses. If it paid Amazon less, then Amazon is losing money.

Though Amazon certainly isn’t hurting for customers, it has invested $175 million in LivingSocial, so an increase in business for the deal site is also good business for Amazon. And it looks as if business is increasing.

As of 3:15 p.m., with nearly 17 hours remaining to purchase coupons, LivingSocial had already sold 711,870 coupons for $7,118,700. It seems to be on track to surpass Groupon’s $11 million in sales of the Gap coupon.

Why would LivingSocial agree to the unusual terms for the Amazon deal?

The attention that the high-profile, national deals receive is a useful marketing tactic for the daily deal sites, because they get people to sign up and then become local customers afterward. The Amazon deal is giving LivingSocial, which is Groupon’s biggest competitor but has been living in its shadow, a big publicity boost.

So while LivingSocial and other daily deal sites were conceived as a marketing tool for small businesses, this particular promotion is more of a marketing tool for LivingSocial.

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