LivingSocial yesterday was selling $20 for $10, which is a good deal for everyone buying it (and remembering to then make use of their Amazon gift card).  Not surprisingly, they sold at least 1 million for a total value of $20 million.  Now if everyone who bought one of these were a new LivingSocial registered user, that would amount to a $10 customer acquisition cost.  That’s of course a lower bound because there are likely to have been quite a few existing LivingSocial users and some fraction of the new users who signed up just for this deal may never sign up for another deal.  So as a swag lets call it $20 per new customer.

Given the various rumor numbers that have floated around about the profitability of Groupon’s and LivingSocial’s businesses that would seem like a reasonable price to pay since it is (by those accounts) far lower than the lifetime value of a customer.  The big question though is whether this will last.  We might have easily been witnessing the first step towards the kind of competition that drives profits down rapidly as companies in the deal space start to pay more and more to try to bring customer attention their way.  What can’t be long behind is companies offering a better split to merchants who offer discounts as a way to acquire more of those.

How long this process of “dissipating” excess profits will take depends on how defensible the respective networks are.  I have previously argued that the deal space networks are not really defensible.  Looks like we might see sooner rather than later whether that is true.

LivingSocial yesterday was selling $20 for $10, which is a good deal for everyone buying it (and remembering to then make use of their Amazon gift card).  Not surprisingly, they sold at least 1 million for a total value of $20 million.  Now if everyone who bought one of these were a new LivingSocial registered user, that would amount to a $10 customer acquisition cost.  That’s of course a lower bound because there are likely to have been quite a few existing LivingSocial users and some fraction of the new users who signed up just for this deal may never sign up for another deal.  So as a swag lets call it $20 per new customer.

Given the various rumor numbers that have floated around about the profitability of Groupon’s and LivingSocial’s businesses that would seem like a reasonable price to pay since it is (by those accounts) far lower than the lifetime value of a customer.  The big question though is whether this will last.  We might have easily been witnessing the first step towards the kind of competition that drives profits down rapidly as companies in the deal space start to pay more and more to try to bring customer attention their way.  What can’t be long behind is companies offering a better split to merchants who offer discounts as a way to acquire more of those.

How long this process of “dissipating” excess profits will take depends on how defensible the respective networks are.  I have previously argued that the deal space networks are not really defensible.  Looks like we might see sooner rather than later whether that is true.