LivingSocial Nears Bankruptcy
Published: Friday, November 1, 2013
Updated: Friday, November 1, 2013 02:11
In little over a year, LivingSocial, founded by Tim O’Shaughnessy (MSB ’04) in 2007, has gone from one of Washington, D.C.’s most promising companies to a platform that has alienated D.C. small businesses, including Georgetown restaurants, in attempts to stave off bankruptcy.
“LivingSocial had terrible execution of its product,” Wingo’s Assistant Manager Bold Obi said. “The company had no customer service, and they had a poor website layout. Everything was done incorrectly. Ordering online didn’t make sense. It was a bad experience for restaurants and for their customers.”
LivingSocial profited initially by offering discounts and deals through daily emails, but has recently recorded net losses. In its most recent quarter, LivingSocial posted a $26 million loss, bringing its yearly loss through the first three quarters to $107 million, a sizeable number for a company with slightly more than $500 million in yearly revenue, according to Washingtonian magazine.
Restaurants, including Kitchen No. 1 and Wingo’s, were hopeful that LivingSocial would help to improve their bottom line.
Though these restaurants were disappointed by LivingSocial’s offerings, it was LivingSocial who chose to suspend its service, not the local restaurants.
“They dropped us, discontinuing the product to many restaurants,” Obi said.
Michael Clements, founder of ArtJamz, a public art studio and lounge in D.C., opposed the company on the basis of competition.
“I am not going to do business with a company that says it supports small business and then morphs into a company that is in direct competition with small businesses,” he said.
LivingSocial declined to comment.
The D.C. mayor’s office expressed faith in LivingSocial last year by offering the company a large tax bailout to keep the business afloat while allowing managers to hire more employees from the District. However, Mayor Vincent Gray’s Senior Communications Manager Doxie McCoy noted that while the Gray administration continues to support LivingSocial in its attempt to transform its business model, the company must meet certain conditions to receive the tax break.
“The District isn’t obligated to provide this tax break until LivingSocial meets certain requirements, such as building a 250,000-square-foot headquarters in the city and maintaining 1,000 employees in the District,” she said.
Washingtonian magazine reported earlier this month that LivingSocial has not met these obligations. Only 600 people are currently employed by the company and fewer than 250 are from the D.C. area.
Business owners agreed that LivingSocial would require rejuvenation.
“Part of me wants LivingSocial to succeed, but they are our main competitor. They need to change,” Clements said.