LivingSocial Snares $175 Million Investment by Amazon

Local commerce category heats up in wake of Google's rumored plan to buy Groupon for $4-5 billion.

Groupon, LivingSocial? Who are these guys? That might be the question a lot of folks are asking about the fast-growing group of startups offering consumers daily email deals on popular local goods and services such as restaurants and spa treatments. Discounts are typically 30-to-50 percent or more and retailers are believed to pay a healthy commission of 50 percent for the privilege of reaching new customers.

Since it launched two years ago, Chicago-based Groupon has quickly become the poster child for the category, thanks to a rapid rise in customers (reportedly as many as 35 million subscribers worldwide) and a widely-reported negotiation with Google (NASDAQ: GOOG) that is said to have offered anywhere from $4 to $6 billion to buy the company.

If the deal happens, it stands to greatly benefit Google's efforts to reach more local businesses, though because of the search giant's ever-widening online footprint, any deal is likely to face a fair bit of regulatory scrutiny that could drag out, if not deny, approval.

Meanwhile, Groupon rival LivingSocial made some news of its own, announcing a $175 million investment from ecommerce king Amazon (NASDAQ: AMZN) on Thursday. (Earlier this year Groupon raised $135 million from Russian investment firm Digital Sky Technologies).

"To be the biggest player in the local commerce space there is no one better to work with than Amazon," Tim O'Shaughnessy, CEO of LivingSocial, said in a statement. "As the social shopping space continues to heat up, LivingSocial is committed to staying focused on providing the high level of quality that consumers and merchants have come to expect when working with us."

LivingSocial, based in Washington D.C., recently expanded its business by acquiring adventure company Urban Escapes, and launching three new verticals including LivingSocial Family Edition, Campus Deals and a LivingSocial Escapes travel site.

Last month, Google rival Yahoo (NASDAQ: YHOO) announced a Local Offers program (currently in beta testing) that includes Groupon, LivingSocial and several other partners.

"Consumers are inundated with offers, both online and off. I think a service that aggregates several different special deals sources will give consumers great deals and make the marketplace much more transparent," said Karsten Weide, research vice president for Digital Media & Entertainment at IDC. "For partners in such a service, the audience reach of a large partner will give them a lot of much needed distribution."

As for Groupon, its 30-year-old founder and CEO Andrew Mason sounds bullish on where his company is headed, regardless of whether a deal with Google happens. "We're the fastest-growing company ever because we're the first real revolution in ecommerce since the Web has matured," he told United Airline's Hemisphere magazine.

Last year Google reportedly was in discussions to buy consumer review site Yelp, the popular hub of consumer reviews about local businesses, for $500 million. But whether or not those rumors were true, the deal never happened.

David Needle is the West Coast bureau chief at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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