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Groupon’s competition isn’t LivingSocial. It’s Amazon.

This week LivingSocial, the leading Groupon daily deal competitor, ran a deal for $20 gift card on Amazon for $10. Simple math says that’s pretty sweet. I bought it. It even went a step further that if you signed up for the site through a friend each would receive an addition $5 each on your card. The final tally on the number of cards sold landed around 1.3 million deals. All of this is to say that this week LivingSocial announced two things very loudly: the first everyone already knew (at least a bit) and the second is something most ignored but won’t ever again.

First, LivingSocial put a new stake in the ground claiming some right to the daily deal space that everyone has handed over to Groupon. The media has kissed Groupon’s butt for so long that it needs lip balm and Groupon needs a rash cream.

In other words, the media has handed over the crown to Groupon and in turn let them get a bubble-like valuation that will likely make a select few very wealthy and the rest of us suckers thinking that the calendar rolled back to the year 2000. This week though, anyone who has any sense about them is recognizing that there is more than one real player in this space. The Great Amazon Gift Card Giveaway will likely be heralded as the second most important day in the history of LivingSocial.
So what’s the first most important day? It’s the point that many seemed to have glossed over when it happened. It’s the day that Amazon invested $175 million into LivingSocial not so long ago. I wrote about this over at Marketing Pilgrim and at the time I discussed the implications of this move by Amazon. I was even able to do this despite being like most others which was half in the bag on Groupon-flavored Kool Aid.

We now have enough evidence in the online space that having one overly dominant player in one area (yes I am referring to Google and search) is not the best way for things to work. Why would I say this? Most would think I am a Google fan boy and this line of thinking is blasphemous. Well, without real competition, Google has lost some of its edge and that’s bad for everyone.

With Groupon grabbing up all the headlines regarding the daily deal space it’s easy to forget that they are playing on the same swingset as the a company that virtually runs the online e-commerce world on many levels. Everyone marvels at the $15 billion valuation of Groupon. (And it is ridiculous to this untrained eye, but with financial dark magic purveyors Goldman Sachs in on the deal, anything is possible except maybe the truth.) But you must think about the fact that LivingSocial is now backed by Amazon, who has a market cap of $82 billion.

What else does Amazon have? Heavy competition to their e-reader business from Apple. This is a potential revenue stream that might suffer with the proliferation of tablets from both fruit and non-fruit tablet makers (that’s Apple or the rest, get it?). Potentially lost revenue makes a successful company look for ways to work around the problem.

So, if you are Amazon, what do you have of value? Hmm. Just the biggest and most trusted e-commerce marketplace on the planet. The products that are run through the Amazon system are staggering and go well beyond books and music. As a result, they are positioned to have the LivingSocial mechanism provide deals to purveyors of goods of just about any kind. This would get away from the Groupon “Here’s the latest struggling local restaurant that may or may not be able to handle the volume” offering. This will be about products that are bigger than local merchants. In other words, this will reach where Groupon doesn’t and it could be much bigger because Amazon already has much of the infrastructure in place.

If I were Groupon, I would be hustling to get this IPO in order before anyone really catches on that they are not competing against LivingSocial or the hundreds of other Groupon knockoffs. Rather, they are competing against an online behemoth that could take them to the cleaners (possibly at a discount from Groupon).

This has a long way to go for sure and it’s very early in this game but the shot that was fired across the bow of Groupon by the good ship Amazon was one that better be heard or else there will be a rather loud POP when the Groupon bubble explodes and people are left holding soap suds. All this while Amazon does what it does best: make the cash register ring and do it with efficiency and effectiveness.

What’s your take?

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