Amazon’s Key to Beating Groupon in the Daily Deals Space Is Its 164 Million Paying Customers

Amazon’s online catalog offers millions of everyday items for sale, but how many consumers think of visiting Amazon to buy a meal in a restaurant or a haircut at the local salon?

Over the past year, Amazon has slowly been entering that space, aiming to go up against industry-leading Groupon.

So far, it has done fairly well. For example, Amazon is the fourth-largest daily deal provider in the U.S., following Groupon, LivingSocial and Travelzoo, according to Yipit, a deal aggregator that closely tracks the major players.

Starting early tomorrow, the company is planning a publicity stunt to raise its awareness even further, by posting $10 Amazon.com gift cards for five bucks.

The offer will be distributed on the AmazonLocal site, via email and on some Kindle devices, and has the potential to sell out, since limited quantities will be available. (Don’t get too excited, it’s limited to one per customer.)

As part of the promotion, Mark Eamer, a director of product at AmazonLocal, provided a glimpse into the company’s plans in the crowded local deals space (but that’s pretty good, considering the company’s corporate culture to not disclose much of anything).

Offering gift cards is a common way for companies in the space to drum up new subscribers, even though the companies often lose money. For example, last year, LivingSocial sold 1.3 million $20 Amazon gift cards for $10 apiece, Groupon pawned discounts for Barnes & Noble, and more recently, Google offered up gift cards from REI.

Eamer said this represents the first time it has sold gift cards for Amazon.com, but in the past, it has sold deals for other Amazon-owned properties, such as Diapers.com and Soap.com.

Up until now, most of AmazonLocal’s growth has been supported by the $175 million strategic investment it made two years ago in LivingSocial. Nine months ago, Amazon launched its first local deals site in Boise, Idaho, with the help of LivingSocial, and today it operates in 90 markets across 26 states and the District of Columbia.

Eamer said that even now most of the deals listed on the site come from LivingSocial, although AmazonLocal is hiring its own sales team in Seattle and in other locations to help source deals. He declined to say how many people work in the division.

Still, it’s clear that one of Amazon’s advantages in getting merchants to work with them over a competitor is its scale, he said.

Eamer would not disclose how many subscribers have signed up for AmazonLocal, but overall, the company has 164 million active customer accounts worldwide, defined as people who have made a purchase on the site in the past 12 months.

“There’s lots of competitors in this space, and we all want attention from the merchants. By far and away, they [merchants] answer the phone and want to hear what we have to say. We have relationships with millions of merchants around the world, and 164 million customers worldwide. We know how to work with merchants and connect with customers — it’s unique to Amazon.com.”

In the future, Eamer said, AmazonLocal would be open to talking to other providers beyond LivingSocial to bring more offers to the platform. “We would consider it and evaluate that as time goes on, or as another relationship presents itself,” he said.

Amazon’s success in the space is important not just because it is interested in going up against Groupon, but because it uses offers to discount the price of its hardware, including the Kindle e-readers. For instance, a Kindle Touch “with special offers” costs only $99, but one without offers — a.k.a. ads — is $139. In other words, if it can subsidize the cost of its hardware through the use of these offers, it can compete more deftly against Apple and others in the tablet space.

Another goal for the year is to continue to refine its targeting abilities. Currently, offers are only delivered to people based on geography only.

“One of our key tenets is delivering the right deal to the right person at the right time … Our targeting is limited by geography, but we’ll be working on some things in 2012.”

Of course, in the case of tomorrow’s Amazon.com gift card, it will be sent out to everyone.


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