After a massive breach of its computer systems yesterday, LivingSocial has sent out emails to all of the 50 million customers impacted, a company spokesman said, and is now working with law enforcement in an investigation to help find the perpetrators.

The company declined to give more information about how the hackers might have entered the Washington, D.C., daily deals company’s system to get access to names, emails, birthdates and encrypted passwords. But it did note that it was taking extra measures to restrict access to all of its systems and consumer data and has been doing heavy monitoring of consumer accounts.

LivingSocial also underscored that credit card information of its users has not been hacked. “We store credit card data through a financial processing network, so the full number literally does not exist anywhere in our system,” the spokesman said.

Still, the hack is a huge blow for LivingSocial, which is owned in part by Amazon, impacting 50 million customers, who will now be required to reset their passwords. All of LivingSocial’s countries across the world appear to have been affected, except in Thailand, Korea, Indonesia and the Philippines, as LivingSocial units Ticketmonster and Ensogo there were on separate systems.

This is the latest big data breach in the consumer Internet space, which has seen troublesome incursions into some high-profile companies recently, including Zappos, LinkedIn and Evernote.

The attack comes at a tough time for the company, since it has been trying to turn itself around after a downturn across the daily deals landspace. LivingSocial got a large cash infusion recently from investors to help stanch its losses. Amazon owns 29 percent of the company.

In case you missed anything, here’s a quick weekend roundup of the news that powered AllThingsD.com this week:

1. Daily-deals site LivingSocial was hacked, compromising the names, emails, birthdates and encrypted passwords of 50 million users.
2. In an essay, Reed Hastings laid out his predictions for the future of streaming video, which includes not just his company, Netflix, but also HBO, ESPN and anyone else transitioning from a channel to an app.
3. Walt Mossberg reviewed the Galaxy S 4, Samsung’s new flagship smartphone, and concluded that “while I admire some of its features, overall, it isn’t a game-changer.”
4. What are Google’s plans for its high-speed Internet project, Google Fiber? Theories abound, but good luck divining an answer from CEO Larry Page’s words.
5. According to multiple sources, Twitter is testing local discovery features that will help you better understand what’s happening not just around the world, but also down the block.
6. Android’s seemingly inexorable ascension over the iPhone may not be inexorable, after all. A new report says customer loyalty will let Apple overtake Google in smartphone market share by 2015.
7. On the 10-year anniversary of its sale to Google, Applied Semantics co-founder Eytan Elbaz explained what he and his partners learned from starting up and getting acquired.
8. For the first time, Yahoo CEO Marissa Mayer publicly commented on the controversy created after Yahoo banned its employees from working from home.
9. Speaking of Mayer, she’s officially joined the board of wireless gadget maker Jawbone, and it’s likely to be a good fit.
10. Apple needs some new hit products to drive growth, and CEO Tim Cook says they’re on the way… just not until this fall.

To stay on top of the latest, follow AllThingsD.com on Twitter and Facebook, and subscribe to our daily email newsletter.

LivingSocial, the daily deals site owned in part by Amazon, has suffered a massive cyber attack on its computer systems, which an email from CEO Tim O’Shaughnessy — just sent to employees and obtained by AllThingsD.com — said resulted in “unauthorized access to some customer data from our servers.”

The hack includes customer names, emails, birthdates and encrypted passwords.

The breach has impacted 50 million customers of the Washington, D.C.-based company, who will now be required to reset their passwords. All of LivingSocial’s countries across the world appear to have been affected, except in Thailand, Korea, Indonesia and the Philippines, as LivingSocial units Ticketmonster and Ensogo there were on separate systems.

One positive note in a not-so-positive situation: The email sent to employees and customers noted that neither customer credit card nor merchant financial information was accessed in the cyber attack.

This is the latest big data breach in the consumer Internet space, which has seen troublesome incursions into some high-profile companies recently, including Zappos, LinkedIn and Evernote.

When asked for comment on the email, a LivingSocial PR spokesman confirmed the attack and that 50 million customers were impacted.

The attack comes at a tough time for the company, since it has been trying to turn itself around after a downturn across the daily deals landspace. LivingSocial got a large cash infusion recently from investors to help staunch its losses. Amazon owns 29 percent of the company.

More to come, but here’s the email sent to employees, including one that will be sent to customers soon:

Re: Security Incident

LivingSocialites –

This e-mail is important, so please read it to the end.

We recently experienced a cyber-attack on our computer systems that resulted in unauthorized access to some customer data from our servers. We are actively working with law enforcement to investigate this issue.

The information accessed includes names, email addresses, date of birth for some users, and encrypted passwords — technically ‘hashed’ and ‘salted’ passwords. We never store passwords in plain text.

Two things you should know:

1. * The database that stores customer credit card information was not affected or accessed.

2. * The database that stores merchants’ financial and banking information was not affected or accessed.

The security of our customer and merchant information is our priority. We always strive to ensure the security of our customer information, and we are redoubling efforts to prevent any issues in the future.

To ensure our customers and merchants are fully informed and protected, we are notifying those who may have been impacted via email explaining what happened, expiring their passwords, and requesting that they create new passwords. A copy of the note is included below this email.

If you have any questions or concerns, please visit Pulse –https://pulse.livingsocial.com/intranet/Home/more_updates.html — for a list of frequently asked questions. If you have additional questions that aren’t answered in the FAQs, please submit them via email to XXX@livingsocial.com.

Because we anticipate a high call volume and may not be able to answer or return all calls in a responsible fashion, we are likely to temporarily suspend consumer phone-based servicing. We will be devoting all available resources to our web-based servicing.

I apologize for the formality of this note, which the circumstances demand. We need to do the right thing for our customers who place their trust in us, and that is why we’re taking the steps described and going above and beyond what’s required. We’ll all need to work incredibly hard over the coming days and weeks to validate that faith and trust.

– Tim

Subject: An important update on your LivingSocial.com account

LivingSocial recently experienced a cyber-attack on our computer systems that resulted in unauthorized access to some customer data from our servers. We are actively working with law enforcement to investigate this issue.

The information accessed includes names, email addresses, date of birth for some users, and encrypted passwords — technically ‘hashed’ and ‘salted’ passwords. We never store passwords in plain text.

The database that stores customer credit card information was not affected or accessed.

Although your LivingSocial password would be difficult to decode, we want to take every precaution to ensure that your account is secure, so we are expiring your old password and requesting that you create a new one.

For your security, please create a new password for your *email_address* account by following the instructions below.

1. Visit LivingSocial.com

2. Click on the “Create a New Password” button (top right corner of the homepage)

3. Follow the steps to finish

We also encourage you, for your own personal data security, to consider changing password(s) on any other sites on which you use the same or similar password(s).

The security of your information is our priority. We always strive to ensure the security of our customer information, and we are redoubling efforts to prevent any issues in the future.

Please note that LivingSocial will never ask you directly for personal or account information in an email. We will always direct you to the LivingSocial website — and require you to login — before making any changes to your account. Please disregard any emails claiming to be from LivingSocial that request such information or direct you to a different website that asks for such information.

If you have additional questions about this process, the “Create a New Password” button on LivingSocial.com will direct you to a page that has instructions on creating a new password and answers to frequently asked questions.

We are sorry this incident occurred, and we look forward to continuing to introduce you to new and exciting things to do in your community.

Tim O’Shaughnessy

CEO, LivingSocial

“We built a culture I am proud of and millions of consumers around the world have experienced their local cities because of our products,” Batalion wrote. “My decision to depart has in no way been easy. The experience and, most importantly, the friendships … have been the best of my career.”

Batalion co-founded LivingSocial in 2007 with partners Tim O’Shaughnessy, Eddie Frederick and Val Aleksenko, and has been on board ever since. Over the past few years, the company has taken on large investments from outside partners, including hundreds of millions from Lightspeed Venture Partners, T. Rowe Price and the online retail giant Amazon.

But the company has faced sharp criticism in recent years, as it has yet to turn a profit, and posted upward of $600 million in operating losses for fiscal year 2012. More recently, the company laid off 400 employees — approximately 10 percent of its workforce — in an attempt at cutbacks and an aim toward profitability.

In his departure announcement, which was first reported by TechCrunch, Batalion didn’t indicate any future plans.

A LivingSocial spokesman confirmed Batalion’s departure, but offered no further comment.

Chief Executive Tim O’Shaughnessy announced the investment in a memo to employees Wednesday. “This new investment round will allow us to dedicate the resources we need, while also building a significant cash reserve against unanticipated events or bumps in the road,” he said in the memo.

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Together, the two will be rebranded as nCrowd, and will be headquartered out of Atlanta. 

There are two remarkable aspects to this transaction, even though nCrowd will still only be a fraction of the size of Groupon or LivingSocial.

First is that the two companies represent a total of 19 acquisitions combined, representing a significant percentage of the overall number of deals that have taken place in the U.S. Second is that this deal was able to get done at all, given the current state of the industry.

Over the past year, Groupon has become a clear winner in the space, despite thousands of startups trying to challenge it. Groupon’s staying power, in part, proves that while the coupon business was easy to replicate, it isn’t easy to scale. And even at Groupon’s scale, it still struggles.

Thus, finding a buyer has become increasingly difficult for those that remain in business.

For instance, in 2011, 63 daily deal companies were acquired, but last year, that number dropped to 28, according to 451 Research, which tracks mergers and acquisitions in the space. So far this year, only one deal has closed (that was for Totsy buying the assets of Mamasource).

The last notable deal was when Chase Bank purchased San Francisco-based Bloomspot for $35 million in December.

Even with the acquisition of CrowdSavings by Half Off Depot, the combined entity will still have a minuscule footprint. All told, nCrowd will have two million registered users who are signed up to receive daily emails in 17 markets. The company employs 70 people, who serve locations that are mostly in the South and Midwest, including Atlanta, Tampa, Jacksonville and Kansas City.

Half Off Depot bought CrowdSavings for about 6.5 million shares and about $1.5 million in cash, according to sources familiar with the transaction.

“We compete with Groupon, but we used to compete with 600 daily deals sites. There aren’t that many left anymore compared to how it used to be,” said Brian Conley, CEO of nCrowd (previously of Half Off Depot).

Conley said the four-year-old company has been able to stay afloat by expanding beyond daily deals to social commerce, which means assisting merchants with running Facebook contests and helping them to improve customer retention.

I first talked to Chad Jaquays, CEO of Crowdsavings.com, a year and a half ago, when his company was considered the most active acquirer in the daily deals space — in fact, it was so acquisitive that he built a page on the company’s website announcing, “We Buy Deal Sites.”

Many of the deals were tiny, costing Jaquays roughly $100,000 to $400,000 apiece. He was interested in acquiring more subscribers, but he also took other factors into consideration, like how many of those subscribers had purchased a deal before. In all, he purchased 15 companies, and now he’s found someone interested in buying his own.

The next logical question is, what’s the end goal? Will nCrowd ever get to Groupon’s scale?

Conley isn’t disillusioned.

“Who knows what the future holds,” he said. “I will make no prognostications as to whether we can beat the fastest-growing company ever. But we do feel like we have a unique value proposition for the merchants. Once it is well-understood, this thing could take off.”

Judge headed up marketing at the electronics retailer for four years, until May, when he resigned to explore new opportunities. At LivingSocial, Judge will be responsible for overseeing online and offline advertising, brand management, social media and communications.

In a release, LivingSocial’s CEO Tim O’Shaughnessy said, “With his experience and strategic insight, Barry will help us reach millions of new consumers and businesses around the world.”

Judge joined Best Buy in 1999 to help the company launch its online presence at bestbuy.com, and then held a number of positions before becoming CMO in 2008.

The timing of Judge’s arrival is a little curious, given that in November the daily deals company slashed 10 percent of its workforce, or about 400 people, in order to try to achieve profitability.

Of course, as the second-largest in the space, LivingSocial could arguably have some branding issues as it battles Groupon’s much stronger presence in the marketplace.

Additionally, the Washington, D.C.-based company is attempting to distance itself from the stigma of the daily deals business by focusing on producing and curating events. Groupon is doing the same, by expanding into the sale of physical goods, and by becoming a technology company that builds tools aimed at local merchants.

Separately, Chad Fowler, LivingSocial’s SVP of technology, announced today on his personal blog that he is leaving the company. He said he’s taking a role as CTO of a technology startup in Berlin, and will remain at LivingSocial until the end of January. Fowler joined LivingSocial through its acquisition of InfoEther almost two years ago.

The acquisition was reported by several media outlets, including The Wall Street Journal, which cited sources close to the transaction as saying that Chase paid $35 million for the San Francisco company.

Bloomspot’s roughly 100 employees are expected to be offered jobs at the lender and payment processor.

Together, the two should be a good fit.

In general, banks and card issuers are looking for new revenue streams after the Durbin Amendment capped the amount that they could charge merchants on debit card transactions. Additionally, many banks have already begun sending targeted ads or deals to consumers based on their spending habits.

In a recent story, I named financial companies, including Visa, MasterCard and American Express, as potential acquirers for Groupon. However, one impediment with Groupon is its price. Even though its stock is down around 80 percent since its IPO, it would still cost billions to acquire.

The purchase today by Chase shows that there is an interest, just at a lower price point.

In a release, Jeff Kinder, president of Chase Offers, said, “Merchant partners are continually looking for ways to engage the right customers, and consumers have shown a clear interest in receiving offers from their favorite merchants. We believe Chase has a unique set of assets to bring these customers together and deliver highly targeted, relevant merchant offers at scale.”

Over the past few years, Bloomspot, which was led by former Yahoo executive Jasper Malcolmson, has tried hard to disassociate itself from both Groupon and LivingSocial. Even though on the surface it seems as though Bloomspot distributed similar offers, Malcolmson said he was focused on bringing merchants profitable customers rather than just getting new people in the door.

The company’s motto was, “Great Offers. Great Customers.”

But this deal may not have been so great for investors.

Last summer, Bloomspot raised $35 million in a second round of funding just before Groupon’s public offering. Prior to that, it raised nearly $11 million, for a total of about $46 million. Investors include InterWest Partners, Columbia Capital, Menlo Ventures and True Ventures, among others.

Wall Street is certainly enthusiastic for such an outcome — even grabbing onto a specious rumor that perhaps Google was sniffing around the troubled Chicago-based social discount deals company, which is currently valued at just over $3 billion. On Friday, Groupon’s stock jumped 23 percent on takeover speculation after Tom Forte of Telsey Advisory Group was quoted as saying: “Where the stock is currently trading, it’s a takeout candidate.”

Actually, the stock has been trading at these levels for a very long time, so the sudden attention is decidedly overwrought. More to the point, sources close to Google — which had offered $6 billion for the company before it went public — said that Google has not been contemplating a second foray into acquiring Groupon.

The same is true for eBay, said sources, and Amazon is an unlikely buyer because it already owns a stake in LivingSocial, the second-largest daily deals provider. Additionally, there are lots of other problems that any purchaser would face in buying the company, which sells everything from bikini waxes to GPS devices at a discount.

In an onstage appearance this morning, CEO Andrew Mason declined to address the thinly sourced rumors of a takeover. “What I have said about Groupon is everything I will say about it,” he said. “I am focused on looking forward.”

Given the non-answer, it’s still prudent to ask, is there actually a buyer for Groupon?

First, let’s address the price. Two years ago, Google offered to purchase Groupon for $6 billion. A year later, it went public at $10 billion, and today, it is trading for $2.9 billion. The company has $1.2 billion in cash, and owes merchants about half of that, or around $573 million.

That said, it is still a relatively low price for a company that includes a customer base of 40 million people who bought something in the past year, a hodgepodge of local retailers and merchants that consider Groupon their online marketing channel, and — perhaps most importantly — a better-than-expected mobile business that now represents a third of its transactions.

But, while it costs much less than it once did, that doesn’t necessarily make Groupon a steal.

That’s because over the past year, the Chicago company has stumbled operationally. Europe is underperforming, the company’s main coupon business is slowing as the novelty of the business is wearing off and it has started investing heavily in selling products, a low-margin business that requires tons of logistics to package and ship items to people’s front doors. On top of that, the board recently discussed replacing Mason, who some directors fear may not be the right choice to continue leading the company. While they ultimately decided to keep him, it was a perceptual blow.

At least one big investor is betting something will happen: Tiger Global Management, which recently bought up close to 10 percent of Groupon. The well-regarded hedge fund and private equity firm may be betting it can’t get worse, and perhaps would even push for a sale.

In any case, here’s a look at some of the scenarios:

Google

When Google made the offer two years ago, the search engine was interested in entering the daily deals business as a way to gain a foothold into all things local, including commerce. Since Groupon rejected that $6 billion acquisition, Google has spent the past two years building Google Offers.

While Google Offers still has a very small piece of the market, it has been pivoting toward an integrated ads model, which is less complementary to Groupon’s approach. Google believes that merchants will pay Google only after a purchase has been made, and the sum will be determined by the consumer. The cost per acquisition model is very different from Groupon, which has the consumer paying up front for a heavily discounted coupon.

As one source with knowledge of the situation said: “The timing would be a bit wacky.”

That said, Nikesh Arora, Google’s SVP and chief business officer, had been a very strong advocate of the original deal and might still want more heft in Google’s corner in the competitive local scene. One major plus is that Groupon could also help build a local salesforce to push Google+ Local, which includes Zagat, the online reviews site that competes against Yelp. Groupon might also support its Google Wallet business, which has largely failed to gain traction among consumers.

Another source familiar with the two companies said running a daily deals business is “operationally intensive, and it’s a muscle that Google doesn’t have, so from a synergy standpoint it would be complementary.” But, “if they are still serious about local, is that the business model for local that they want to pursue?”

eBay

For the past two years, the e-commerce company has aggressively been going after the local commerce market by helping transactions occur online or at a nearby store. Additionally, its PayPal division is moving fast into the physical payments space. Strong merchant relationships, like the ones Groupon has, could go a long way toward making those things happen faster.

EBay recently raised $3 billion in debt financing and has $7.3 billion cash on its balance street. Its stock price also has gone up more than 65 percent in the past year, giving it plenty of fire power to make a big move.

It also has the stomach for acquisitions. However, many of its purchases over the past two years have been about buying technology and talent. It bought RedLaser, the barcode scanning technology for $10 million; Milo.com, a local inventory company, for $75 million; and Zong, a mobile payments company, for $240 million. Over the years, it has also made substantial purchases, including GSI last year for $2.4 billion, Bill Me Later for $1.2 billion and Skype for $2.6 billion.

A few months back, the company entered the daily deals business with the launch of eBay Lifestyle Deals, which runs daily deals in a number of markets, including San Francisco, Seattle, Los Angeles and Washington, D.C. To do so, eBay teamed up with Signpost, which arranges the deals with local merchants. Interestingly, Signpost is backed by Google Ventures, and already provides deals for Google Offers.

The company is also experimenting with eBay Now, a service that allows consumers to buy something on their phone and have it delivered within an hour. “They continue to be interested in local, and they have this experiment going on right now with eBay Now, but they are still iterating and figuring out the local angle,” one source said.

Likewise, PayPal’s local strategy is under development. It is trying to roll out physical payments to big-box retailers like Home Depot while also offering a credit card reader for smaller retailers called PayPal Here.

The biggest argument against this deal is that eBay may not need Groupon, and that it already has the infrastructure to roll out deals through partnerships — which would cost a whole lot less and be a lot less painful.

Amazon

Simply put, Amazon already has its own troubles with its significant stake in LivingSocial, which just slashed 400 jobs. In the third quarter, Amazon took an impairment charge of $169 million, or 37 cents a share, related to its stake in LivingSocial, resulting in the company reporting an overall third-quarter net loss of $274 million, or 60 cents a share.

Any potential Amazon-Groupon tie-up would then be a merger between LivingSocial and Groupon, creating perhaps an even bigger black hole that would also result in a lot of ongoing integration problems. While together LivingSocial and Groupon would easily make Amazon the largest daily deals company and up its local commerce efforts, it’s still not clear if the online retail giant wants to double down here.

Separately, Amazon has entered the daily deals business on its own with a service called Amazon Local that competes directly with LivingSocial and Groupon. The offers became particularly interesting to the company after it started using them to discount the price of its Kindle e-readers and tablets. If owners don’t want to see the offers, the tablets can cost up to $40 more.

The company has said that it essentially doesn’t need help building the business – it thinks it can get to scale fast in the space because it already has 164 million active customer accounts worldwide (which are defined as people who have made a purchase in the past year).

Perhaps most importantly, though, Amazon has a history of building, not buying.

Visa, MasterCard, American Express

These three payment companies have huge market values, and should not be discounted as players in the local commerce space. In addition, a year ago, all of them started looking for new revenue streams after the Durbin Amendment capped the amount that banks and card networks charge merchants on debit card transactions.

Already, many banks are sending targeted ads or deals to consumers based on their spending habits. However, it’s unclear whether they need to be the actual deal makers, or just act as a distribution system for advertisements and coupons. For example, MasterCard recently partnered with Gilt City, the daily deals division of Gilt Groupe. Through the partnership, MasterCard will be able to offer its users deals for restaurants, concert tickets and travel, and at the same time, help Gilt City get in front of some of the card issuer’s millions of users.

MasterCard may be the frontrunner of the three as a potential suitor. Not only has it shown direct interest in the space, American Express is still absorbing its acquisition of Revolution Money, for which it paid $300 million cash in 2010, and Visa has been active with its purchase of CyberSource for $2 billion in 2010. More recently, it made an investment in Square, the hot mobile payments company.

Other Suspects

A number of other companies could be put on a Groupon acquisition list, such as Yahoo, Microsoft and Facebook.

Microsoft and Yahoo both have the money, but have not done much in the space so far. An acquisition would allow them to catch up quickly, but would be expensive and largely not complementary with what they are doing already — which is almost nothing. Facebook, in particular, tried once to enter the space and failed and might be focused on other lower-hanging revenue sources.

Groupon could also look to private equity firms for a buyout, which would allow it to have some space while it fixed some of its issues.

Internationally, there is Japan’s Rakuten, which owns Buy.com in the U.S., and China’s e-commerce giant Alibaba, which has been looking at ways to enter the U.S. market.

Of course, Groupon might simply keep stumbling forward and hope it can turn itself around. But, at some point, without improved revenue and cohesion at the top levels, something is sure to bring pressure to its options. 

In fact, in afternoon trading today, the rumors continued to keep the stock elevated. Shares closed 3.76 percent higher today at $4.41 a share.

While I have already spelled out a number of reasons why he might be let go, here’s one reason why he should stay: On Black Friday, Groupon said it saw almost twice the purchase rate of its previous busiest day on record.

Call it an early present for Mason, who also learned yesterday that he is keeping his job as CEO — at least, for now.

This year, Groupon is putting an especially heavy emphasis on holiday gifts, after launching physical goods on the site more than a year ago. While coupons for restaurants and spas also sell well this time of year, physical gifts are more traditionally considered presents.

Yesterday, Groupon said its physical products division, Groupon Goods, celebrated its biggest four-day weekend since the program’s inception. Put another way, over the seven days after Thanksgiving in North America, Groupon generated double the gross billings from last year, with essentially all of the growth attributable to Groupon Goods, according to Yipit, a third-party data provider.

Top sellers included customizable photo books, iPhone cases, Topaz earrings and flying toy helicopters, which sold 43,000, 40,000, 42,000 and 11,000 units, respectively.

While an increase in sales is always a good thing, Groupon has received some static about its entrance into selling physical goods, which have thinner margins than local deals. It also means entering an extremely competitive landscape with well-established players, like Walmart and Amazon, although clearly it has demonstrated it can sell thousands of items fairly easily.

At least two promotions helped Groupon see a huge spike in the sale of Goods over the weekend. Yipit said that following Thanksgiving, the homepage redirected visitors to Groupon.com/goods (although it’s back to directing people to their local markets). Additionally, Groupon rolled out Grouponicus, the company’s third annual wintertime promotion, which offers customers gift ideas. For the first time this year, it offered a holiday toy catalog and free shipping and returns.

Groupon’s close competitor LivingSocial, which is facing its own turmoil, also saw a lift this year during the Thanksgiving week, although not as much since it’s still in the early days of building out its products division. In North America, for the week following Thanksgiving, Yipit said LivingSocial revenues jumped 30 percent. In particular, Yipit said sales from products were up roughly 5 percent, with a bump over the past few days coming from a partnership with Fab.com. (Separately, Fab said today it averaged $933,500 in daily sales for a week straight).

Still, one thing on Mason’s wish list that he has not received is a higher stock price. While shares were trading higher recently on news that he might be replaced, shares are now down 8.8 percent, or 40 cents, to trade at $4.14 a share.

A spokesman confirmed that employees received the news this morning. Of the 4,500 people on staff, 400 were handed pink slips. Less than half of the layoffs occurred in the company’s Washington, D.C., headquarters, with a couple dozen taking place in its international offices. As Bloomberg previously reported, Eric Eichmann, the company’s president of its international business unit, is also leaving the company.

The layoffs in D.C. were mostly related to customer service, editorial and administrative functions. Many of the customer service jobs will be relocated to Tucson, Az., where the company opened a call center this summer. Additionally, some employees who were located in some of its smaller markets in the U.S. were let go, but none of the company’s regional offices in Seattle or San Francisco were closed.

Unlike Groupon, LivingSocial is a privately held company, so it’s not always clear how it is doing, but since Amazon owns a large stake in the company, some of its financials are disclosed on a quarterly basis. As evidenced by Amazon’s third-quarter earnings in October, it appeared that LivingSocial was in a real slump.

Amazon reported a quarterly net loss of $274 million, or 60 cents a share, including an impairment charge totaling $169 million, or 37 cents a share. In Q3, LivingSocial reported a $565 million operating loss on revenue of $124 million, and revealed operating expenses of $193 million. In a memo obtained by AllThingsD, CEO Tim O’Shaughnessy explained that most of the losses in the quarter involve non-cash items related to acquisitions made last year that are no longer worth as much. What’s more, for the first time since 2009, LivingSocial had positive operating cash flow.

Still, based on the company’s revenue and operating expenses alone, there appears to be a gap of almost $70 million a quarter that the company will have to account for eventually, either through growing revenue or cutting expenses.

The LivingSocial spokesman said that the decision to make the cuts today was part of a global review of the business; the company is looking to come up with a way to free up resources to make investments in marketing and mobile, while also aligning the cost structure with where the business is today. LivingSocial is also cutting back a new takeout and delivery feature that was launched in 20 markets. One area it is not eliminating is its adventures and events business, which organizes one-off events in cities around the country, ranging from river-rafting trips to wreath-making classes.

The layoffs come as LivingSocial’s biggest competitor faces its own issues. Groupon is struggling to continue its rapid growth, and has watched its stock price tumble 80 percent since going public a year ago. Today, Groupon’s CEO Andrew Mason is meeting with the company’s board to determine whether a more seasoned executive is what is needed to run the company going forward.

Fab will feature 50 of its “top picks” from its Holiday Shops in LivingSocial’s gift guide. LivingSocial, with 24 million U.S. members by email and on the site, promotes the gifts through its channels.

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The losses not only make the retail giant look bad, but it also makes the Groupon competitor appear as though it is in a real slump. But in a memo, obtained by AllThingsD, which was distributed to LivingSocial employees this afternoon, CEO Tim O’Shaughnessy claims the results are not as bad as they look. “You’re likely to see news articles saying that we hurt Amazon’s earnings and lost a ton of money,” he wrote in the memo, adding, “That doesn’t tell the full story.”

Amazon’s third-quarter net loss was $274 million, or 60 cents a share, including an impairment charge totaling $169 million, or 37 cents a share, related to the Washington, D.C.-based daily deals company.

Other LivingSocial results from Q3 to be revealed in Amazon’s filings:

• Revenue of $124 million.
• Operating expenses of $193 million.
• Operating losses of $565 million.
• Net loss of $566 million.

Most of the losses in the quarter, however, involve non-cash items related to acquisitions made last year that are no longer worth as much, O’Shaughnessy explained. There’s more good news: for the first time since 2009, LivingSocial had positive operating cash flow. In other words, most of these losses are just on paper.

Hopefully, Amazon investors will buy that story. After the company initially reported results, its stock was down more than 6 percent in after-hours trading, but has since rebounded some. It is now trading down only 2 percent.

Here’s the memo:

Hey all –

This afternoon, our investor and partner Amazon.com announced its quarterly earnings. Because our financials for the quarter had a material impact on its results, Amazon included some information about our numbers in its announcement, and current estimates on some of our financials will be included in a filing that comes out tomorrow as well. This is similar to past quarters.

From those announcements, you’re likely to see news articles saying that we hurt Amazon’s earnings and lost a ton of money. That doesn’t tell the full story, so I wanted to share some more info on our third-quarter results with you, so you — and the customers you serve — can better understand what they mean.

First, here’s what you can glean from Amazon’s filings: We had roughly $124 million in revenue last quarter, our operating expense was approximately $193 million, and we had an operating loss of around $565 million and an overall net loss of about $566 million for the quarter.

Sounds like a lot of losses, right? Or maybe you wonder how our losses could be higher than our operating expenses? Well, what the numbers don’t fully explain is that more than 95% of our estimated losses in the quarter involved non-cash items, in particular an estimated charge of around $496 million related to the write down of “goodwill” in acquisitions we made last year and another $45 million or so related to stock compensation and other items.

In layman’s terms, we took a charge of around $496 million because we had to revalue some of the companies we acquired last year. As you know, the market has also dropped over that same time for similar public tech companies. Those changes in valuation showed up as an “impairment” in our financial statements, but they do not affect the day-in, day-out operations of the business.

When you look at our financial position, the story is very different. For the third quarter of 2012, our global revenue nearly doubled on a year-over-year basis. More important, for the first time since 2009, we had positive operating cash flow for our company on a global basis in the month of September. In other words, we ended the last month of the quarter with more money in the bank than we had at the beginning of the month, marking an important milestone on our path to profitability and long-term success.

The September numbers from Yipit also show strong competitive trends. From August to September, we gained a whopping six points of North American market share against Groupon, as our share jumped from 21% to 24% while theirs fell from 56% in August to 53% in September. While those numbers included our world-record-setting Starbucks deal, they also showed strong growth without it.

In the big picture, all of these trends mean that LivingSocial is gaining control over our own destiny, an enviable position for any start-up and one that allows us to aggressively execute against our vision to build the leading platform for local commerce worldwide.

I know each of you is working hard and making strong moves every day to help us reach our goals. Thanks for all your efforts.

- Tim

Spencer Platt | Getty Images News

LivingSocial, partly owned by Amazon, will be offering a $10 Starbucks gift card for $5 across the U.S. tomorrow, Reuters reported.

Just two weeks ago, Groupon lost its top national sales executive, who would have been in charge of brokering a deal of this kind.

Starbucks CEO Howard Schultz was an investor in Groupon before its IPO through his Maveron investment firm, and he served as a Groupon director until abruptly stepping down in April.

Starbucks has dabbled in the daily deals space before, having offered a $10 Starbucks gift card for half-off through Google Offers. That was while Schultz was still on Groupon’s board.

Starbucks said it anticipated selling at least one million deals through the latest offering.

But if you ask Wall Street, Groupon’s mobile efforts are worth practically nothing.

Groupon’s stock hit a new low this week after plummeting about 27 percent following its earnings release. Today, it’s essentially flat at $5.50 a share. At those levels, the four-year-old Chicago company is worth a piddling $3.6 billion, which is about two times the amount of cash it has on hand, or nearly half what Google offered to buy it for late last year.

With larger questions about Groupon’s growth prospects being asked, it’s hard to pay attention to any possible bright spots on the horizon.

Countless companies, from eBay and Amazon to much smaller firms, are trying hard to crack both social and mobile commerce. So, if Groupon does indeed have one of the biggest leads in mobile, what does it mean?

The falling stock price takes into consideration all of Groupon’s baggage, a load that would rack up substantial extra charges at an airline counter. The most recent concern is that the majority of the company’s growth is no longer coming from its super-lucrative coupons business, but rather from its lower-margin products business.

According to Mason, its mobile presence “makes us extraordinarily well positioned as we make this transition towards becoming the local commerce operating system.” He added that as effective as its email lists are for selling vouchers for spa services, restaurants or other activities, “the demand fulfillment opportunity is even larger than the demand generation opportunity.”

That message may as well be in code, but essentially what it means is that Groupon is well equipped to present a deal or offer when someone wants it, in contrast to its current business model, which is about selling offers in advance to generate demand for a business. To him, the opportunity is in creating “the first true global, local mobile e-commerce marketplace.”

Implementing this vision may be harder than Mason would like to admit.

For the past decade, mobile executives and others have promised that, someday, consumers will be alerted to nearby deals or specials on their phone as they walk by a coffee shop or a restaurant. For example, a free latte with a purchase of a scone, or free fries with a burger and milkshake. Perhaps, in a “mobile e-commerce marketplace,” a retailer wouldn’t necessarily push offers, but consumers could check their phone to find and maybe even purchase meals or items before walking in the door — a model that could look like Yelp plus the check-out experience all in one app.

Companies like Groupon and LivingSocial were considered clear front-runners for bringing these local commerce tools to scale, because both have a large user base and a dense enough footprint of local businesses for it to work. But LivingSocial recently backed out of providing instant offers, and I’d seriously question how many of Groupon’s customers are using the app to purchase offers in real time vs. purchasing everyday vouchers that are redeemed at some point in the future (the company does not break out those figures).

If Groupon is headed down this road of creating a “local mobile marketplace,” then it will intersect with other large organizations doing the same. EBay-owned PayPal is working with major retailers like Home Depot to roll out mobile services, including payments and other futuristic offerings. Likewise, Square made a huge move into the space last week when it announced that it will be processing all of Starbucks’ credit and debit transactions and that the java giant would invest $25 million in the start-up. Eventually, those two companies could also create a mobile network together for ordering lattes — not just paying for them.

In particular, Square’s deal with Starbucks must sting the most. Last week, Starbucks’ Chairman and CEO Howard Schultz went on a media tour with Square Founder Jack Dorsey to talk about the partnership. Remember, it was only four months ago that Schultz was on Groupon’s team before he abruptly stepped down from the board in April.

Since reporting first-quarter earnings in May, no board members have stepped down; it hasn’t restated any of its financials, and it even promoted one of its new executive hires, Kal Raman, to an even loftier title.

All of those are good things for the Chicago-based deals company, which for a while appeared to not get anything right. Now, if it can manage to report results that are in line with second-quarter expectations tomorrow, for the second quarter in a row, it might just have a chance to do something about its stock price.

And based on fairly low expectations, just meeting — not exceeding — estimates may be enough to make a big splash.

In fact, investors may already be getting their hopes up.

On Friday, Groupon’s shares saw a small gain, jumping 79 cents, or nearly 12 percent, to trade at $7.44 a share. That’s in the right direction, but it is still down 70 percent since its public offering in October.

In a note to investors, Citigroup’s Mark Mahaney says he’s mixed on the company’s prospects. On one hand, he conducted a survey with 150 local businesses and 1,200 consumers, and discovered that Groupon is gaining market share. On the other hand, Mahaney worried that revenue growth has slowed. In the second quarter, he’s expecting sales to grow by 49 percent year over year compared to the first quarter, in which revenue doubled over last year.

In general, the Wall Street consensus calls for Groupon to do slightly better than the first quarter and report a profit of three cents a share, excluding some non-cash items, on revenue of $578 million. Last quarter, the company reported a two-cent profit per share on revenue of $559.3 million.

Internally, Groupon is also projecting slightly better revenue than the first quarter. It said revenue should fall between $550 million and $590 million, representing year-over-year growth of 40 to 50 percent. Income from operations is expected to fall between $25 million and $45 million, compared to a loss of $101 million in the second quarter of 2011.

Sterne Agee analyst Arvind Bhatia was less optimistic than Citi’s Mahaney, and on Wednesday, he lowered its rating on Groupon to “neutral” from “buy,” based on suspicions that it will report second-quarter revenue and earnings at the lower end of its guidance. Bhatia also worries that Groupon is losing ground to LivingSocial, its next-closest competitor, and would be affected by the macroeconomic climate in Europe. ”Given the recent decline in the share price, we are clearly late in the downgrade,” Bhatia wrote. “However, we see risk to forward estimates and believe the upside in the stock may be limited until Street estimates are adjusted downwards.”

LivingSocial Shop is similar to the company’s original business, in that it will send an email to consumers, offering a limited set of products at a discount.

But unlike the rest of the Washington, D.C.-based business, which sells vouchers that are redeemed at spas and restaurants, these products will be delivered right to a customer’s door.

LivingSocial, which is owned partially by Amazon, has been experimenting with e-commerce in Cincinnati for weeks, and according to Yipit, which tracks sales across hundreds of daily deals providers, it could potentially be worth $200 million on an annual basis, once it officially goes live.

Here’s how Yipit did the math: It said LivingSocial tested 15 product offers over several weeks in Cincinnati, which earned $39,000. It estimates that once those offers are opened up to the company’s entire subscriber base, and assuming LivingSocial doubles the number of products for sale to 30, the business will ramp quickly to a projected $187 million in annual revenue.

To be sure, LivingSocial and Groupon have found it fairly easy to launch new categories, although not all are successful right out of the gate. But it helps that both have a subscriber base of folks happy to check out the latest discounts. Groupon launched an e-commerce service last year called Groupon Goods, and Yipit estimates that Goods already makes up 10 percent of the company’s North American business.

In slight contrast to what Groupon is doing, LivingSocial said the products it will be selling will be connected by a theme. For example, today’s theme is “Beach Bound,” and items for sale include water-resistant blanket and totes, water bottles, towels, beach toys and a collapsible gazebo.

That’s just one of the offers being pitched on Hotel.com’s new Facebook application called “Deals.”

In the race to be more social and compete against discount daily deal sites like Groupon and LivingSocial, or mobile apps like HotelTonight, there’s more than one example of traditional travel sites having a hard time getting it right.

Yesterday, Hotels.com, an affiliate site of Expedia, threw its hat into the ring with its own Deals Facebook application, which claims to deliver “tailored deals that are informed through user preferences and friend activity.”

But not only is it difficult to understand how to apply a discount, sometimes the app even spells it out in black and white that there is not a discount at all.

For example, the offer for a downtown Seattle hotel listed at the very top of my results offers: “Stay 2 nights and save 0% off your stay!” At a Hilton in San Francisco, it offered rooms from $161, but when specific travel dates were entered into the search bar, the room rate jumped to $237 — the same amount offered on the Hotels.com site. Additionally, a summer sale was offering 20 percent off the stay at the Hilton, but it was not at all clear how to redeem that offer, and the prices never changed.

A spokesperson did not immediately reply to emails seeking comment.

Besides providing deals, the application also taps into your social network to make booking rooms more informed by people you know. After connecting to Hotels.com through my Facebook account, I was able to add destinations such as Honolulu, London, Paris, Rome and others to my wish list.

I was also able to see that 61 of my friends have visited San Francisco, 19 friends had visited Sea-Tac (as in, the Seattle airport), and 17 friends had visited San Jose. Unfortunately, none of my friends have been to Rome, although I don’t believe that could possibly be the case.

After clicking around on a number of features, I never saw specific hotel recommendations from a friend — and I’m not entirely sure if that will be a feature. But pulling off a clever social integration is difficult because of the magnitude of places to visit and hotel rooms to stay in. As an example, TripAdvisor launched a Friend-of-a-Friend feature in April, which allows users to see if a hotel has been reviewed by Facebook friends and their immediate friends. Before extending it beyond immediate friends, it was always hit or miss, but now connections are frequent.

Providing meaningful connections is difficult, so getting the discounts right would seem like the easy part. But apparently it’s not. I noticed that when Priceline released a new mobile phone app in April, it also struggled to make the promotions clear and meaningful enough to make it worthwhile to continue coming back to use it again.

The app, which launched under its Booking.com subsidiary, pitched last-minute hotel deals at up to 50 percent off. But from what I could tell, Booking Tonight was a replica of its online site, offering the same selection of hotel rooms at the same price.

By offering social and mobile applications without a clear value to the consumer, it’s like leaving a placard hanging on the knob telling start-ups to come in and clean house.

The survey, which tracked 641 small-and medium-sized businesses during three time periods over the past year, found that the industry is performing better based on at least a couple of key metrics. In particular, it noted two areas of improvement: consumers are more willing to spend beyond the deal’s value and the amount spent by repeat customers on their next visit has increased.

The report was conducted by Utpal Dholakia, a professor of management at Rice University’s Jones Graduate School of Business.

Most notably, his findings are in contrast with a study he conducted in June, which revealed a number of red flags, including a relatively low numbers of buyers who were spending beyond the deal value.

But in the report published last week, it was his goal to find out whether the industry’s performance was deteriorating as questions arose on the long-term viability of the business model. Dholakia explained the survey’s results in a video, saying: “We were concerned because of negative publicity that many of these daily deals sites have received that performance might be deteriorating.”

Indeed, over the past couple of years, there have been a number of recurring issues brought up in the media, ranging from deal fatigue (the phenomenon in which consumers become less enthusiastic about purchasing offers) to stories about merchants becoming overrun with deal-seekers to the point of exhaustion. Additionally, Groupon’s public offering was fraught with a number of problems, and the company continues to trade at more than half off. Today, its stock fell 5.5 percent, or 48 cents, to trade at $8.31 a share.

Despite all that, the professor added this surprisingly positive message: “On most measures, performance has remained the same or has improved.”

Both Groupon and LivingSocial have spent the past year or so fine-tuning the experience and working more closely with merchants to ensure that each deal is a success. Looks like the extra effort is starting to pay off.

Here’s some of the findings from the report, along with Dholakia’s video:

• Almost 80 percent of daily deal patrons are new customers, even for businesses running their seventh (or more) daily deal. Businesses continue to see equally stable conversion rates for both repeat purchasing and spending beyond deal value.
• The most profitable daily deal sectors in order: Photographers; health and fitness services;  tourism-related services; and doctors and dentists.
• The least profitable deals: Cleaning services; restaurants and bars; and retailers.
• The percentage of businesses making money remained fairly stable in Spring 2011 (55.5 percent) and October 2011 (54.9 percent), but jumped by 6 points in the May 2012 to 61.5 percent.
• Smaller businesses were able to retain customers better: Businesses with annual revenue below $500,000 enjoyed a 41 percent retention rate compared with larger businesses, which had a 15 percent retention rate.
• Daily deal site loyalty levels are low for businesses running multiple daily deals. For a business’ second deal, 54 percent used the same daily deal site they used the first time. By the time they have run seven or more deals, only 8.6 percent of businesses have used the same site for all their daily deals, whereas 27.5 percent have used four or more daily deal sites.

In that short time, the venue has hosted 50 events, from a three-hour iPhone photography class that was followed by a round of beers, to ordinary yoga.

The experiment has represented a massive investment.

The historic building was meticulously remodeled to blend old exposed brick walls and antique chandeliers with modern accents like bamboo floors and large flat-screen TVs. (See the accompanying slideshow for a better look.)

While it’s too early to call the clubhouse a success, there are some signs that the concept is starting to pay off.

And if LivingSocial can replicate the venue across other cities, it could be able to distance itself not only from the stigma of the daily deals business, but also from Groupon, which despite being the category leader, has struggled as a public company.

In a presentation to the media earlier this month, LivingSocial’s co-founder and CEO Tim O’Shaughnessy said he wants LivingSocial to be to local commerce what Amazon is to online retailing and what Google is to search.

“In a three- to five-year timeframe, I want LivingSocial to be a tab that you keep open in your browser all day long,” O’Shaughnessy said. “We think that there has to be that integrated commerce platform for local commerce, and we really hope it’s LivingSocial.”

Productions

It’s still early days for 918 F Street, but LivingSocial has produced dozens of events there, and thousands of events elsewhere.

Packages have included zip-lining, wine tasting, beer festivals and small concert series. LivingSocial even once organized a summer camp for adults. Inside of 918 F Street, there’s a test kitchen for three dozen students, an art studio for painting classes and various empty rooms that can be set up for different events. A commercial kitchen allows chefs to host pop-up restaurants at the venue to try out new dishes or concepts — LivingSocial is there to fill the seats.

Sometimes the concepts are juvenile, perhaps, but when you mix in alcohol, as they usually do, it’s hard not to compare the place to a virtual Club Med, or a YMCA on steroids.

One benefit to producing its own events is that LivingSocial can solve one of the biggest problems in the daily deals space: Unique inventory. Too many providers are all selling the same stuff. By default, the F Street deals are all exclusives.

For example, a recent event called “Sumo, Sake and Sushi” sold out in 40 minutes.

Not only was it popular for consumers, but for merchants, too. The event was being used to help promote a new restaurant in town.

“When you own the experience, you can produce something great for your membership, and then you have the opportunity to bring in sponsors,” said Doug Miller, who is in charge of new business initiatives at LivingSocial.

So far, the approach is working.

The company says that 25,000 people from the D.C. area have already attended events in the four months the building has been open, and that 83 percent of the merchants had never worked with the company before — including using daily deals.

More validation

In research shared with AllThingsD, Yipit reports that the venue has generated roughly $1 million in gross billings since opening, and that the deals sold there were consistently double the gross billings of the average LivingSocial deal.

Furthermore, the researcher found that 918 F Street’s gross billings per deal have grown steadily — from $18,000 in February to more than $22,000 in May — and perhaps most surprisingly, it already accounts for 10 percent of LivingSocial’s D.C. business (even though it hosts fewer than 10 deals per month in the building).

O’Shaughnessy said the company is still fine-tuning the approach, but of the 50 different types of activities hosted at the venue, only two have not been profitable.

Additionally, he noted that people who participated in events at 918 F Street became more valuable customers, because they were more likely to spend with LivingSocial afterward, whether it’s to return for another event or to buy more vouchers.

Expansion plans

The company was reluctant to say if — or when — it would bring the concept to other markets, but maybe it won’t have to.

In May, LivingSocial announced a partnership with AEG, which owns and operates some of the most well-known venues across the U.S. Together, the two companies plan to co-produce events, by packaging regularly occurring events, like concerts or sports, with other activities or transportation.

If LivingSocial decides to go it alone and build replicas of 918 F Street, it will need additional capital.

As the second-largest daily deals provider in the U.S., LivingSocial has raised $600 million, and already has 5,000 employees. The company’s CFO, John Bax, said it does not need to raise more capital today, based on how it is currently configured.

A baby step away from Groupon

By becoming an entertainment and media brand, LivingSocial is distancing itself from the daily deals business, and from Groupon.

This is true for one main reason: Most of the deals that LivingSocial produces and hosts at the venue or elsewhere are not daily deals in the traditional sense of offering half-off the price — that’s because they are full price.

“Already it [full price] is a significant percentage of what we do. It will be a driver for a lot of what we do, but not the primary driver,” O’Shaughnessy said.

But LivingSocial is not just drifting away from Groupon. Groupon is also finding its own way in determining the future of the daily deals business.

While LivingSocial focuses on producing and curating events, Groupon is determined to become a technology company by building software, such as online calendar tools and payment technologies aimed at the local merchant.

LivingSocial says it also has plans to test out at least three concepts in the payments and loyalty space this summer, but it is not as interested in developing any hardware, and does not want to compete directly with payment processors.

With the two different approaches to the market, it’s anyone’s guess what the daily deals market will look like in three to five years.

At 32 years old, the venture firm has backed more than 300 companies and has witnessed 90 companies go public. Some of its better-known deals include comScore, Dropbox, HomeAway, Kayak, LivingSocial, Netflix, Twitter and Zynga.

Today, it is announcing that it will continue its legacy, having raised its 14th fund, totaling $1 billion. In total, it now has $4 billion under management.

In an interview, IVP’s General Partner Dennis Phelps said the fund is the firm’s largest to date, exceeding its current fund of $750 million.

Despite a larger fund this time, Phelps said it will be business as usual. The plan is to invest about $10 million to $100 million in 10 to 12 companies a year, or 25 to 30 companies over the fund’s 10-year life. The one thing that will change is the average deal size, which will get slightly larger.

“We’ve had the opportunity to make larger investments, but we didn’t have the fund size to support it,” Phelps said. “Companies are choosing to remain private longer, but it doesn’t change our investment model.”

In general, the company’s sweet spot is later-stage companies with roughly $20 million in annualized revenue in the Internet and digital media, enterprise technology, and mobile and communications sectors, he said. But he noted that they do not invest in life sciences or clean technology. Currently of IVP’s active portfolio companies, more than half have revenue of $50 million or more, and a third of them are profitable.

“We feel like our deal flow is as strong as it’s ever been,” he said. “We’ve had amazing momentum in the marketplace, and view us as a firm on the ascendancy.”

Other firms to recently pocket a lot of cash include Andreessen Horowitz’s monster $1.5 billion fund, and Kleiner Perkins Caufield & Byers’ $525 million fund for early-stage companies.

IVP has six general partners: Phelps, Todd Chaffee, Norm Fogelsong, Steve Harrick, Jules Maltz and Sandy Miller.

Here’s a visual snapshot of the firm’s history:

During an all-day media event today, the company’s top executives provided a very broad overview of the privately held company.

It also gave us a tour of its six-story building in Washington, D.C., that it uses for hosting events, including art classes, pop-up restaurants and exercise classes. Later, it gave us an option of checking out a mixology class or trapeze lessons. (Personally, I opted to learn how to make refreshing beverages on this blistering 95-degree day!)

Dickson Chu, LivingSocial’s SVP of merchant services, said this summer it will test out at least three concepts with merchants in the payments and loyalty space. He declined to provide specifics, but LivingSocial’s CEO Tim O’Shaughnessy verified that it was not interested in competing directly with payment processors.

That’s sort of a novel comment given that so many companies have recently entered the space to compete against Visa, MasterCard and American Express, like PayPal or Square.

“We have a big business here, and we probably aren’t going to be a real active Square competitor,” the company’s chief said.

Over the past several months, critics have wondered if the daily deals business is sustainable and if it will be able to continue to attract consumers at the same rate. After all, the novelty of getting meals, spa treatments and other services at 50 percent off starts to wear thin. As a result, providers in the space have begun to cast a wider net by branching into other areas of local commerce.

In particular, Groupon, the industry leader, has been vocal about providing technology solutions to local merchants, including online scheduling software and rewards programs that track consumer spending. More recently, reports have surfaced that Groupon is testing out a mobile payments product, including an aggressively priced service that is much cheaper than the big payments processors like Visa and MasterCard, and even than the emerging players like Square and PayPal.

Over lunch at Kushi, a Washington, D.C., sushi restaurant that has run three LivingSocial deals, owner/chef Darren Norris said he spent $17,000 on his restaurant’s point of sales system, and it’s “the worst built machine in the restaurant.” In response, Chu said LivingSocial isn’t particularly interested in making hardware, but “we will solve that problem.”

Since joining the company in December from Citibank (and before that, PayPal), Chu has been investigating other services they could offer to merchants. One idea is to come up with a way for LivingSocial to automate a restaurant’s Facebook page or other social channels, which small business owners don’t typically have the time to keep up to date.

During the company’s update on the state of the business, the executives declined to comment on the private company’s financials. O’Shaughnessy also said it had no immediate plans to file to go public. Amazon continues to own roughly a third of the company, and reported as part of its financial results that the company had an operating loss of $92 million on revenues of $110 million in the first quarter.

Here are some of the figures that LivingSocial did provide:

• has 67 million subscribers
• operates in 600 markets in 20 countries
• has worked with 115,000 merchants
• employs 5,000 employees
• has raised $600 million in capital
• says 20 percent of purchases occur on mobile devices, and that its apps are being downloaded 100,000 times a week for a total of 11.5 million times
• says 25 percent of revenue now comes from non-core daily deals, such as travel, family, adventures, Amazon.com — many of which are full-priced.

The Los Angeles-based company is focused on selling tickets at a discount. The site does not sell bikini waxes, Segway tours or fancy dinners. It’s all about targeting hardcore sports fans.

“It’s the perfect combination,” said Crowd Seats co-founder and CEO Justin Cener. “If you don’t sell it, you lose it. If any tickets are left over, they are worthless.”

Plus, Cener says, once the team gets people in the door, there are additional ways to make money on everything from parking fees to concessions.

The daily deals business really got its start in Chicago with Groupon; then LivingSocial came about in Washington, D.C.

Now it seems there’s a little niche forming in California around tickets. Just down the street from Crowd Seats, there’s a company called ScoreBig that is allowing customers to name their price — sort of like hotel rooms on Priceline.com — for a wide range of tickets, ranging from the theater to sporting events.

Both companies are promising huge discounts on tickets that would normally go unsold. As an additional benefit to consumers, neither company charges any processing fees, unlike Ticketmaster.

The concept is far from new.

Justin Cener

A year ago, Groupon announced a joint venture with Live Nation Entertainment’s Ticketmaster.com to sell a number of limited-time deals on a variety of concerts, sports, theater productions and other live events across North America; more recently, LivingSocial inked a deal with AEG, which owns and operates many concert venues.

Cener said that by focusing exclusively on sports tickets, Crowd Seats is able to sign up fewer members and still get the same results as the bigger guys, because of better targeting. He also said that members don’t get “deal fatigue,” because they aren’t getting inundated with offers they don’t care about.

But Cener faces an uphill battle because of his timing.

He started Crowd Seats in August last year, which was far too late to get the attention of investors, who had become wary of the daily deals market as Groupon and LivingSocial took the lead. As a result, the 2009 Rutgers graduate has been bootstrapping the company, and has very little money left for advertising.

Still, he has managed to launch Crowd Seats in nine markets, adding three new cities — Philadelphia, Denver and Baltimore/Washington, D.C. — at the beginning of this month.

Chris Chaney

“Basically, the Clippers were down 3-0, and the interest in going to game four fell off the cliff,” Cener said. “They were scrambling.”

With all the cards stacked against him, he has been able to achieve cash-flow positive, and is optimistic that investors will become interested once they see his progress.

Recently, Cener recruited additional help from Chris Chaney, whom he named as co-founder. Chaney was previously president and CEO of Chaney Sportainment Group, where he consulted for sports and media start-ups. Chaney was named to the Forbes “30 Under 30” list in the entertainment category.

The Atlanta-based company’s mobile app tries to be a resource to consumers who are looking for local merchants and events, sort of like the Web’s original CitySearch service from years ago — except that it’s on mobile. The app also distributes coupons to restaurants, but instead of charging consumers for the deals, like Groupon does, they are free, and merchants pay a flat rate to Scoutmob each time one is redeemed.

Investors in the company’s second round include AOL Ventures, New Atlantic Ventures, Capital Broadcasting, Cox Enterprises and Thrillist CEO Ben Lerer. To date, Scoutmob has raised $5 million, which means that even if it wanted to, it doesn’t have the resources to go up against Groupon and LivingSocial.

In an interview, Scoutmob co-founder Michael Tavani said the company gets lumped into the daily deals category, but said that from day one, “we tried to differentiate ourselves and to be more of a mobile company.”

So far, the strategy has worked.

The app, which is available free on iOS, BlackBerry and Android, has 1.2 million users who have redeemed one million offers. To date, the company has launched in 10 cities, with varying success rates. Some markets, like Seattle, don’t have many deals yet, while other cities, like Atlanta or Washington, D.C., are used more.

Because of its emphasis on mobile, the company was also able to to score a partnership with payment processing company First Data Corporation.

“It’s crazy, we are a two-and-a-half year-old company, and every week we have the largest payment companies in the world contacting us,” Tavani said. ”They are worried that if they don’t have mobile engagement, then what do they have?”

First Data processes about 55 percent of all transactions in the U.S., and will help Scoutmob close the loop of offering a discount, making a purchase and earning loyalty points.

The new funding will be used to support the company’s next wave of product development, which will include building out a mobile rewards program with the help of First Data and other payment companies it signs up.

Tavani said it will work like this: When users make a purchase at a Scoutmob location using a credit card, they’ll accrue points automatically. Once enough points have been accumulated, they can be redeemed at any Scoutmob retail location.

Unlike traditional loyalty programs, which require consumers to go to the same coffee shop 10 times in order to earn a free coffee, Scoutmob will let consumers earn and redeem points by visiting any merchant in its network. It’s similar to frequent flyer programs, where miles can be earned at a variety of merchants and then redeemed at a handful of airlines.

“We want to be the equivalent of an airline reward program, but for local,” Tavani said. “That’s exactly what we want to be.”

Scoutmob has landed in a sector spanning local businesses and mobile payments, which is ripe from innovation and extremely crowded by well-funded start-ups and massively large incumbents. But Tavani argues that it’s a level playing field.

“There’s going to be multiple players and lots of winners,” he said. “Groupon and LivingSocial are two with a gigantic lead. But we can go out and visit merchants today — there’s no one preventing us from having those conversations.”