LivingSocial tries yet another model

LivingSocial announced a new product today as part of its Instant service. It will allow users in the DC area to order food online for delivery. A premium offering allows users to order food like they order room service, complete with real plates and linens. A driver returns later to collect the dishes.

The best overview I saw on the move was at Chicago is the home of both LivingSocial archrival Groupon and GrubHub, which is directly competitive with this new offering.

Here is my take:

  1. LivingSocial seems to be flailing for a business model. They’re trying a lot of different, random things. What does the brand stand for anymore? Is it cheap deals by email? Travel? Local deals on your mobile phone? Restaurant menus and ordering?
  2. Will consumers on it mailing list who have been conditioned to look for deals of 50% off or more be willing to pay full price?
  3. Will consumers go to its destination site when they want to buy a meal?
  4. Is this any more convenient than picking up the phone and calling? I’ve tried a lot of online ordering services and they generally suck. I had an experience with The Melt this weekend that made me wish I’d just walked in rather than deal with the Web site.
  5. What will this do to take rates? Competitors like GrubHub charge substantially less than the 40%-50% that LivingSocial and Groupon have been charging for their daily deals products. Only a really desperate restaurant would give up that much of the ticket on an ongoing basis.
  6. Will restaurants that already have partnered with a provider like GrubHub feel the need to deal with another provider? In DC, the initial launch market, GrubHub already has many more restaurants than LivingSocial. I suspect some will, but many will not. (Unless LivingSocial can show the ability to drive a lot of volume.)
  7. The “room service” offering, while neat, is going to appeal to a much more limited audience. How big is that space?
  8. Can anyone scale a “room service” business considering all of the logistics involved?
  9. Will restaurants be able to offer food at a quality level that they want to be associated with in the “room service” offering? This includes presentation as well as food quality.

The broader issue I have is that there isn’t much new here. Even before more recent efforts like GrubHub, there were services like Takeout Taxi and Waiters on Wheels. None set the world on fire.

Besides, any product announcement that invites a comparison to Kosmo, one of the poster children of Web 1.0 excess, should make you nervous.


About Rakesh Agrawal

Rakesh Agrawal is Senior Director of product at Amazon (Audible). Previously, he launched local and mobile products for Microsoft and AOL. He tweets at @rakeshlobster.
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