“Listen closely and you can hear the sound of another high-tech bubble popping.
LivingSocial, an online coupon business, announced it is laying off about 400 employees, about 9 percent of its work force.
That shouldn’t be a surprise, according to Fortune. The hype and tons of investment that LivingSocial — and other online couponing outfits like Groupon — once drew never made sense in the first place.
The online couponers were once the darlings of the tech media world. Tech blogs gave Groupon a Crunchie award for the best social commerce app in 2010, and its CEO, Andrew Mason, was named the Crunchie CEO of the year.
Groupon’s fortunes quickly reverse. Mason was accused of violating the initial public offering (IPO) quiet period and approving improper accounting, Fortune reports, and some top executives quit. After skyrocketing, its stock dropped 80 percent.
Although its cash flow became positive for the first time, LivingSocial reported a $566 million loss last month and a $496 million charge on loss of value of acquisitions.
Early fans of online couponing companies failed to see the inherent flaws in the companies’ business models, according to Fortune. Consumers use the coupons get discounts — sometimes quite substantial ones — from local businesses, but rarely return to become loyal customers paying full price. And the barriers to entry are small. Anybody can jump into the business, and for a time it seemed like everyone did. ”
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