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Amazon sold 1m daily deals vouchers in 17 hours yesterday through its AmazonLocal offers site, raising questions about the future of its strategic partner Living Social.
The e-tailer sold out of vouchers that offered a $10 Amazon giftcard for $5, presumably clocking up a huge number of new members as a result.
In January last year Living Social sold 1.4m $10-for-$20 Amazon gift cards, so Amazon already knew the tactic would work.
Amazon owns roughly a third of Living Social after investing $175m in the deals site in 2010, but it launched a rival site, AmazonLocal, in June last year.
The exact relationship between the two deal sites is still unclear – Living Social still provides the majority of the daily deals for AmazonLocal although the latter has started to develop its own sales teams in recent months.
Reuters suggests that Amazon could be hedging its bets by developing AmazonLocal in case it doesn’t end up buying out Living Social.
It certainly seems an unusual strategy to invest $175m in a company while openly building a competitor.
But whatever the motivation, Amazon clearly wants a piece of the burgeoning daily deals market.
On Monday Groupon UK managing director Roy Blanga defended his company’s business model, stating that the deals were “virtually risk-free for merchants”.
However suspicions remain that due to the nature of daily deals merchants do not stand to gain from long term customer loyalty or repeat sales.
Instead they get “volume at velocity” which can lead to bad customer experiences if the merchant is not properly prepared to cope with the increased trade.