LivingSocial Deal Shows the Power of Amazon Partnership

Updated: Groupon may have gotten the lion’s share of the attention in the group-buying market lately, thanks in large part to its chutzpah in turning down a $6-billion acquisition offer from Google (s goog) and reports of a planned IPO that would value the company at more than $15 billion, but competitor LivingSocial is making some news of its own: the company today launched a promotion with Amazon (s amzn) that shows the kind of marketing power the group-buying company now has at its disposal, as a result of the recent $175-million investment it got from the online retailing powerhouse.

The deal offers buyers who subscribe to LivingSocial a $20 Amazon gift card for just $10, and according to a number of reports the cards have been flying off the virtual shelves, as word of the deal spreads through Twitter and other social networks. With an estimated 300,000 cards sold within a few hours of the deal being launched, the offer was already worth about $3 million. If the pace of buying continues, the deal — which is available for 24 hours — could generate as much or more gross revenue as a deal that Groupon did with The Gap (s gps) last year, which brought in about $11 million. Jeremy Liew of Lightspeed Ventures, one of LivingSocial’s financial backers, said that the deal was “the first step of operational integration” as a result of the Amazon investment.

Update: By the end of the day on Wednesday, LivingSocial said it had sold more than one million of the Amazon gift cards, which would put the company’s total revenue at over $10 million. The company said the cards had been selling at the rate of 2,000 every minute or 85 per second.

It’s not clear how much of the revenue from the Amazon deal LivingSocial gets to keep. Most group-buying deals offered by LivingSocial or Groupon — or one of a number of other similar companies — see the buying platform that sends the deal out to its subscriber base keep anywhere from 25 to 50 percent of the revenue, depending on the arrangement with the retailer. Although the fine print notes that “Amazon is not a sponsor of this promotion,” the retailer could easily have offered the gift cards free of charge and let LivingSocial keep the bulk of the revenue as a way of promoting its new investment — especially since gift cards themselves will have future value for Amazon once buyers redeem them.

If nothing else, the Amazon offer is a sign that the combination of LivingSocial and the world’s largest online retailer could be a powerful competitor for Groupon. In addition to Amazon and Lightspeed, the Washington, D.C.-based company is backed by Grotech Ventures (the investment company of and former AOL (s aol) founder Steve Case) as well as US Venture Partners. LivingSocial recently bought a controlling stake in a Spanish group-buying company called LetsBonus.

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