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Tech stocks: the difference between Groupon and Living Social

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Fred Prouser / Reuters / File

(Read caption) An online coupon sent via email from Groupon is pictured on a laptop screen November 29, 2010 in Los Angeles. Groupon and Living Social will both go public soon. But there will be some key differences for these tech stocks.

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News broke at the end of this week that social offers site Living Social was signing with Deutsche, Bank of America and JPMorgan to underwrite an initial public offering. This follows Groupon's filing which included a risk disclosure section that read like late-career Edgar Allen Poe.

While there is no question that these deals will be red hot, at least initially, there is a huge gap in understanding how these companies differ from each other. The differences are important, they will ultimately determine valuation and market share.

The numbers and time-frames I use below are approximate but the points I make here are vital:

1. The first thing you gotta know is that Groupon is the biggest and most creative, they essentially invented this game, taking the Daily Candy email blast model and turning it into an interactive coupon business from just an advertising business.

2. Groupon's massive pre-public valuation is based on this first mover advantage (first, biggest, best, most mindshare, most revenues, widest geographic presence, etc).

3.. Living Social, while second in the game, is no also-ran. It is backed by serious venture money, a large chunk of which comes from Jeff Bezos and Amazon. No one understands e-commerce like Bezos and his guys.

4. Groupon is fortunate in that merchants now use its name as a verb (I'm going to Groupon a new foot massage offer this weekend". Google understood the advantage that kind of thing gave them during the Search Wars and they encouraged it.


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