LivingSocial and Groupon Lawsuits May Be Big For Nexercise

Tuesday, March 1st, 2011

We would love to be able to say that our command of the nation’s sweepstakes laws guided the development of our Nexercise mobile platform and app, yet we all know that would not be true. However, our team will likely become very versed in those laws over the next few months because we’ll be closely watching how the recent lawsuits against LivingSocial and Groupon, the two group buying behemoths, play out.

At the heart of the lawsuits is the issue of the expiration dates of the vouchers that customers buy as daily deals through the respective sites. The suits are essentially alleging that taking money up-front for a voucher and then putting an expiration date on that voucher is illegal. There are a lot more details and nuances to the allegations and the supporting laws, but this is the basic argument.

The bigger issue for all of us monitoring these cases is that if the rulings on these class action suits go in favor of the plaintiffs, the ramification on the entire group buying business model could be widespread and potentially damaging. Businesses that offer the deals may begin to shy away for fear of violating sweepstakes laws in their states while consumers may be leery of the fine print in deals offered by companies like LivingSocial and Groupon. However, Nexercise’s business could gain tremendously from these hints of impropriety, and the biggest reason is that, though we offer deals to users as rewards for exercising, we do not collect money from users upfront or ever. Hence the mobile coupons that our users earn for exercising are not certificates that are bought, and thus comply with normal sales and coupon marketing practices.  Businesses are able to place expiration dates on our rewards just like they do on paper coupons.

Our process is simple: A user exercises with their smartphone on them. After at least fifteen minutes of exercise, they earn a choice of three deals on healthy foods, services, or lifestyle products. When they are ready to redeem the deal, they present the mobile coupon to the respective cashier, and pay the discounted price for the goods or services. Users never pay Nexercise a dime.  They simply buy their products and use the coupons we provide to get often significant discounts.  We love it because it is simple and clean.

Our process is also simple for the vendors who offer the deals through our platform.  They don’t pay us anything up front and only pay when there is an actual transaction.  And the fee they pay is substantially less expensive than with many of the leading group buying sites.  Additionally, demand on our vendors can be smoothed out.  They don’t have to rely on being the daily deal, getting inundated with a glut of discounted transactions that may financially hurt them, and then not having any more traffic.  Their deals are pushed out in a steady and manageable stream to users we think may be interested in their products or services.  Our process even allows our vendors to experiment with the effectiveness of different campaigns.

If the surge in mobile marketing that group buying helped to spur begins to taper off because of the suits, the mobile ecosystem will naturally conform itself to our model. We’re just glad that our decision to stay out of the user transactions upfront is proving to be a shrewd and maybe even lucky move on our part.

Related articles

• LivingSocial sued for allegedly misleading customers (themobilemarketer.com)
• Guide to the Daily Deal Sites (thehappyhousewife.com)
• How Amazon Could Shake Up the e-Coupon Market (dailyfinance.com)
• Groupon, Living Social. Are they worth it? (insights-group.com)
• What Groupon Will Do With That $950 Million (dailyfinance.com)