LivingSocial and Foursquare are both fighting for local ad dollars from mom and pop stores, neighborhood restaurants, and even big box retailers as online social media companies set their sights on a largely untapped pool of revenue.
Now because of the rise of social media and smartphones, companies like LivingSocial and Foursquare can target consumers and drive them to storefronts in ways that the Yellow Pages and websites from the past boom like Microsoft's Sidewalk could not do.
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"I think we're in a position to do something revolutionary for local advertising," Foursquare Chief Executive and Co-Founder Dennis Crowley said during the Reuters Global Technology Summit on Thursday.
The pool of dollars is huge: U.S. local advertising spending is expected to reach about $136 billion in 2011, according to Bia/Kelsey.
Foursquare is a mobile application with about 10 million users who "check-in" to area establishments, which are then shared with the user's social network of friends.
About 400,000 merchants use Foursquare tools to drive traffic to their stores.
"I think that we will hit our inflection point the same way that Twitter did," Crowley said. "I can imagine getting to 100 million users. I can imagine us exceeding that."
Foursquare and LivingSocial, the online daily deals site, are part of a new wave of companies that have attracted investors interested in owning a piece of the social media business.
The first social media site to test investor appetite and go public was LinkedIn, which made its stunning debut on the New York Stock Exchange on Thursday, defying even the highest of expectations by closing 109 percent above its IPO price at $94.25.
On SecondMarket, one of the largest exchanges for private company shares, Foursquare saw the biggest increase in participants interested in the company during the first quarter. LivingSocial made SecondMarket's list as one of the new companies on investors' radar for the same period.
MORE THAN DAILY DEALS
With about 30 million members worldwide, LivingSocial is still far smaller than the No. 1 player in the market, Groupon, which has about 70 million users and is expected to file for a public offering this year. LivingSocial is on track to generate $1 billion revenue this year.
Tim O'Shaughnessy, co-founder and chief executive of LivingSocial, said online advertising companies have approached LivingSocial interested in a takeout.
The Washington D.C.-based company just raised $400 million in its latest round which included Amazon.com, valuing the company at about $3 billion.
"You're really in a position where somebody acquires you or you become a public company. I think either of them could happen with us," O'Shaughnessy said.
For now, O'Shaughnessy is concentrating on expanding the business.
"I don't view this as the daily deal business. I view it as the local commerce business," he said.
For instance, the company introduced Living Social Instant that pulls a list of real time offers based on proximity to the establishments.
It's the same spot where Foursquare is aiming.
Foursquare is building out tools that recommends places based on the interests of a person's social circle, similar to Amazon and Netflix's suggestions for buying books and watching movies.
"When you build great products, it's very easy to monetize them," Crowley said.