Living Social CEO and co-founder Tim O’Shaughnessy announced today on the company blog that he is stepping down. He will stay until a new CEO is found and installed — a process that he “hopes” will be completed during the first half of 2014. O’Shaughnessy previously worked at AOL, and transformed Living Social from its origins as a book review site.

O’Shaughnessy’s departure follows Groupon founder’s Andrew Mason’s departure last year, and marks an end of the founder’s era in the prepaid deal space. While we believe that prepaid deals are now a permanent part of the local marketing arsenal, the question remains whether there is a real future for the pioneer companies as they morph their models from high commission daily deals to shopping arcades, local targeting and business services.

Many, of course, have written off Living Social as a viable entity. The company sustained massive losses of $650 million in 2012 and $499 Million in 2011. Moreover, in a major loss of faith, Amazon wrote off most of its investment in the company. At the end of 2012, The Wall Street Journal cheekily suggested that it was one of the brands that would surely go extinct during the year.

Besides the losses, which were largely attributable to an expensive sales infrastructure, the company suffered major issues in 2013, including executive turnover; a multiple day outage; and having all its customers passwords hacked.

The company may choose to brand or merge with another entity that wants a head start in this space, such as a bank. But we see signs of life in many respects, including a deeper focus on mining their customer lists; efforts to morph beyond daily deals to coupons and other factors leading to deeper merchant relationships; mobile-oriented service, such as card linked offers; an enhanced focus on national advertising; retailer ties with companies such as Pier1 Imports, Macy’s, Reebok and OfficeMax ; and a pruning of unproven business areas, such as local events.

Last year, the company raised $110 million — including funds from many of its longtime investors –to get over the bumps. It also got additional money by selling South Korea’s T-Mon service for $260 Million to Groupon, and closed or sold several other international properties.

As O’Shaughnessy notes in his letter: “We now have the most stable and healthy business that we have ever had, and the luxury of having hundreds of millions of dollars in the bank to take us to the next level.”

We have more commentary on Living Social in this recent article by Steven Overly in The Washington Post.

Living Social CEO Tim O’Shaughnessy

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On the heels of Groupon‘s $135 million round (and $1 billion valuation), Living Social has stepped up to the plate with a new $14 million C round, led by Lightspeed Venture Partners, with U.S. Venture Partners, Grotech Ventures and Steve Case’s Revolution LLC participating. The new money gives Living Social a total of $39 million to match its Daily Deal against Groupon and 150+ other deal-a-day entities that have emerged in their wake.

The new money will be used to rapidly expand Living Social’s reach. While it doesn’t come close to the full Groupon investment, it may actually equal Groupon’s budgeted spending, since a lot of that money has been designated to pay back investors and founders.

Living Social is currently in 14 markets and adding four more: Portland, Orange County, Charlotte and Philadelphia. Dozens of markets are expected to be launched by the end of the year. This count is compared with50 markets served by Groupon, which says it will be in 100 markets by year-end.

Living Social CEO and cofounder Tim O’Shaughnessy, a former AOL executive, tells us that the company has realized that the Daily Deal is “an opportunity that needs to be fed.” While the D.C.-based company’s origins are in social Facebook apps such as Virtual Bookshelf, the Daily Deal is now getting “the majority” of the company’s attention.

O’Shaughnessy also says that while the guts of the daily deal offers may be quite similar from company to company, he believes that Living Social is differentiated in several important ways: One, it puts feet on the street in each of its markets, instead of relying on telemarketing. There is at least one salesperson in each market, he says.

Another differentiator is that the company is beginning to launch in large suburban markets, such as the San Fernando Valley outside Los Angeles, and Escondido outside San Diego.  O’Shaughnessy believes the suburbs have their own appeal to consumers. Some users may choose to get a suburban offer for routine bids, and a metro offer for weekend fun, he suggests. That’s one way to boost the amount of inventory, he says.

“We’re looking at getting more hyperlocal. We are getting a good volume for most of the merchants we’re working with in smaller [population] centers.”

A third differentiator is Living Social’s viral effort, where consumers receive their coupon for free if they get three friends to sign on from a provided custom link. The “Sell 3, Get 1″ offer has been available from the get-go, says O’Shaughnessy, with certain categories outperforming others on a regular basis.

While Living Social is launching solo in most of its markets, it also has attracted local media partners, such as The San Francisco Weekly and The Washington Post. The Post deal was made two months ago with Living Social, which is headquartered in D.C.  It is based on a revenue share. It doesn’t utilize Post sales teams, but will eventually offer deep integration of the Daily Deal into the paper’s local content, including its metro pages, its sports pages and going out guide.

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