"We've always said Instant was a test," said LivingSocial spokeswoman Maire Griffin. "The feedback we've received from our merchant partners and members is that Takeout & Delivery better meets their needs."

LivingSocial launched the Instant business last year, when Groupon Inc (GRPN.O), the largest daily deal company, started a rival effort called Groupon Now!

These mobile initiatives have been considered important sources of future growth for the companies. However, success depends partly on having enough merchants signed up to offer limited-time discounts in a small area.

"Groupon Now! is a very important part of Groupon's long-term story and overall opportunity for the company," said Ken Sena, an analyst at Evercore Partners.

"From Groupon's perspective, LivingSocial's move is very interesting," Sena added. "The key to success is having enough density in each category so people keep coming back to Groupon Now rather than searching for nearby deals elsewhere."

Groupon Chief Executive Andrew Mason said recently that Groupon Now would take time to become a material part of the company's operations.

"Andrew has always said that for Now to be successful you need to have a critical mass of subscribers and merchants in the same location," a Groupon spokesman said on Thursday.

"Groupon is almost unique in that we have that critical mass of subscribers and merchants and remains excited by the potential of Now as we are getting great feedback from our customers and merchants," the spokesman added.

Groupon Now and LivingSocial Instant were designed to help merchants such as restaurants fill empty seats during slow periods through discount offers that typically last a few hours. The deals are sent to subscribers' mobile phones when they are nearby.

However, LivingSocial said the restaurants it works with were more interested in connecting with customers by selling more dishes for takeout or delivery.

"Consumers aren't pulling their phones out to search for the nearest real-time discount on a car inspection or framing service," said Greg Mazanec, general manager of LivingSocial Takeout & Delivery. "They are, however, looking for a faster and better way to order food from their favorite local restaurants."

(Reporting By Alistair Barr; Editing by Tim Dobbyn)

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