Facebook launches Deals, competes with Groupon

As an Internet powerhouse, Facebook is now using its girth and influence to try to get a bite out of the daily deals market. With established leaders like Groupon and LivingSocial, Facebook faces fierce competition, but is aiming to provide a differentiated product offering that stays consistent with Facebook's core value of bringing people together. Unlike some of its competitors, who focus on deep discounts, Facebook Deals will focus on group activities that bring people together and the process of sharing them.

The difference between Facebook and other companies who are taking initiatives to establish this trend of "deals" is that Facebook has a much bigger membership base than its competitors. According to Mashable.com, LivingSocial has a membership base of 28 million plus users and Groupon reaches 70 million plus users.

Facebook Deals will begin testing in the San Diego, San Francisco, Atlanta, Austin and Dallas areas. After opting to receive deals, users in these locations will have a chance to see a list of discounts available in their communities via a link on the left side of their Facebook pages.

Emily C. White, director of local at Facebook, wrote in a recent company blog post that following the success of the trial in these five major cities, Facebook plans to expand Deals to other cities. Deals launched with discounts on wine tastings in Napa Valley, restaurants and children's sleepovers at the California Academy of Sciences.

While Groupon offers many popular individual pampering services, such as massages and yoga classes, White shared a different strategic edge that Facebook plans to take with Deals. "While many Deals on Facebook offer discounts," White said, "it's more important to us that you find interesting experiences around you to do with friends."

Benny Evangelista, a staff writer for the San Francisco Chronicle, shared his insight on Facebook's potential in this market. "With Deals on Facebook," Evangelista said, "the Palo Alto firm could further tap lucrative local advertising revenues using the hot trend popularized by firms like Groupon, which offer daily deals with often deep discount prices for everything from yogurt to wine country excursions."

Ever since Groupon allegedly rejected an offer from Google to buy the company for $6 billion, other websites have jumped into the market, smelling an opportunity for profit. Google even launched its own coupon website, Google Offers. There is now an abundance of websites trying to get a piece of the pie by offering a different kind of twist on the idea of "social shopping."

Because Facebook has so many users, competitors realize its potential to gain market share. The success of these daily deals sites relies on loyal clientele to share the discounts with their friends, a department in which Facebook has an edge with more than 600 million active users.

While daily deals websites rely on their members sharing deals with friends, Debra Aho Williamson, principal social media marketing analyst for the research firm eMarketer Inc., explained to the San Francisco Chronicle why she believes Facebook might have an edge in the deals market. "It weaves the sharing and buying of deals into its social networking platform," Williamson said.

Despite being such a large company, Facebook must find ways to tap into the local scene, and Deals may be the perfect way to do that. "What Facebook is tapping into is the power of friends' recommendations," Williamson said. "Facebook has been wanting to get more into the local markets. Local advertising is really tough to crack if you're a national company."

While Groupon forces members to log in to view a daily deal, Facebook can take advantage of the fact that they don't have to woo customers in; there's already significant traffic to the website regardless of what they choose to do with Deals. This means that the users who have opted in will be exposed to Deals offerings even when not seeking out the service. Facebook also has a competitive advantage with access to user information. User information can be used to direct deals to users their interests. As a marketing tool, this could be extremely effective.

Although Facebook has garnered a lot of attention by entering the daily deals market, its status as a powerhouse company doesn't necessarily equate to success. Twitter made an attempt to enter the daily deals market with its Earlybird Offers last year, but stopped it just two months after launching. Twitter's failed entry shows that no matter how much influence a company has in one market, this does not directly translate to success in other markets. One can't jump to conclusions like, "The early bird always gets the worm"; in Twitter's case, the Earlybird never took flight.