Facebook will unveil its group deals program tonight in 5 US cities according to an embargo-breaking slip-up by the New York Times caught by TechCrunch. Facebook Deals launched 3 months ago in Europe. Tonight, according to reports, the feature will go live in Atlanta, Austin, Dallas, San Diego, and San Francisco. This, after learning from the early rocky roads traveled by competitors and Facebook's own tests in Europe.Update: Facebook PR contacted us and clarified two things noted below - and the updates are a little surprising to me.
Comparisons to the mega-successful (if dreadfully boring) services Groupon and Living Social are inevitable. But Facebook Deals is going to be much, much more interesting for everyone - especially for retailers who will offer deals. (Who likely won't have to pay a cut of the revenue to this deals platform at all.) If Facebook can execute this feature well (and there's no guarantee it can) then it's hard to imagine what some of today's fastest growing businesses on earth are going to do to compete. Look at what Facebook Deals has to offer, below. Groupon and Living Social are seriously at risk of being roadkill.
- It may be free for retailers: Existing Daily Deals services make their money by charging retailers a cut from every discounted transaction. At least in Europe, Facebook Deals offered deals for free. Free! The giant social network could scale like crazy doing that, and then make its money when people decide to make their purchases with Facebook Credits. It's a Walmart-style move, but Groupon isn't as lovable as the Mom 'n' Pop corner store. Update Again! 12 hours after this story went live, Facebook PR (poor Facebook PR!) send yet another email saying this feature wouldn't be free after all - that's Facebook Check-in Deals, not Facebook Deals that's free!
- Facebook Credits: Tonight's reports say you'll be able to buy Deals with Facebook Credits! They will be the first real-world, non-virtual goods that will be available for purchase with this new currency. Kids are going to burn through this stuff like there's no tomorrow. Load up with Credits with the intention of giving it to Zynga for Cityville crap and end up spending it at The Gap instead. Or vice-versa. When beloved national retailers start offering goods and lower prices to customers who pay with a new, virtual currency - that's when said virtual currency becomes a force to reckon with. Somebody call Congress and the Federal Reserve - it's time to start having some serious conversations. Update: Facebook PR contacted us and said that at launch, you will not be able to buy physical goods with Facebook Credits. Rather you will be able to get things like vouchers that you can redeem at events.
- Huge mobile app footprint: Facebook has some of the most widely downloaded mobile apps in the world. Hundreds of millions of people are already pulling it out of their pockets while they navigate around town, seeking to take photos, post quips, see updates, check-in to places. Boom - coupon. Groupon has only begun to offer a mobile app and it's nothing compared to Facebook Mobile. Update: Facebook PR pinged us and said that at launch, deals will not be offered on mobile. I find that a little shocking!
- Multi-purpose newsfeed: Groupon and Living Social offer nothing but deals. Facebook puts deals in between pictures of your sister's baby. Which do you think you'll click through more often, all other things being equal?
- Check-ins: Facebook probably has the biggest check-in network in the world. Simple as it is, millions of people publicly declare their locations to friends on Facebook already. Tie that in to Deals, as we heard last Fall when rumors emerged that some deals would be tied to checking-in to a place with multiple friends, and you're so golden it's ridiculous. "I was at the Starbucks in the mall with these 3 of my friends and we all got a coupon on a fappacino because I checked them in with me." That's a killer deals platform and judging from the Facebook Deals landing page pre-launch, that's going to be key. Check-in, check your friends in, redeem a deal and boom - not only does the retailer get 3 customers, it gets word of mouth marketing across all their friends' newsfeeds.
- The Number One Killer Feature of Facebook Deals: Structured, verified, meaningful demographic and taste data. You think the retailers with whom you redeem a Facebook Deal aren't going to be shown your favorite music, TV show, your education level, some level of details about your friends and much more - at least in aggregate? You're kidding yourself. That info is gold and it's going to be the real killer for Facebook Deals. Not just scale, not just the world's greatest viral marketing platform - but valuable data about each and every customer that can then be used to retarget marketing efforts in the future. If Facebook can really deliver that well and at scale, it's going to have a much, much more compelling platform for retailers than Pretending to Live Social or Grey Poupon. It's going to be like your grocery store loyalty card, except it's going to work across retailers and it will be filled with info as valid as you tell your Facebook friends. Note: While emailing us tonight, it's notable that Facebook did not assert that this part was in any way incorrect.
Do Groupon and Living Social even stand a chance? Probably not with their existing products, they don't. Something's going to have to change radically.
COMMENTARY: Group buying sites like Groupon and LivingSocial have an entirely different daily deals business model. They split daily deals revenues 50/50 with the merchant. That's a heavy price to pay, but Groupon is growing like crazy, so enough merchants are happy or they would not be coming back.
If Facebook decides NOT to split revenues, but make their standard 30% commission off of the purchases paid with Facebook Credits (the virtual currency used for Facebook Deals), this could become a problem. Here's why. Let's say the merchant offers a 50% off deal on a $10.00 dinner special. That would be $5.00 to the Facebook customer. They pay with the equivalent in Facebook Credits, but are charged 30%. So instead of saving $5.00 they are only saving $3.50 after the $1.5o commission ($5.00 x 30%). That's a tricky scheme if there ever was, and a lot of people have complained about this. In reality people, IT'S THE DEAL that counts. The deal has to deliver the perception of real value.
With a 50% Groupon daily deal you know you get half off the regular price. So long as enough people buy into the deal, then everybody gets that price. With Facebook, the merchant has no minimum, which means they may not reach their breakeven point on the total sales for that item. Obviously, a lot will depend on the gross margin for each individual deal.
According to some unconfirmed estimates Facebook sold the equivalent $835 million in virtual merchandise (mostly games and apps) in 2010 that was paid with Facebook Credits. They took a 30% commission, so this generated Facebook Credit revenues of $250 million. Not bad for peddling virtual currency. In the real world, you don't make anywhere near that in foreign currency exchanges trading dollars for Euros. However, purchasing a game or virtual merchandise are something else, because they are for very small peddly amounts like $0.99 to $2.99. So a 30% commission may not be worth bitching abount. However, on a Facebook Deal for priced at $15.00 on something normally priced at $30.00, that's a commission of $4.50 (30% x $15.00). That's real money hitting the consumer's wallet, and in reality you ended up saving only $10.50.
Kids may jump on Facebook Deals because most of them are very poor with math, but young adults or Millennials are having it tough economically, and if they believe they are not getting their monies worth, may not purchase the deal. With Millennials it is about value. It's like paying for a four-course dinner, but getting only three courses.
Another problem which I see is from the viewpoint of the merchant. If payment is made in virtual currency, do they get full value on redemption or will there be a fee for turning those virtual dollars into real greenbacks? Also, how long do they have to wait to get paid? The article doesn't address those issues, but not all the facts are out on the table yet, and we just don't know how those merchants will react to a payment system based on virtual dollars.
I love the enthusiasm demonstrated by ReadWriteWeb's Marshall Kirkpatrick has for Facebook Deals. He seems to think it's going to this great thing and that it will all but doom Groupon. I am simply playing devil's advocate, and nobody knows how Groupon and LivingSocial will react. Personally, I don't think they are going to sit there and take it lying down.
Facebook may have those huge numbers, but this is a new market for them and they still have execute and develop a national marketplace. They will have to sell Facebook Deals to real merchants. This will take them at least 1 year to setup, plus they have a learning curve to deal with, something Groupon and LivingSocial have already overcome. I do predict that Facebook will try to recruit Groupon and LivingSocial staffers, something they did with Google.
I am going to reserve final judgement until the end of 2011, before I call Facebook Deals the "Golden Egg" for Facebook.
Courtesy of an article dated April 25, 2011 appearing in ReadWriteWeb
Comments