Business Software

Facebook Deals Tries to Out-coupon Groupon

Facebook jumped into the coupon space Tuesday by launching Facebook Deals. The feature works largely like Groupon or Living Social by offering users heavily-discounted deals at local businesses. What Facebook can bring to the space--besides its 600 million users--is a social component lacking from the other e-mail-based discount companies.

You can "like" a deal, share it through your newsfeed, or click on the left-hand column for local businesses listings. You can also sign up the old fashioned way to receive e-mail deals.

For now, Facebook Deals are available in Atlanta, Austin, Dallas, San Diego, and San Francisco.

While Facebook's revenue percentage split with participating businesses remains unclear (Groupon and Living Social take about half the cut, though this seems to be shifting in some markets), what is clear is the huge advantage the company has by leveraging social connections to promote purchases. Businesses, take note.

Companies have reported mixed results for using companies like Groupon. A recent study by Rice University surveyed 150 small and midsize businesses (SMBs) based on their experiences using Groupon. While 66 percent of the 150 respondents said that their Groupon deal was profitable, a significant 32 percent found it unprofitable. And 40 percent of the respondents said they would not use Groupon again.

But if Facebook can offer comparable splits, it also holds SMBs another powerful advantage: word of mouth.

If a user purchases a coupon on Groupon, Living Social, or another one of the dozens of deal sites, the purchase remains largely isolated. A person using Facebook Deals, on the other hand, automatically broadcasts this decision to their friends, which could easily lead to more direct sales. But even if it doesn't lead to a sale, the simple endorsement of the service provides a great deal of value to the business. This social component is a significant value added for SMB and should not be underestimated.

Another benefit for SMB is customer data. Marshall Kirkpatrick at the ReadWriteWeb blog speculates that Facebook will be sharing user data with businesses offering deals. Such data would be invaluable to an SMB attempting to market in an increasingly noisy marketplace. Kirkpatrick notes that Facebook did not rebuke his assertion through their e-mail correspondence.

The discount deals space has exploded in the last few years. Groupon, the largest deals provider, rejected a $6 billion buyout offer by Google last year. The social coupon company plans to go public sometime in the second half of 2011, with an IPO around $25 billion, according to sources quoted at The New York Times and Reuters.

Google, apparently perturbed by its rejected bid, announced Google Offers earlier this year. Like Facebook, the company has a vast database of existing users and user data to leverage for the service.

And late last year, Web giant Amazon got in on the game by investing $175 million in Groupon competitor Living Social.

As new players jump into the space, the competition to maintain healthy streams of SMB offerings will increase. To stay competitive, Google, Facebook, and Groupon will undoubtedly have to lower percentage splits and offer enticing customer data to their businesses. How exactly all this will pan out remains to be seen, but the competition is giving SMBs new and attractive options when considering discount services.

Ilie Mitaru is a culture and business journalist and occasional entrepreneur. He is the founder of the alternative business magazine, Stake, set to launch in in June. You can find him on Twitter.

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