Facebook is getting out of the daily deals business after four months of testing, a move that may ease some competitive pressure on industry leaders Groupon and LivingSocial.
“After testing for four months, we’ve decided to end our Deals product in the coming weeks,” said Annie Ta, a spokeswoman for Facebook inCalifornia. “We’ve learned a lot from our test and we’ll continue to evaluate how to best serve local businesses.”
“We think there is a lot of power in a social approach to driving people into local businesses,” she said.
Facebook, the world’s largest social network, launched Facebook Deals in April, bringing competition to daily deals leader Groupon and rival LivingSocial.
Facebook started making offers in five cities, including San Francisco, Atlanta and Dallas, and had a small sales team arranging deals with local merchants. But the company also ran offers that were set up by 11 other daily deal companies, including ReachLocal, GiltCity, HomeRun.com, PopSugarCity and Zozi.
Facebook’s exit means Groupon has one less major competitor as it prepares for a $750 million initial public offering later this year.
The Deals project was introduced because the daily discount market has been predicted to bring in $3.93 billion in 2015 – a huge leap from $873 million last year.
“It is surprising that Facebook ended their deals product after just four months,” said Vinicius Vacanti, co-founder of Yipit.com, which aggregates daily deals and tracks the industry. “On the other hand, Facebook Deals had been an underwhelming product and experience.”
Facebook’s decision not to pursue the business may mean the company thinks the approach lacks merit.
Daily deals companies like Groupon send out coupons online that offer big discounts on local products and services.
Facebook Deals offers similar daily deals, with a focus on group experiences, like half-price tickets for a river-rafting trip. The offers are sent daily via email to Facebook users who signed up for the service.
“The Groupon group buying phenomenon is a commodity. There are no barriers to entry. It’s just not going to work because everybody offers it and therefore the margins go down,” said Jeremiah Owyang, a partner at research firm Altimeter Group.
The end of Facebook Deals is “certainly good” for Groupon and other daily deal services, Vacanti said.
“I don’t believe this means daily deals are not a viable business,” he added. “It more suggests that large media and tech companies can’t just ‘turn on’ daily deals and expect them to work. It has to be more thoughtfully integrated into their existing product.”
“Facebook Deals performed well for us,”? Nathan Richardson, president of GiltCity, told San Jose Mercury News. “We still believe in the Facebook platform.”
But with North America’s daily-deal industry, led by Groupon, dropping seven percent in July from June, it seems Facebook has had second thoughts.
Facebook stressed on Friday that it is committed to developing other products, such as Ads, Pages and Sponsored Stories, which connect local businesses with potential customers.
The company also is sticking with its Check-in Deals offering. This lets Facebook users check in at local businesses and see offers from those merchants.
“Facebook is doing some major re-thinking around local,” Vacanti said.
With Facebook’s Check-ins service users only get to see discount offers when they visit local stores and other merchants and “check in” with their mobile phones.
DAILY DEALS WHIRLWIND
Daily deals sites leverage the power of collective bargaining to provide incredible local deals that offer huge savings for consumers while also promising spectacular sales numbers to participating merchants. As a result, these group deal sites have become immensely popular for all parties involved.
Groupon, the main heavyweight that reaches more than 80 million subscribers, but now?underdog LivingSocial?and tech?titan?Google have reached for their pocket books and started swinging.
LivingSocial, the popular daily deal discount site and second?to industry leader Groupon, has announced it is establishing a beachhead in the lucrative Asian market.
Underdog LivingSocial has done an impressive job so far of quickly entrenching itself into 23 countries and attracting more than?40 million subscribers. It also has an edge against its rivals by being one of the first to offer travel discounts. They announced early this month the expansion of its Daily Deals in nine new markets, bringing values on handpicked offers to a total of 487 markets worldwide.
Despite a?flood of new entrants, the daily deals category is still red-hot, as evidenced by Google’s purchase of deals aggregator Dealmap, early this month.
The purchase came after?Google?s $6 billion bid for Groupon?was famously rebuffed last December. By the next month, though, Google was in the process of rolling out its own Groupon competitor,?Google Offers, which is now live in New York; Portland, Oregon; San Francisco and Oakland, California.
Google Offers is a deal-of-the-day website that will be localized to major geographic markets in the United States and abroad. Google confirmed the website in January 2011, after an attempted buyout by Google of established competitor Groupon for a reported sum of US$ 6 billion was turned down.
Figures speak for themselves in case of these providers, so it is surely a wonder why Facebook would opt out of it.
Their service failed to gain traction, though Facebook declined to say why it pulled a quick trigger on it.
Sources: Reuters, thedrum, tomuse, Mashable, bizmology