Facebook said it was entering the fast-growing “deal of the day” market, posing a challenge to online discount marketing pioneers Groupon and LivingSocial.
The social network’s large audience and detailed database of user preferences positions it to be a fierce competitor in this market, which is expected to generate nearly $4bn by 2015, according to consulting firm BIA/Kelsey. Facebook’s move could boost its revenue stream as it considers a public offering – and potentially compromises Groupon’s impending IPO.
“Some investors may get spooked,” said Greg Sterling, senior analyst with Opus Research. “In the old days, everybody worried about Google entering every segment of the market. And now Facebook is another concern.”
Facebook will offer multiple deals every day, generated by its own sales force and also aggregated from nine partners, including Open Table, Plum District and Zozi. Facebook says it will seek to specialise in offering deals that can be shared among friends.
“You won’t get your legs waxed with friends,” said Emily White, Facebook’s director of local operations. “You dine out, you go to concerts, you do outdoor activities. We want to make sure those experiences are maximised.”
The move strengthens Facebook’s presence in local advertising markets, an area of growing interest for Google and other internet companies, while also boosting the prospects for its partners. Several of these groups have targeted certain segments of the discount market, such as urban mothers or adventure seekers, making Facebook’s detailed database of users’ personal interests of huge value in micro-targeting deals.
“We are very excited about the Facebook partnership – they are an extraordinarily strong company with the largest number of page views on the web,” said TJ Sassani, chief executive of Zozi, which specialises in vacations and adventure trips. “That’s helpful when we talk to merchants.”
Facebook will begin testing the programme in five cities – Dallas, Austin, Atlanta, San Francisco and San Diego. The company hopes that its users will share deals they bought with their friends or invite them to buy.
The company will also hope to avoid pitfalls, such as those Groupon encountered when some small businesses were so overwhelmed by customer responses they could not keep up and ultimately suffered losses.
“There are some downsides to having a huge audience,” Mr Sterling said. “For national advertisers, it’s double-edged as well. The minute something appears that’s any good, people will be all over that.”