Social networking giant Facebook will reportedly extend its Deals service within weeks, adding a Groupon-like feature that will allow small businesses to sign up and offer discounts to customers.
The announcement highlights yet another entry into one of the fastest growing sectors of the web and online retail.
Facebook already launched a feature late last year that allows small businesses to provide deals directly to customers. But it appears the new feature will see SMEs sign up and have their deals spruiked by Facebook itself.
“Local businesses will be able to sign up to use this feature soon, and people will be able to find Deals in the coming weeks,” the company told Bloomberg.
Adam Schwab, chief executive of Deals.com.au, says it’s more likely Facebook is just adding the service on as a secondary feature, and it isn’t going to depend on it as a major revenue source.
“It could just be that they’re giving it a try and see how it goes. They certainly have the reach, and Facebook is still looking for the revenue streams that Google has,” he says.
Analysts suspect Facebook is diversifying its revenue base ahead of a possible IPO next year – it has already introduced a mandate for app and game makers to use its credit system, for which the company receives a revenue cut.
The new service will show off particularly attractive deals and encourage users to share them among their friend networks. The trial will begin in San Francisco, San Diego, Dallas and Atlanta – the Deals service is not yet available in Australia.
It was also announced that Facebook would partner up with several companies including ReachLocal, Gilt City, HomeRun and KGB Deals in order to offer discounts.
But the success of Facebook’s entry into the discounts market is far from certain, given the huge amount of competition.
However, Schwab says the move isn’t so much about dominating the space as it is just grabbing a piece of the space while they can.
“I think you’ve seen Groupon do extremely well in this space. They’re the number one group buying company in the world, and they certainly haven’t repeated their success here because the market is so crowded.”
“Groupon dominates Europe and the United States. So I think Facebook and Google entering this space is a great indication that this kind of thing really does work. If it didn’t, there wouldn’t be any demand.”
Telsyte senior research manager Sam Yip says with Facebook’s large network of users, they might actually have a chance of getting some success.
“Group buying is in favour of the sites that start up now, especially sites with an online community or a social networking platform. For the short-term, there will still be space for new entrants like Facebook and Google. “
However, Yip points out Facebook may have trouble getting smaller businesses on board, as it has been larger brands that have been more receptive to building networks on the site.
“Facebook has been good for larger businesses and brands, the Coca-Colas of the world, because they’ve used it to build up their network and brand power.”
“But with group buying, it’s primarily an SME-focused business. Facebook will have a challenge in getting those small businesses on board.”
Meanwhile, Fast Company has reported that a Silicon Valley entrepreneur who took to the stage at the SXSW conference this week trashed Groupon and said his company wasn’t treated fairly when it signed up for a deal.
“In marketing, in the stories you tell, you guys are nothing but winning,” Travis Kalanick said. “But there is such a disconnect with operations.”
Kalanick, who runs the Uber online car service, said Groupon did not deliver primary placement, didn’t run the offer on the dates specified and provided inaccurate estimates of proceeds.
“That’s money I spent to put cars on the road that we didn’t need,” he said.
Groupon vice president of sales Darren Schwartz responded by saying the company is hiring merchant managers to ensure sufficient oversight.
“The reality is that Travis has identified the same stuff we have,” Schwartz said. “We need to merge our marketing excellence with our operations excellence and get it all to the same level.”
Schwartz said the company is rolling out new tools to help local businesses better track their ROI from each offer.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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