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Tuesday, April 26, 2011

Facebook's Network Will Give Its Online-Coupon Service "Deals" a Boost

Posted By on Tue, Apr 26, 2011 at 11:27 AM

Money CAN buy friends
  • Money CAN buy friends

Now that there is a full-fledged backlash against online coupon services, Facebook has jumped on the bandwagon. Today it launched the imaginatively titled "Deals" service in five test markets: San Francisco, Atlanta, Austin, Dallas and San Diego. Sorry, snowbelt, you'll just have to wait.


Facebook's move comes as Groupon-wannabes, of varying levels of

quality, are flooding the market, and as many local businesses are beginning

to question the wisdom of making use of such services. Last week,

Google announced its own service, the imaginatively titled "Offers," after failing to woo Groupon for a reported $6 billion last year.


Facebook, though, has a distinct advantage going in: it's a network -- and a huge one at that.

The online-coupon biz relies heavily on network effects: the value of the service grows along with the number of people using it. Facebook's half-billion-strong customer base has already been amassed, so now it's just a matter of delivering the goods. Google -- not to mention the hundreds of other recent market entrants -- has to essentially build its network from the ground up (Google has a big advantage with its Gmail service, but the social element is missing).

Another difference: Facebook's Deals service won't be relying so heavily on deep discounts - something many local merchants find offputting about, for example, Groupon's service. The idea is to attract new customers, but if the cost of granting heavy discounts exceeds the revenue gains (which it often does) there's little point in participating. Similarly, if existing customers use coupons, the net benefit gain is zero.

Facebook will offer discounts, but the main thrust is the "social" aspect of "Deals." Most offers will be for services that people use in groups, such as dining, movies, and sporting events. 

It should be interesting to see what happens to the relationships Facebook has with Groupon and LivingSocial, another coupon provider. Both services use Facebook as channels for their offers and, more to the point, both are big advertisers on Facebook.

With the introduction of "Deals," Facebook -- for the first time --  will allow users to spend Facebook credits on real-world purchases. Before now, credits, which are paid for with a credit card (that is, legal tender), were used only within the service, for games and the like (for example, for bored housewives in Peoria to buy manure in Farmville, or whatever).

Now that users can spend credits on coupon deals, Facebook, by having its own currency, is one step closer to what is, obviously, its ultimate goal: nationhood.

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Dan Mitchell

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