Did Facebook Just Sound the Death Knell for Groupon and Foursquare?

Facebook moves more forcefully into the social-mobile and deals space. How much room does that leave for smaller competitors?

That girl on the Foursquare logo always looked a little worried, and now we know why: A bigfoot named Facebook just stomped into her territory to steal away her check-in game. At least that's that way it looked yesterday when Facebook stepped decidedly into space previously dominated by the likes of Foursquare and Gowalla, as well as Groupon.

Facebook’s new Deals feature allows companies to make Groupon-like offers. And Facebook also gave apps the ability to share users’ check-in’s, indicating that the social network wants to become ground zero for location information. Facebook also made clear that the features it introduced yesterday—Single Sign-In, Deals, and the opening up of Location APIs (the pipes that enable the transfer of location information between apps)—are just the first step in a larger mobile strategy that includes location and social elements.

The threat that Groupon and Foursquare—and their peers in the social-mobile space—now face is part and parcel of the kind of cycle new industries typically pass through: A scrappy startup comes up with a breakthrough idea and launches a product around it. The product, if it succeeds, serves as a proof of concept: It demonstrates that the breakthrough idea wasn’t just some loopy fantasy of a fringe player but actually constitutes a real opportunity. A larger player, previously sitting on the sidelines, sees that success, picks up the idea, and runs with it. And, given its size, the larger player has the potential to steal market share from the smaller player, leaving them struggling for a footing in the field they created.

Of course being bigger isn’t always a slam dunk (Google has already introduced a places feature in its Maps). And being smaller isn’t necessarily a death sentence. During the dark days when files created on PCs weren’t compatible with files created on Macs, PCs had the advantage. There were just so many more of them. Many customers, particularly businesses, chose simply to use the same system everyone else had, rather than to constantly futz with converting files. And yet, a hardy contingent nevertheless continued to choose Macs. Convenience was less important for those customers. They went with Macs because they valued the other qualities Apple brought to the table.

Both Groupon and Foursquare think they still have enough going for them to compete in the location and offer spaces. Fast Company asked each for their reactions to Facebook’s news. Both sent back canned statements by email.

From Groupon: “The new Facebook location-based Deals coexist with Groupon's services the way that Foursquare's partnerships have. It's a different product that serves a different need.”

From Foursquare: “Many products are now integrating check-ins and tools for local merchants, and we welcome new entrants to the space. As the market leader among location-based services, we feel we're driving innovation in this area by offering a more engaging experience for users and business owners on top of the check-in. We're currently receiving over 1.5 million check-ins per day, and we've added over 1 million users in the past six weeks. We already have tens of thousands of active specials running our platform, and soon we'll be rolling out some new features that will make it even easier for businesses and brands to connect with customers and reward loyalty.”

Foursquare may be growing, but it still only has between four to five million users. Compare that to the 500 million people on Facebook, 200 million of which use its mobile application. If you’re a national brand trying to connect with customers, which network is likely to deliver the impact you're looking for? And while Groupon might coexist with Facebook, if you’re a harried Mom-and-Pop shop trying to make sense of this brave new social-mobile world, and this Facebook thing that you’re already using lets you create an offer on a single, easy-to-use page, are you really going to take the time to figure out that Groupon thing your nephew told you about?

On the other hand, Facebook’s implementation of Deals is cruder than similar offerings from Foursquare and Groupon. Which points to the opportunity for the smaller companies. Their long-term sustainability will probably rest on the same thing that enabled the Mac to survive in a PC world: A decision to eschew the urge to be everything to everybody and instead to focus on a customer segment they will always be able to serve better than the big boy. And then to design an offering for that segment that is so vastly superior to the big boy’s that customers in that segment will happily sacrifice the big boy’s reach and convenience for the value brought to the table by the smaller competitor.

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3 Comments

  • Rob Day

    This is an exciting time for this industry regardless of what you call it. We're in a boom where there are about 4 - 5 exclusive deal serving companies, several social companies, and a ton of need and proliferation/adoption. As with any industry this is going to consolidate and probably fast. You will already see headlines like the location adventure company that was bought by living social, facebook integrating these options, Yelp integrating check-in and deals... and the list goes on.

  • John Ruzicka

    I wrote a blog post about Foursquare's downtime about a month ago - see here: http://bit.ly/a3iv5W

    The comments I received and other blog posts were already calling that the beginning of the end for Foursquare. While the new Facebook developments may not completely knock Foursquare out of the picture, I'm guessing they will certainly slow the company's growth.

    As I mentioned in my blog, I haven't really gotten much value from Foursquare - not too many businesses are embracing it's power. I do see, however, lots of businesses embracing Facebook and using it well to engage with their customers.

  • Morgan Barnhart

    Just as the article states, each brand brings in a different audience and serves a different need. There will be those that are very loyal to FB and will embrace the location and coupon additions. Then there are those, like me, who will still use FB with it's new addictions, along with Foursquare, Yelp and Groupon. I think it's smart that FB is acquiring more additions for its users. It's now being combined all in one place, but don't think they'll stomp out the competition.