When Groupon sprung itself on the world a little over two years ago, it roared in a whole new industry, that of the daily deal. Since then, everyone from fellow behemoth Living Social to niche startups with highly targeted demographics have piled onto the action, hoping to get a piece of this hot new trend.
The fact that Facebook, the 800-pound-gorilla of Palo Alto, has stepped into the game isn’t as important as how they’ve stepped in: in Groups. With sharing.
Facebook launches their own Deals today. Available in five test cities (Atlanta, Austin, Dallas, San Diego, and San Francisco), Facebook Deals will let its users not only buy deals, but also share deals with friends and see what deals other friends have grabbed for themselves. Not coincidentally, Facebook has just rolled out new bells and whistles in Groups that allow built in questions and polls for group members and share finds with Group members easier. “Say you’re on Orbitz and you want to tell your roommates about a great idea for a summer vaction …,” Facebook suggests. Deals isn’t mentioned in the Groups announcement. But make no mistake, it’s a primary component.
While Facebook’s program does what other deals programs do–sells deals–Facebook Deals’ emphasis won’t be primarily on delivering the cuttest-rate deal–on the “50%-off t-shirt,” as NetworkEffect reported a little while back. Instead, Facebook is emphasizing social experiences, things friends can do together–think: surfing, whitewater kayaking (Zozi, an outdoor adventure company is a partner in Deals), small business retreats, team sports, etc.
That fits with Facebook’s core mission and its core strength: “Giving people the power to share and make the world more open and connected.” And if Facebook can do that well, if it can provide its users with another type of value, non-monetary though it might be, that obviates the need for them to compete with other services on the depth of its discounts.
Which, as everyone in this business has started to figure out, is unsustainable in any case. If you offer a “$50 worth of food for $25″ coupon, and you pay Groupon half of that remaining $25 (ie: $12.50), then you’ve essentially just paid $37.50 to acquire a customer. Even assuming that customer does come back–and pays full price the next time–that’s a lot of money to acquire a customer. It’s only a matter of time before deals businesses whose models depend on delivering the greatest savings start to crumble, as merchants minding their bottom lines flee elsewhere.
But that doesn’t mean that deals services in and of themselves won’t be viable in the long run. They simply will have to compete on something other than offering deep deep discounts. They could compete on curation, for example–doing the best job of selecting the types of products and services a particular demographic might be interested in, so they don’t have to wade through everything-but-the-kitchen-sink before finding something that appeals. Or, as Facebook Deals is probably going to do, they could compete on peripheral values, like making it easier for friends to see what each other is doing and plan and organize activities together.