Facebook is launching its widely anticipated group buying service called Deals today, the Times says.
It was long believed that Facebook would do something like this, and it puts it in direct competition with Groupon and LivingSocial. Deals is launching in five test cities: Atlanta, Austin, Dallas, San Diego and San Francisco.
Here's what's special about Facebook Deals:
- While you'll be able to receive offers by email, they will mostly show up in your Facebook news feed. Most group buying services rely on email first to send deals, but Facebook won't.
- You'll be buying the deals with Facebook Credits. This is pretty huge, as it's the first time Facebook's payments system will be used to buy physical goods and services and not just virtual goods. A lot of people are wondering if/when Facebook will go directly after PayPal and offer an online payments service; if it's planning that, this is a good first step toward doing that.
- Facebook is partnering with other services like OpenTable. It will also rely on its own sales force to sell deals but it also partners with other companies that also have relationships with merchants, which is smart.
There are many questions here.
The first one is can Deals work? Group buying services rely on curation, with humans picking attractive deals, and huge salesforces and, more generally, a sales-driven culture. This is a far cry from the engineering-driven culture at Facebook (and Google, which is also working on its own group buying service), where they like that stuff to be done by computers as much as possible.
The second one is what will the impact be on the group buying market?
Groupon and LivingSocial are spending a ton on Facebook advertising to gain subscribers. Will they cut that off in retaliation or will they feel forced to still spend on Facebook ads? That in itself will be a test of the attractiveness of Facebook ads.
Second of all, Facebook is probably the biggest company in terms of userbase that's getting into group buying. Plenty of people think Groupon can't possibly end up being that huge because group buying is a business with such low barriers to entry. Groupon bulls, including us, respond that, actually, building a huge sales and service infrastructure is very hard and that it's a significant barrier to entry, similar to how anyone can start selling stuff online, but becoming Amazon is very hard.
Will Facebook prove the bulls wrong? If so that might have a huge impact on Groupon and LivingSocial not just from lost marketshare but also from establishing that group buying is really a "feature" that most media sites can replicate and not a "company." That might make the difference between Groupon being worth $5 billion and $50 billion. Conversely, if Facebook gives it its best shot and fails, that will be huge for Groupon as it will show that it has, indeed, built a huge, defensible asset.
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