Facebook’s Two Deal Weapons: The Social Graph and Credits

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As expected, Facebook has launched its group-buying effort in five cities today, including Dallas and San Diego. The new feature is called Facebook Deals, and offers users the ability to get discounts from local retailers either directly or through a number of partners Facebook has lined up, including the white-label Groupon competitor Tippr. Whether the new service becomes a “Groupon killer” remains to be seen, but Facebook has two major weapons in its arsenal: Deals playing directly into the power of the site’s social graph, and the integration of Facebook Credits.

As we wrote recently when Deals was still in the planning stages, the biggest threat the new offering poses to Groupon is that Facebook is truly social in a way that Groupon and its competitors, such as LivingSocial, aren’t. The rise of Groupon was seen by many as a sign “social shopping” had arrived, but the discount offers from the Chicago company and its ilk aren’t all that social. In many ways, they’re just email marketing with a 21st-century spin.

It’s true you can share the deals you activate on Groupon by posting them to Twitter and “liking” them on Facebook, which is better than most email marketing campaigns. But as Facebook Director of Local Emily White has noted in interviews about the Deals launch, any offers a user signs up for or even expresses interest in will automatically be broadcast to his or her social graph. That’s a very powerful tool — and in some ways, achieves the same kind of viral potential Facebook tried and failed to take advantage of with its ill-fated Beacon rollout in 2007.

Facebook also said it isn’t focusing on deep discounts the way some other services do, but is targeting offers that have some social element, such as a baseball game or dinner for two. That’s a smart decision, since one complaint about Groupon is that gets people in the door, but rarely turns them into repeat customers.

The other interesting aspect to Facebook Deals is that it will make use of Facebook’s internal monetary system, Facebook Credits, becoming the first program to allow users to pay for real-world products and services. Until now, these credits — which amount to a billion-dollar economy within Facebook — could only be used to buy add-ons within social games and other digital features, such as movie rentals. There’s an intermediate step, however. According to White, credits will be used to buy a coupon or voucher, which can then be exchanged for the discount (possibly to avoid legal issues around using Facebook Credits as a real-world currency replacement).

As with most virtual currencies, the big benefit for Facebook with using credits is that it insulates users from the real cost of what they are buying — which is why retailers love to use things like Aeroplan points and other similar systems. And anyone used to playing social games on Facebook via Zynga and other similar services, which includes several hundred million people, is pretty used to paying for things using Facebook Credits. That could make paying for discounts and deals a lot more palatable for someone who might never give their credit card to Groupon.

Does all this make Facebook Deals a “Groupon killer” right out of the gate? Hardly. It remains to be seen whether large numbers of people will want to take advantage of these deals, or whether they’ll want to spam their friends with information about them. That said, if anyone has all the right ingredients to make social shopping work on a really large scale, it’s Facebook.

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