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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.

11 Responses to “Facebook’s Two Deal Weapons: The Social Graph and Credits”

  1. It’s scary to see how the Internet has developed in recent years, especially Facebook and the other Social Networks. In a time of global networking is the single Individium long fallen by the wayside.
    Money, Marketing and Advertising … this is the Internet today.

  2. Facebook is getting too damned big for the Internet. I tried registering this morning at a newspaper site to respond to a news story. Wasted 20 minutes before grasping that you can only register at the site using your Facebook account. The site didn’t make this clear. It just told you to use any email and await for a confirmation link.

    This registration issue is becoming more and more of an irritant. Personally, I won’t be shedding any tears when Facebook starts to do a MySpace.

  3. This new deals from face book will definitely hits success because Facebook has already got first rank in social network sites so this new deal is really fantastic and very useful to consumers so registrations to facebook site will grow be very high automatically facebook users will gain with this deal.

  4. Mathew,

    Great article! I, too, think it’s too early to tell whether this will be a Groupon killer, particularly with the social offerings that they plan to serve. Offline social experiences don’t necessarily cover everything that’s out there, but businesses will innovate and make their own customer experiences more social. This program on Facebook is just one more reason for business to evolve faster.

    If this program does take off, I’d be interested to see if Facebook layers more than location in how deals are offered. For each micro-community, they have a wealth of information that could be used for more personalized targeting. Check-in deals and Social deals are one of the many ways that the web is getting personalized for the consumer experience. It’s definitely exciting to see how social media is changing how consumers, brands, the web, and real-life experiences are all interacting with each other in new and different ways.

  5. Nice post, thanks.

    Certainly Facebook has everything perfect to win in abstract…market, information, population penetration, capitalization and on and on.

    They do some things really well and others not.

    They need to surface the parts of their graph that are economic. The Interest graph through their fan pages are one and using the geo customer location is another.

    If indeed they are going to set this up like they did in Europe at no cost to the merchant and make their money on the credit transaction, this is powerful and a threat to the monopoly that Groupon holds through its quite remarkable perfection of email marketing.

    Should be interesting.

    I’ve been following and blogging on commerce on Facebook, the Groupon model and the intersection of commerce and social @ since the beginning.

  6. People are inherently self organizing. Means social should be able to build a product as a reverse Groupon. Group of people organize themselves to receive an offer of a supplier instead of a group accepting an offer provided by a supplier. Means less sales people, means a group of people really interested in a product and a demographic which can be checked out by a supplier before making an offer.
    Why is nobody doing it? Do I miss something?

  7. I suppose I say this all the time, but Deals will be interesting to watch.

    It seems to me that one potential challenge is that the closer in your get in one’s social circle, the less likely folks are to group together, at least for certain types of products. For example, I know my wife wouldn’t want to buy the same Tano bag that her best friend bought. For these kinds of products, some degree of distance seems preferable. Smaller discounts and products akin to group activities would be a perfect fit, especially when combined with location tracking (e.g., Soanso is in the neighborhood! Meet up for a cup of Starbucks and get 10% off).

    As portal platforms (e.g., Facebook, Google, etc.) invest more in social commerce, standalone companies are going to have a tougher and tougher time of it. Why leave the bubble, if you can get basically the same deal?