Facebook Deals Challenges Groupon et al.

A few weeks ago, the NY Times and Tech Crunch leaked that Facebook was ready to launch their latest product in the US, Facebook Deals.  Deals is simply another competitor for Groupon and their cohort of web startups which offer time sensitive deals at steep discounts for restaurants, golf courses, movies, etc.  Facebook’s decision to compete with Groupon is an extension of their advertising based business model which will pay tremendous dividends for a company looking to grow revenue in anticipation of an IPO early next year.  What makes this announcement interesting (threatening to Groupon) is the fact that Facebook Deals will not charge retailers a cut for using their platform.  That poses a tremendous threat to Groupon’s business model which charges each retailer approximately 50% of the deals price.  Facebook has made the fastest jump possible in the race to the bottom of the group buying margin which will curb the astronomical growth that Groupon has experienced over the past four years.  

Facebook can offer their deals for free because the purchasing data is more valuable to their business model than the potential revenue.  Knowing what people buy in addition to what they Like will make their advertising pitch that much more attractive and should lead to a much larger share of the coveted online display advertising market.  

I'm planning a lengthier post about the Economics of Groupon and why I think it will be another blip of the consumer web industry.