Facebook said it was entering the fast-growing “deal of the day” market, posing a challenge to online discount marketing pioneers Groupon and LivingSocial. Recently, LivingSocial (who is partially owned by Amazon.com) broke the record for a daily deal by selling 1.4 million Amazon vouchers worth $20 for $10 each. That’s a lot of revenue.
The social network’s large audience and detailed database of user preferences positions it to be a fierce competitor in this market, which is expected to generate nearly $4bn by 2015, according to consulting firm BIA/Kelsey. Facebook’s move could boost its revenue stream as it considers a public offering – and potentially compromises Groupons impending IPO. Maybe Groupon should have taken that $5b offer from Google after all.
By now you have probably heard of the e-coupon company, Groupon. So, what is Groupon and how does it work? Groupon was the brainchild of founder Andrew Mason who formed the company two years ago and has exploded both in terms of market penetration (50 states) and valuation (they recently rejected a $5billion offer from Google). They are the “Cadillac” of e-coupon companies and have over 4 million subscribers. The model is very simple. They will advertise your business to your local community and charge you anywhere from 35-50% of the sale of the product or service (if it is below 50% then they will also charge you a 3% credit card processing fee). In addition, you will need to reduce the cost of your product by 50% or more. A “daily deal” is then sent out with your offering and if they hit the minimum number of buyers the “deal is on”. Groupon then collects the funds from the consumer and the merchant is paid their percentage the next day.
Facebook will offer multiple deals every day, generated by its own sales force and also aggregated from nine partners, including Open Table, Plum District and Zozi. Facebook says it will seek to specialize in offering deals that can be shared among friends.
Imagine the possibilities if you have a business that can supply or serve multiple states or countries. Facebook currently has 600m members and is growing at a clip of 50,000 new users per day. The information they gather on each member gives marketers a very targeted market for their product or service. Facebook knows your age, your birthday, where you live, what you like, what you buy, who you know, where you went to school, where you work, the kind of music and shows you like, the movies you like, etc… The biggest challenge for a merchant utilizing Facebook’s “daily deal” will be the amount of orders a merchant can handle.
Stay tuned…this is going to get fun!!!
By, Steven Quarles, Managing Director