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Facebook Suffers Defeat with Death of Facebook Deals

Facebook’s attempt at creating competition for the most popular daily deal site Groupon is now officially a failure. Only four months after the release of Facebook Deals, Facebook is getting out of the daily deals industry. This move is said to ease some competitive pressure on industry leaders, especially Groupon.

Groupon filed for a $750 million Initial Public Offering earlier this year, releasing these statistics about their business model that provide powerful proof of the major efforts and intensive focus required for success in this industry. Groupon had 83.1 million subscribers as of March 31, 2011. By that time this year, Groupon had already earned $644.7 million in revenue off of the sale of 28.1 million deals. Surprisingly, this still wasn’t enough to make the company profitable, considering Groupon spent $179.5 million on online marketing alone by the end of March 2011. That’s huge, especially when you compare it to the $245 million Groupon spent on online marketing for all of 2010. Essentially, the company spent around $6 per Groupon offer.

Say Googbye to Deals

Facebook launched the Deals initiative in April with a small sales team arranging partnerships with local merchants in San Francisco, Austin, Dallas, Atlanta, and San Diego before quickly rolling out deals to other major cities. Facebook Deals also ran offers that were set up by 11 other daily deal companies, including ReachLocal, Gilt City and Zozi. Jeremiah Owyang, a partner at research firm Altimeter Group put it best when he attributed the failure of Facebook Deals to a lack of assimilation.  He explained, “Large media and tech companies can’t just ‘turn on’ daily deals and expect them to work. It has to be more thoughtfully integrated into their existing product.”

Facebook added to their defense in statement sent to Reuters, “We think there is a lot of power in a social approach to driving people into local businesses. We’ve learned a lot from our test and we’ll continue to evaluate how to best serve local businesses.” Ads, Pages, and Sponsored Stories will be the pathways of choice with which to connect local businesses with potential customers. Check-in Deals is still available, which lets users see offers directly from merchants only after using Facebook to publicly declare your arrival.

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