While the tech world has always been fast and furious, it seems that the pace of change has been accelerating lately. Just consider that five years ago, Facebook was a small operator. Now the company measures its impact as a percentage of the world’s population.
But the challenge for Facebook is to turn this massive platform into gushing revenues and high margins. After all, the company’s market value is about $80 billion and an IPO is likely next year. In other words, Facebook needs to find ways to justify the extreme expectations.
So it’s no surprise that the company is jumping into the daily-deal business. Of course, the dominant player in the space is Groupon, which was started in November 2008. It is generating billions from its business and the profits are juicy.
Well, as for Facebook’s new service, it has a simple name: Facebook Deals. Right now, it’s in the test phase and is being rolled out in Atlanta, Austin, Dallas, San Diego, and San Francisco. This is a good approach since it can be tough to evolve a local service. Facebook will likely need to setup staff in each city, such as with sales people.
Yet Facebook has some important advantages. Perhaps the most important is that it has an inherently social business. Keep in mind that the daily-deals business is based on getting your friends interested in an offer. Thus, with Facebook’s huge user base and features like status updates and “Like” buttons, the company should get lots of traction.
In fact, Facebook Deals may ultimately be a great way to further improve the community. For example, deals could include local concerts or sporting events, in which friends can buy up discounted tickets.
At the same time, Facebook’s mobile platform should also be a nice boost. For example, the company recently added Foursquare-type location features – called Places. Basically, a user can easily check-in to a deal.
To be successful, Facebook will also need to get local businesses interested in providing killer deals. No doubt, many of these merchants will already have Facebook accounts and may even have their own page for their businesses.
Oh, and there’s something else: Facebook will also use its credit system, which is essentially a virtual currency. This can be used to purchase the goods from the daily deals (so far, these have been for virtual goods in games).
Facebook Deals can certainly be a game-changer. The company has some unique advantages that should make its service a standout. And going forward, it could put lots of pressure on Groupon, which has few social features. Yes, this company is also gunning for an IPO. But in light of the fast-changing competitive landscape, it may want to rush the deal. As seen with MySpace, Facebook knows how to destroy its competition.