Facebook has scrapped its daily deals group buying strategy only four months after it began the trial, raising questions about the prospects of any substantial competitor that could knock down Groupon from the top of the market.
The closure also comes after Groupon chief executive Andrew Mason wrote in a letter to employees that it is currently well ahead of the competition, including Facebook and Google, and that contrary to recent reports its financial position is sound.
The Facebook Deals program is separate to the check-in deals system, which will continue to operate. That program recently came to Australia, with companies including Westfield and 7-Eleven taking part.
Over the weekend Facebook released a statement in which it said the Deals program would no longer be taking place.
“After testing Deals for four months, we’ve decided to end our Deals product in the coming weeks. We think there is a lot of power in a social approach to driving people into local businesses.”
“We remain committed to building products to help local businesses connect with people, like Ads, Pages, Sponsored Stories and Check-in Deals. We’ve learned a lot from our test and we’ll continue to evaluate how to best serve local businesses.”
Facebook had been testing the deals program in five cities – Atlanta, San Diego, Austin, Dallas and San Francisco.
Telsyte senior research manager Sam Yip says Facebook suffered a number of hurdles to overcome before it even started the Deals program.
“Facebook has the audience, but in terms of converting them into a sale, that obviously hasn’t happened. And why? Because of weak relationships with merchants. You’re only as good as the deals you post, and I think Facebook had a much bigger focus on the technology.”
“They wanted to integrate the Deals landscape into mobile, and there was a focus on getting great deals that people wanted. I think that mix is why the project has been postponed.”
Yip says this situation is not to say Facebook can’t ever implement a Deals program in the future, but that “I expect it’s time to take heed and think about what consumers actually want”.
Yip explains there is a disconnect between social interaction and content and sales, which is at the heart of the group buying service.
The statement from Facebook has raised questions about whether there may ever be a competitor for Groupon. While Google is embarking on its own Deals program, it has failed to gain as much traction as other offerings – something Groupon chief Andrew Mason pointed out in a letter to employees last week.
“Google Offers is small and not growing. In the three markets where we compete, we are 450% of their size… Yelp is small and not growing. In the 15 markets where we compete, our daily deals are 500% of their size,” Mason said.
“Facebook sales are harder to track but are even less significant at present.”
“I think the only competitor that could take Groupon on is a media publishers,” Yip says. “Whether it’s online or offline, you need to have the right mix of having a critical mass of audience, good relationships with merchants, and good deals.”
“People need to understand this market is not new now, and you either need to buy or partner with someone else.”
This article first appeared on SmartCompany.