By Martha C. White
Facebook is expanding Offers, a free, DIY-coupon generator for local businesses that bears more than a passing resemblance to Deals, which was widely touted as a potential "Groupon-killer" when it launched last year. Offering local deals isn't easy: Facebook scrapped Deals after four months.?
"Local and daily deals in general are very labor intensive, and contrast sharply with Facebook's business model of being engineering-heavy," Sam Hamadeh, CEO of PrivCo LLC, said via email.?Making Offers free and self-serve isn't the solution, though, according to experts in the business of monetizing data.
Facebook needs to stop emulating daily deal strategies and instead take a page from the playbook of credit card companies, which are slicing and dicing the reams of customer information at their disposal to connect businesses only with the people who are likely to become customers ? or who already shop at their competitors.
Offers was announced back in February along with other changes to Facebook's advertising platform. It's still in beta, but was made available to?most local businesses in the United States last week.?"Offers are a free new way for businesses to share discounts and promotions directly from a Facebook Page," the company said in a statement when it launched.?
This is a tool intended for the mom-and-pop small business with tiny marketing budgets.?While deals can either be posted on a business's news feed or made into a "sponsored story" ? Facebook-speak for ad ? the video tutorial on Facebook's site focuses on the free aspect and includes a short Marketing 101 lesson on structuring a coupon.?
Once it's created, the offer goes onto the business's timeline, which means people who have liked the business page will see it on their news feeds, and anyone who views the business's timeline will be able to see the offer. This is likely to be too scattershot an approach to deliver much businesses to the local restaurants, retailers and service providers Facebook is targeting.
"You can't drop this stuff like they're leaflets from airplanes," said Brian Riley, senior research director at CEB TowerGroup.
Sites like Groupon and its rivals probably don't have to start worrying just yet, since Offers has to develop a traction it never managed to achieve with Deals. "Groupon has a huge presence in local,"?Ken Sena, an analyst at Evercore Partners, said via email. "Therefore, it could be disruptive longer term but I think initially they will be somewhat separated."
But if Facebook takes a more data-driven, targeted approach to offers, daily deal sites might have to contend with much stiffer competition.?"A lot of the information on Facebook is so general, you've got to be able to drive that down... and really turn it from data into information," Riley said.?
Banks that issue credit and debit cards are doing this using a model the industry calls "merchant funded rewards." The issuer or a third-party middleman slices and dices anonymized spending and demographic data and uses that to present offers to customers.?Merchants pay the cost of the discount plus a cut to the bank or third-party firm only for offers actually redeemed.?
For instance, imagine a chain coffee shop wants to reach females under the age of 35 who earn more than $50,000 a year and who make purchases at a competing coffee chain. They create an offer ? say, for a half-price blended coffee drink ? that goes out only to consumers who match those specs. This way, the coffee chain avoids giving offers to customers who would have made a purchase there anyway, or to deal-hunters who will take the discount and never return.
"What I'm noticing what's happening with those types of programs is they're generally incorporating a variety of anonymized data," said?Beth Robertson, director of payments research at Javelin Strategy & Research, and that data is what makes users more likely to only receive offers to which they'll respond.
PrivCo's Hamadeh said it's promising that Facebook is letting businesses combine an offer with a targeted ad, but Robertson said Facebook needs to exploit the information it has at its disposal more aggressively.
"Facebook?could do those things but theres no indication it's offering that right now," she said. Although Facebook doesn't have information about users' spending patterns ? with the exception of the brisk sale of game-related virtual goods ? it has plenty of demographic information along with information about what businesses users like, and this is what could eventually give it an edge over deal sites.
"Making it more sophisticated draws it out of the daily deal sort of generic offering and would add value to the merchant," Robertson said.?
CNBC's Becky Quick discusses her conversation with Berkshire Hathaway's Warren Buffett regarding his perspective on Facebook and Mark Zuckerberg. It's too difficult to value, he says.
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