What's the Big DEAL about Groupon, Google Offers and Facebook Deals?
by Willy Lim
May 2011 Issue of SME Magazine
Original article appears in May 2011 issue of SME & Entrepreneurship Magazine.
The exploding daily deals market led by Groupon, which has become one of the world's fastest-growing businesses serving discount coupons to consumers, has created tons of imitators and sparked interest from Facebook and Google, who have launched their own version of daily deals in the last few weeks. Groupon has risen to online fame as a local deal-of-the-day website. Now major Internet players like Google and Facebook are trying to get in on the game.
Why is there so much competition in this space?
Because these companies think that there is a lot of money to be made. The daily deals market is expected to grow to US$3.93 billion in 2015 from US$873 million last year, according to BIA/Kelsey consulting firm. Ever since Google, in December, reportedly offered to buy Groupon for USD 6 billion, daily deals websites have been expanding like mad. But like all market bubbles, once start-ups in a brand new industry get hot, the big companies, like Google and Facebook in this case, who are joining the party late, will jump on the bandwagon, hoping to come out with a better offering or leverage on their huge user bases.
Google just launched a beta test of “Google Offers” in April, which could go on a head-on competition with the incumbent Groupon service. Much like Groupon, Google Offers is designed to send people who sign up for the service daily discounts for local restaurants, services and attractions. According to the “Google Offers” sign-up page, the coupons are for 50% off or more.
“Google Offers” complements Google’s other local business initiatives, such as “Google Maps”, “Google Places” and its recent enhancement of its “Google Product Search” comparison shopping engine that allows consumers to check whether a product is in stock at local stores. “Google Offers” is part of an ongoing effort at Google to make new services that give consumers great deals while helping connect businesses with customers in new ways.
Taking the other corner of this daily deals face-off is Facebook. With more than 600 million users, Facebook said it had begun testing a service called “Facebook Deals” in five US cities. The massive social network announced a pilot project in April that will allow local businesses to offer discounts through Facebook. The service lets users save money on discounted deals and share their shopping expeditions with friends on the site.
Here’s a brief side-by-side comparison of the 3 daily deals giants:-
• Members: 70 million
• Deals: Minimum 50% Off, Minimum Purchases Required
• Cost to Merchant: 20%-50% commission
• Pros: Market Leader, Core Business, Extensive Local Sales Network
• Cons: Inflexible Deals (Steep Discounts Required), Steep Commissions
• Distribution Mechanism: Group-Buy Mechanic, Referral Rewards, Social Network Sharing
• Other notes: Self service option as well as full managed campaign
• Members: 600 million
• Deals: No Minimum Off, No Minimum Purchases Required
• Cost to Merchant: 30% or less commission
• Pros: Huge Reach, Facebook Integration, Flexible Deals
• Cons: Lack of Experience, Unproven, Not Core Business of Facebook
• Distribution Mechanism: Facebook Homepage, Facebook Deals Page, Sponsored Ad Units, Personal Messages and Wall Posts, News feed stories/updates, onsite notifications, deals tab, emails
• Other notes: Payment can be via Facebook Credits, which will finally bring the Facebook virtual currency into the real world. Also, Facebook Deals may finally allow people to plan events on Facebook and sell tickets (coupons).
• Members: 200 million (only Gmail users can participate)
• Deals: Minimum 50% off, No Minimum Purchases Required
• Cost to Merchant: No details available.
• Pros: Leader in Online Ads, Integration with Search, Google Checkout, Gmail and Place pages
• Cons: Unproven track record in social media/e-commerce, may not be top priority of Google
• Distribution Mechanism: Gmail, Google Ads, Google Maps, Google Places, and perhaps Youtube
• Other notes: New twist on pitch; Get new customers who have paid upfront, instead of getting prospects who has clicked on your Google ad
Businesses have reported mixed results for using companies like Groupon. A recent study by Rice University surveyed 150 small and midsize businesses (SMBs) based on their experiences using Groupon. While 66 percent of the 150 respondents said that their Groupon deal was profitable, a significant 32 percent found it unprofitable. And 40 percent of the respondents said they would not use Groupon again.
Both Groupon and Google Offers make it compulsory for businesses to offer huge discounts of more than 50% to attract new customers. This may be detrimental to these businesses, as these bargain hunters are more likely to be loyal to the deep discounts, rather than their products and services (I wrote about this in my March article in SME Magazine “Does Your Local Business Need Groupon”). These businesses may be forced to go into a vicious cycle of offering discounts after discounts, just to generate revenue.
Customers might love those places with a coupon, but will that customer go back to pay full price? There are still major questions about whether daily deals services like Groupon and Google Offers are at all sustainable. In all likelihood, they might be the only ones profiting from these deals.
My personal bet is on Facebook Deals to win this war: The social aspect of these coupons is almost more important than the discount itself. If your primary reason for doing something is getting together with friends, a deep discount may not be necessary.
While many Deals on Facebook offer discounts, it may be way more important that you find interesting things around you to do with your friends. For example, group-centric activities such as concerts, bowling, paint-balling, night cycling, may do well with Facebook Deals.
As a result of this important social aspect of Facebook Deals, the discounts need not be as deep as that of Groupon and Google Offers. Groupon claims to offer discounts of 50% to 90%. Most of Facebook's coupons range from only 13% to 75% off, with majority of them on the lower end of that scale.
And this is really the DRAMATIC DIFFERENCE of Facebook Deals: By leveraging on the social aspect of Facebook Deals, it can help businesses to get new customers, without costing an arm or a leg with deep discounts in the near term. Also, it doesn’t attract the bargain hunter that is HARMFUL to one’s business in the long run.
Then again, I’m not a prophet. Only time will tell who will be the King of Daily Deals.