Facebook Discontinues Deals After Failing to Make Pre-Paid Coupons Social

Facebook has told Reuters that it plans to discontinue its pre-paid coupon service. “After testing Deals for four months, we’ve decided to end our Deals product in the coming weeks,” the company said. Groupon, LivingSocial, and Google Offers may breathe a little easier this weekend.

At first, expectations were high for Deals, as Facebook could have leveraged its enormous user base, various communication channels, and payment system Credits to help the product gain traction. However, it appears tests in eight cities did not prove that users wanted Deals or that the product, as it was, fit the social network

Facebook never put its full might behind Deals. It initially injected stories into the news feed asking users to sign up for the service, and later promoted the pre-paid offers with emails and real estate in the sidebar. Still, Facebook apparently chose to hedge its bets and watch how users reacted rather than initiating flashier promotions or bombarding the news feed.

Just last month, Facebook added Charlotte, St. Louis, and Minneapolis to the original test cities, San Francisco, San Diego, Dallas, Austin and Atlanta. This might have been an effort to see if cities less prone to early adoption that might not have already been satisfied by established daily deals services such as Groupon would respond better. Apparently not.

“We think there is a lot of power in a social approach to driving people into local businesses,” Facebook said in the statement. “We’ve learned a lot from our test and we’ll continue to evaluate how to best serve local businesses.”

In past reviews of the product, we criticized Deals regarding the quality of the experiences offered , the sometimes shallow discounts, and the way the experiences were ptiched to users. Had Facebook subsidized businesses to provide deeper discounts on attractive experiences, and came up with a more compelling design for the Deals-browsing app, the results of the tests might have been different.

The market also may have simply been over-saturated with daily deals after waves of Groupon clones flooded in seeking the business’ big margins. Facebook didn’t seem to figure out how to get users actively discussing Deals and recruiting friends in the same place they could buy them — what could have been a crucial differentiator.

Facebook’s foot traffic incentive system, Checkin Deals, which actually pre-dated Deals and used to have its name, will continue to run.

The announcement comes as other web services are deadpooling products that haven’t met expectations or don’t fit. Google announced it would dissolve Slide and drop most of its products including the recently launched Photovine. Gowalla also said it would strip out the Notes and Items features from its location service.

Facebook earlier this week confirmed with us it would scrap the Places check-in feed and map as it moves towards applying location as a layer to all posted content. The discontinuations might signal Facebook is looking to focus more as it tries to fend off advances of Google+. Or that it has something new in store for helping local business converts fans into customers.