Facebook Deals, Three Months In: Product Testing and More Cities

Facebook Deals, the company’s Groupon-style pre-paid coupon service, has now been live in beta for almost three months. While it so far hasn’t achieved the instant success some expected, Facebook has been cautious with promotion of the product rather than spam its news feed with Deals announcement.

Deal quality and usage has been relatively low, from what we’ve seen, but the company is also continuing to refine the product and launch to more cities, as it explains below.

Overall, the revenue potential for Facebook Deals is still promising, especially when you consider that the company wouldn’t need to buy ads promoting it — a major cost for other pre-paid coupon providers active on the platform, like Groupon and Living Social. Here, we’ll look at how the product is evolving, and what its best prospects are for gaining traction.

Taking It Slow

In March, Facebook began showing news feed stories asking users to sign up for updates about Deals in San Francisco, San Diego, Dallas, Austin and Atlanta. Facebook is both arranging its own deals and aggregating offers from deal providers including Home Run, OpenTable, and Gilt City. The Deals app, accessible through a bookmark in the right sidebar, currently shows between four and 13 available Deals in each city.

Rather than Liking a Page, Facebook’s standard update subscription mechanism, signing up for Deals means users are informed of new offers directly via the news feed and email, as well as through Facebook notifications. This gives Facebook the power to freely manipulate how prominent stories about Deals are in the news feed. However, so far, Facebook has not oversaturated the feed with with Deals announcements that could increase traction but also might detract from the social content, opting to promote through home page ads and emails instead.

The purchase of a Deal triggers a news feed story in the feeds of friends. While other pre-paid coupon services have to ask users to share news of their purchase with their social media contacts, Facebook does this automatically. This purchase virality could drive the success of Deals if it can gain initial traction.

So far though, our San Francisco-based team has hardly seen or heard of any people purchasing Deals. My Deals app’s “Deals Friends Like or Have Bought” section only could only tell me about two friends Liking the businesses offering Deals. Low traction in San Francisco, thought of as one of Facebook’s strongholds, suggests traction is probably low in other cities as well.

A core deficiency in the product that may be hampering traction is the generally low value of the Deals. Several offer discounts of as little as 20% off such as $40 for $50 worth of kayak rentals. Deeper discounts are often relegated to experiences that appeal to a small audience. With Facebook trying to create a groundswell of buzz for Deals, it may need to sidestep its provider partners and subsidize businesses to offer Deals that appeal to a wide audience with discounts worth telling one’s friends about.

Facebook’s official statement on the peformance of the Deals test to date is “the early feedback from businesses has been positive, and they have been able to find new customers to bring into their stores.  Facebook has seen that people are finding a lot of Deals through their friends and that Deals found through friends have higher conversion rates for businesses. We’re also seeing an increase in fans of a business after the Deal has run.” Notice that nothing is said about how many Deals are being purchased.

Five New Cities, Flashier Presentation

Still, Facebook tells us it is planning to expand the Deals program to Seattle, Denver, Charlotte, St. Louis and Minneapolis. Meanwhile, Google has launched its own Offers product in Portland, New York City, and the Bay Area, and plans to expand it to Austin, Boston, Denver, Seattle and Washington, D.C. Both are racing to lock down a presentation and distribution strategy that can attain a high conversion rate.

As part of these these trials, Facebook is testing a more stylized, graphic-oriente, and detailed presentation format for its Deals app. This format, which can be seen when browsing Deals in San Francisco, contrasts with the original Deals app design that showed small panels with tiny pictures and nothing but the headline and price.

The new format is much more compelling allowing users to immediately see what’s included in a Deal, when it expires, and if friends have Liked it without clicking through to view it’s full description. The ability to see a social recommendation from a trusted source for a Deal should increase the click through rate and bring more users in range of actually purchasing a Deal.

Facebook knows it hasn’t found the optimal design for the Deals product, and therefore has been wise not to promote it too aggressively. With time, it may be able to find a style that properly marries high value discounts with the social nature of the site. If Facebook can improve the value and presentation of its Deals, it’s not difficult to imagine friends discovering and purchasing them, inviting friends to buy them too, and planning a group outing to redeem them all within a news feed conversation.