Facebook began offering users in five U.S. cities coupons for everything from wine tastings to concert tickets on Tuesday, turning up the competitive heat in an increasingly crowded market.
The special Deals coupons, which Facebook users can purchase directly on its service, offer discounted prices or access to limited-availability goods. Facebook will take a cut of each transaction, though the company declined to say how much.
With the new service, Facebook becomes the latest Internet heavyweight to jump into the red-hot daily deals market pioneered by Groupon a few years ago. Last week, Google Inc began marketing a new daily deals service dubbed Offers to users in Portland, Oregon, with plans to expand to San Francisco and New York, and Amazon.com invested $175 million in LivingSocial in December.
Although the market has seen huge growth and there are big players already there, it's not something that's locked down, said Ray Valdes, an Internet analyst at research firm Gartner.
I expect to see churn among the vendors as they try one thing and it works for a while and other vendors find new ways of better meeting users's needs, he said.
Facebook, the world's No.1 social network with more than 500 million users, is betting that social interaction will help set it apart from the dozens of companies currently offering online daily deals.
The coupons available on Facebook are specifically geared toward group activities, such as a river rafting trip, rather than for individual items such as a discounted pair of jeans. Facebook users can easily recommend interesting-looking deals to their friends on the service.
It's not about taking someone else's business model and force-fitting it into Facebook, Emily White, director of local products at Facebook, told Reuters in an interview on Tuesday.
Ultimately we're providing what we hope is a really great user experience by looking at what people come to Facebook to do, and that's interact with friends, she said.
Facebook currently makes the majority of its revenue by selling online ads. But some analysts see an important new business in helping local merchants acquire new customers by offering online coupons that take advantage of mobile technology and social networking.
The local opportunity for what Facebook, Google and Groupon, what everyone is trying to figure out, could potentially be bigger than the online ad opportunity right now, said Evercore Partners analyst Ken Sena, who recently wrote a report on the mobile shopping market.
In addition to Facebook's inherent social networking characteristics, Sena said the company's online payment system, dubbed Facebook Credits, gives the company an important advantage selling coupons on its service.
Google, by contrast, will benefit from its mobile technology, including wireless transaction capabilities recently incorporated into its Android software, said Sena.
All of those pieces will come together to determine who's going to be the leader in the space. It's very undecided at this point, he said.
Facebook is initially rolling out its Deals service in San Francisco, Austin, Atlanta, Dallas and San Diego. White said she expected Facebook Deals to be available in more U.S. cities this year, though she declined to provide a time frame.
In addition to creating coupons for local merchants using its own sales force, Facebook will offer coupons created by 11 partners including ReachLocal, Gilt City and Zozi.
(Reporting by Alexei Oreskovic; Editing by Tim Dobbyn)