How Facebook Deals and Credits Can Crush Groupon

The TKO: Facebook Has the Power to Make Any Deal Free

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Jay                                                             Samit
Jay Samit

Groupon, Living Social and a host of imitators have grown Goliath-size revenue on the back of social media. Never in the history of commerce have billions of dollars changed hands so quickly and effortlessly. While many on Wall Street predict this will be the beginning of a mega-sized new industry, I predict Facebook Deals will destroy these couponing giants by loading its slingshot with its own arsenal: Facebook Credits.

When Groupon was novel and fresh, millions of consumers opened their morning emails in eager anticipation of what new product or service would be offered -- for a limited time only -- at an amazing bargain price. Who could pass up $500 off of a car lease for only $199! But as a guy who is never going to parachute out of a plane, nor get a mani-pedi, the thrill quickly faded and was replaced by the morning chore of how quickly can I delete spam from my inbox. Since spam constitutes more than 90% of all email, American businesses lose $22 billion a year in productivity time as the average employee spends 2.8 minutes a day deleting more than 18 spam emails. Groupon and its clones are increasingly counted among those 18 spam emails by many who were quick to jump on the initial bandwagon. Fight on.

Facebook's first advantage: It doesn't have to rely on email and can insert enticing deals into the targeted news feed of 750 million people. But targeting the offers based on the preferences revealed on user profiles and via demographics is just the opening jab of the Deals fight for consumers' hearts and wallets. The knockout punch: Facebook Credits have the power to make any deal free. (It is not a well-kept secret that if consumer "like" discounts, then they'll love free.)

For example, imagine that a movie theater chain wanted to increase ticket sales by offering a discount of two adult tickets for only $8, a steal from the usual $10 per person ticket.

For Groupon to succeed with its present model, enough people would have to first just open the email to review the offer and then be someone who goes to the movies. Lastly, those consumers, not knowing when they will be going next to the theater, have to go through the hassle of taking out their credit card and buying the tickets prior to their future theater visit.

With Facebook Deals, however, the offer can be targeted to people posting or talking about movies on Facebook or sharing trailers with their friends, insuring the deal is much more likely to be presented to a receptive audience. So say, if not movies, a mani-pedi for my wife and a round of golf for me.

Another Facebook advantage: It can provide the offer not in dollars, but in Credits, removing the credit card hassle. For example, the $8 movie ticket could be offered for 80 credits, which consumers steadily amass through a number of different payment models. Also included on the offer page (such as on the "right rail"), and supplementing the "cost" of the ticket, will be an offer for 10 free Facebook Credits for engaging with a brand ad powered through the value-exchange model. The value-exchange model creates daily deals and discounts for consumers by offering them the ability to accumulate Facebook Credits over time, effectively providing the possibility of free deals.

In short, engagement advertising and socially integrated promotions are more relevant to people than Groupon-like deals and will be more successful and beneficial to the consumer since people are able to gain virtual currency, a la Facebook Credits, to discount deals even further or even all the way to free.

Major brands ranging from Disney and Microsoft to Unilever and Best Buy are already benefiting from value-exchange engagement advertising with millions of people on Facebook each month. To date, most of the activity by leading brand advertisers has been around users earning credits from virtual goods for "Farmville" and other social games. Gamers so enjoy value-exchange ads that most ad campaigns are reposted on Facebook by game players and quickly go viral, creating massive earned media for the product.

With the expansion of Facebook Deals, tens of millions of consumers will quickly realize that by engaging with brand advertising, they can easily earn Credits for goods they desire in both the virtual and real world. Actively engage with brands you care about and be rewarded with a night on the town. That is a winning proposition.

Groupon may have the early lead in this fight for consumer spending, but the combination of Facebook targeting, Credits and value-exchange engagement advertising is the bookmaker's favorite.

Jay Samit is CEO of SocialVibe, the internet's largest engagement advertising platform. SocialVibe reaches more than 662 million hyper-connected social-media users each month across leading digital, social and mobile properties.
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