Groupon is one of the fastest growing collective buying sites in the U.S. thanks to its incredible popularity, a very lucrative business model, and several large rounds of funding. It has found great success with Facebook users who feverishly share its daily deal offerings with one another. Upon securing its latest round of funding Groupon’s valuation was estimated to be $1.2 billion and at the time Groupon was only available in ~40 cities throughout the United States. With the wind at its back and almost nothing to fear, Groupon’s future looks quite promising. Despite its momentum, Groupon could soon be facing an incredible threat if Facebook decides to expand its business-to-business services.
Facebook developers are notorious for taking features from other popular websites and quickly incorporating them into Facebook. For instance, when the friend activity stream was popularized by FriendFeed it was soon implemented into everyone’s Facebook profile. Later Facebook again lifted a feature from FriendFeed’s playbook by adding the “Like” button. Of course FriendFeed is now owned by Facebook which seems to negate this issue but it doesn’t dismiss the willingness of Facebook developers to adopt features/functions from other popular sites.
As Facebook expands Facebook Credits to make it the default payment system for all application developers, it’s poised to merge its virtual currency with other potential sources for generating revenue. One such lucrative venture is the group buying business model. Most business owners already maintain a presence on Facebook via their company’s own Facebook fan page so the potential to partner with local merchants wouldn’t be that difficult for Facebook. If Facebook was to create a group buying platform that could be accessed by adding a Facebook app to one’s fan page, it could easily loosen Groupon’s stranglehold on the group buying market.
Groupon traffic data from Compete indicates that back in January nearly half (44%) of all referring traffic originated from Facebook. Today it’s more like 21% but it remains clear that Facebook is the top resource for sharing Groupon deals. If group buying deals could be served directly from Facebook, the sharing of such daily deals would be greatly improved and, more importantly, so would the quantity of deal purchases. Add in the fees that Facebook could charge businesses to use its group buying application, plus the Facebook Credits charge required to purchase or transfer group buying deals, and it would quickly become Facebook’s primary source of revenue. Don’t think so? Well, except for the recent purchase of MyCityDeal, Groupon is available in less than 100 cities throughout the U.S. and it’s already valued at $1.2 billion. Considering that Facebook is available in a lot more countries than Groupon, that $1.2 billion valuation could be dwarfed by the potential revenue Facebook could generate from such a profitable B2B service.
Another important factor to consider in this Facebook versus Groupon scenario is the ability for Facebook to drive down the group buying costs involved for businesses to utilize Groupon’s services. That is, Groupon takes ~50% of all revenue that’s generated from voucher sales which severely elevates customer acquisition costs (see the group buying calculator). By simply reducing the fees that are charged to the merchant, Facebook could post a serious threat towards evolving as a Groupon killer. Lastly, if Facebook could find a way to give merchants long-term access to users that purchase their deal vouchers, it would gain a huge business advantage over Groupon. Business owners understand the importance of increasing their contact lists or subscriber numbers and their more likely to partner with businesses that help them do that. In contrast, Groupon does not provide any solution whatsoever for merchants to connect again (i.e. email addresses, etc.) with the group coupon buyers.
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