Death Match 2011: Will Facebook Deals Blow Groupon out of the Water?

In a death match between Mark Zuckerberg and Andrew Mason, who would win? Stay tuned: that’s something we’re likely to find out in the final quarters of 2011. If the match hasn’t been decided, the ultimate outcome will probably be pretty clear by New Year’s 2012.

About two weeks ago, Facebook started rolling out Deals in five test markets in the United States. They’d started development and testing in Europe way back in January—just a month after Groupon had turned down a $6 billion dollar buy-out bid from Google. You can almost envision the meeting that must have taken place at Facebook the day after Groupon declined Google’s high ten-figured check. “So what are we gonna do about this guys? If Google’s valuation of the company is at $6 billion this has got to be something worth chasing down. And we’re just the company to do it.” A month later they started testing in Europe and now that Facebook Deals is entering the American market—the game is on.

A quick rundown of seven major advantages that Facebook has over Groupon, in no particular order:

  1. Capitalization: Simply put, Facebook has more money to spend on this fight than Groupon does.
  2. Demographic reach: Groupon has 70 million members. Facebook has 500 million members. In other words, Facebook’s potential reach exceeds Groupon’s by roughly 550%.
  3. Demographic overlap: Many—probably the majority—of Groupon’s members also have Facebook accounts. In other words, Facebook is beautifully positioned to swipe their customer base.
  4. Platform: Groupon sends its members emails every morning. In key demographics, Facebook members spend up to an hour a day—or more—on Facebook, checking it throughout the day. Facebook reigns supreme as the undisputed champion of social media marketing. If brand loyalty is put to the test and you pit these companies against one another, guess who’s going to win?
  5. Usability: Millions of businesses (re: potential clients for either Deals or Groupon) already have a Facebook page. Why would they go through the whole rigamarole of signing up with Groupon when they can just click-through on Facebook so much more easily.
  6. Information capital: This one might actually be a toss-up except for Facebook’s far superior ‘demographic reach’ (see No. 2). Who will win: Groupon’s algorithm dissecting past purchases of deals (simple, elegant, limited) vs. Facebook’s unrivalled cache of demographic data collected from their users (massive, possibly unwieldy, extremely powerful)? My money’s on the latter.
  7. Scalability: Groupon’s model is simple. They take half the profit on each deal. Facebook has the ability to be much more agile along these lines if they so choose.

A quick rundown of four advantages that Groupon has over Facebook:

  1. The Human Touch: The ace up Groupon’s sleeve at this point is their human capital. They’ve got a staff of 3,000 talented folks—writers and stand-up comedians—who’ve built relationships with clients and developed instincts about how to sell their product. Facebook has nothing remotely comparable in terms of a workforce devoted to Deals. What Facebook has is information—but they have no one to animate and leverage that information in the same way that Groupon leverages the information they harvest from their algorithm.
  2. Experience: See No. 1. These people may know what to do when the market jackknifes—they may be able to ‘throw’ deals. Or they may stay ahead by sheer force of will, passion and creativity. Time will tell.
  3. Focus: Facebook has a lot of irons in the fire. To some extent our defenses are already up against Facebook Ads. Groupon’s marketing efforts, on the other hand, create a more voluntary engagement with their customers that may lead to greater consumer satisfaction.
  4. Momentum: Groupon has a two year and half year lead on Facebook Deals. Google Offers (launched in January) is nowhere on the playing field. That effort completely fizzled (why it fizzled could be the subject of a whole different post). Facebook Deals might fail for the same reason, i.e. people just might not care about Facebook Deals. If they don’t care, they won’t use it. If they don’t use it, Groupon will continue to widen the gap between itself and Deals and wind up maintaining dominance in the long run.

So it’s war. Between coupon distributors. Coupon distributors? Why is this exciting, again? Why is this interesting? It’s interesting because in 2010, Forbes crowned Groupon the fastest growing company ever when they passed the $1 billion dollar mark within their first two years. The Forbes valuation pegged Groupon as being worth $1.35 billion dollars when the company was just 17 months old—more than twice as rapidly as Google did so.

At least in terms of the sheer speed of their growth (measured in gross sales), Groupon had surpassed Priceline, Amazon, and Google. It seemed like they had their niche pretty much nailed. The test would be whether their growth or their market share was going to be sustainable. And that’s a question we’ll be finding out the answer to in the next fiscal year.

Last August when Forbes was lauding Groupon’s praises, Eric Lefkofsky (their biggest shareholder) is recorded as having said, “This space is bound to attract somebody big; there’s just too much money involved…[Although]We think we have a big lead.” His statement has proven to have had some grim predictive power. The question now is: How long will that lead last? Living Social may come and gone, but Facebook isn’t going anywhere. They can sit in on this game for as long as they want to.

Thomas is a contributing author at Technected.