Facebook said it has shuttered its local daily deals service, a 4-month-old effort to challenge Groupon and LivingSocial in the burgeoning but markedly copycat-filled market for social commerce.
Launched in April, Facebook Deals let local businesses pitch deals to Facebook users living in Atlanta; Austin, Texas; Dallas; San Diego and San Francisco. The social network giant aggregated daily discounts of 50 percent or more from local merchants, as well as from providers such as aDealio, Gilt City and OpenTable.
While deals issued from market leaders Groupon and LivingSocial target individuals, Facebook offered a more social bent on deals, including discount packages for concerts, group hikes and wine tastings. Facebook Deals came via email and a special Deals tab for Facebook homepages, but they also surfaced in News Feeds to show users what their friends are buying.
The service failed to gain traction, though Facebook declined to say why it pulled a quick trigger on it.
"After testing Deals for four months, we've decided to end our Deals product in the coming weeks," a Facebook spokesperson told Reuters Aug. 26. "We think there is a lot of power in a social approach to driving people into local businesses. We've learned a lot from our test, and we'll continue to evaluate how to best serve local businesses."
The chief challenge is that online daily deals have become a commodity business. Daily deals Websites sprout up like mushrooms; Amazon just extended its AmazonLocal deals service to New York City.
As Altimeter Group analyst Jeremiah Owyang told Reuters: "There are no barriers to entry. It's just not going to work because everybody offers it and therefore the margins go down."
Groupon, which is girding for an initial public offering, is universally acknowledged as the market leader in daily deals.
However, HitWise Experian analyst Bill Tancer said Groupon has experienced almost a 50 percent traffic drop to its Website since its peak in the second week of June 2011, compared with last week.
During the same time, Living Social has enjoyed 27 percent growth in visits to its own Website. The figures exclude mobile Web or access via applications.
Tancer said this suggests the increased number of competitors (the commodity factor), not enough of the right deals to suit users' preferences and "deal fatigue," is causing traffic shifts at the top.
Tancer noted that PriceGrabber found that 52 percent of those surveyed said they felt overwhelmed by the number of daily deal emails they receive each day.
Facebook's bow to market leaders Groupon and LivingSocial, which have carved out major portions of the East and West Coast daily deals sales, as well as parts of the Midwest and South, does not bode well for Google Offers, the search engine company's take on the model.
The company hopes to pair a broader roll-out with its Google Wallet mobile payment service, which is launching in New York and San Francisco this summer to let consumers use their smartphones to tap and pay for goods from select retailers.