Liz Gannes

Recent Posts by Liz Gannes

More on Facebook Deals: Will Include Only Social Experiences, May Use Credits

A test version of the new Facebook Deals product will launch shortly, as has been reported and assumed for some time.

NetworkEffect spoke to Facebook and people familiar with Facebook’s plans about how the program will work, and what will differentiate it from daily-deal market leaders Groupon and LivingSocial.

All deals offered on the Facebook platform will be “social experiences,” said a spokeswoman–aka “things you can do with your friends.” That might include a discount for a karaoke bar or a tour of a haunted house, but not 50 percent off a t-shirt or a pedicure, she said.

Facebook’s deals will be available for considerably more than a day, she added, without specifying a length.

As for how users will pay for the deals, the spokeswoman said Facebook has not yet determined exactly how that will work, but it may include Facebook Credits.

This would be an interesting move, considering Credits are to date mostly used for virtual goods and occasionally for digital goods.

But deals may well have the kind of margins to support Facebook taking a significant cut (its current policy for Credits is 30 percent).

At the least, Facebook plans to handle Facebook Deals transactions directly through its site, said people familiar with the program.

Facebook and Google ads are a huge expense for deals sites. A deals site might typically spend $5 to $12 on Facebook ads to register a new user on its email list, said a source.

Thus, Facebook will have significant pull with deals providers who use it for distribution. Nine partners are already signed up: Gilt City, HomeRun, OpenTable, PopSugar City, Tippr, KGB Deals, Plum District, ReachLocal and Zozi.

Even if they had been invited to participate, Groupon and LivingSocial probably wouldn’t have, because they prefer to control their customers’ full transactions. The two market leaders have a policy of not sharing affiliate fees with distribution partners, while most of their smaller competitors often do share revenue in exchange for distribution.

The Facebook program is launching in five test cities– Austin, Atlanta, Dallas, San Diego and San Francisco–and Facebook is actually competing with its partners to sell deals in those locations.

The Facebook spokeswoman said the company has “a very, very small sales team” devoted to this effort.

Facebook already has “Check-in Deals,” which are redeemed through the mobile phone. The spokeswoman said this program is “under the same umbrella” as the soon-to-launch Deals program, but uses “different redemption mechanisms,” because users are located in the same place as the deal when they buy it.

Meanwhile, word got out recently that Facebook had established a wholly owned subsidiary in December called Facebook Payments Inc.

In a statement, Facebook played off the subsidiary as a common move for companies in the online payment space. And it is–often for the purpose of establishing oneself as a licensed financial institution. For example, Google owns Google Payment Corporation.

Becoming a licensed financial institution could be critical to Facebook Credits–or any future Facebook payments system–because it allows for companies to transfer cash in and out of their systems. Right now, Facebook Credits have no real-world monetary value, and can’t be transferred. But if the Facebook Payments subsidiary were to secure all the proper licenses, the Silicon Valley social networking giant could potentially run a full alternative to eBay’s PayPal.

In the U.S., financial companies have to get licensed in every site, which usually includes getting all directors to sign off on each application and give fingerprints. Facebook Payments has only three directors from Facebook: David Ebersman, Dan Rose and Ted Ullyot.

The context for these moves is that Facebook has made it clear time and again that it wants to serve as a platform that helps companies transform industries by building in social from the ground up. This transformation has already happened with social games, and e-commerce is often suggested as the next viable contender.

Since Deals will be one of Facebook’s first major pushes into enabling e-commerce providers on its platform, it makes sense that the company is getting its ducks in a row for Payments and Credits. Especially considering the friction Facebook experienced after imposing Credits and its 30 percent fee on the social games industry after it was already established. (Credits, which support in-game virtual goods payments, will be mandatory for Facebook game developers starting in July.)

So, while Facebook Deals may be just a limited trial launch, the terms of how it is run should be indicative of Facebook’s intended involvement in transactions on its platform, going forward.

And transactions, it might go without saying, are where the money is.

(Please see the disclosure about Facebook in my ethics statement.)

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