In order to expand its business, Facebook launched Facebook deal to compete with Groupon and Google offers. Many people think it will become a killer of Groupon and even affect online retailing industry. The reason is obvious: Facebook has a galaxy of users as potential customers; it has powerful local network to
provide service and technology support to achieve consumption convience.
However, Facebook turned out to be a big failure. It didn't affect the online retailing industry and even Groupon. Acutually, Groupon did not perform very well as its competitor. Data shows Groupon's first quarter of 2011 transformed from $81.6 million in operating income to a net loss of $117.1 million with nothing more than a simple change in accounting practices.
Then, why Facebook has millions of users, wide local network and good operation system, failed in the end? I think there are three reasons:
1. Customer Acquisition Cost > Revenue Per Customer
For example, Facebook is spending $100 for every new customer, while the average revenue per customer is $80, or $20 less than the cost of acquisition. The more people they bring in, the more money they lose.
2. Difficult to gain loyal Customers
The above stat might be defensible if most customers ended up making multiple purchases, but that's not what actually happens. The median Facebook Deal customer makes only one purchase, and they don't care about the brand, they only care about saving money on something they already wanted. In other words, it is difficult to maintan customer loyalty. Because customers can easily shift to other online retailing websites to seek bargains, while Facebook has to expand its scale to attract more customers by endless price wars.
3. Lack of human resource
Facebook is not a retailing company, thus it has to call many local companies for business. Since there are many groupon websites, local companies always feel messed when different groupon websites call for the same product. There should be some people to keep good communication with the companies. Further, these companies need to be informed about landscape and bright future of groupon business by sales people. How many staffs is Facebook using for this business? I guess the number is far smaller that it really needs.
Hence, Facebook should concern its next step to develop its business. At least, Groupon is not as easy as they expect.
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ReplyDeleteAnother reason why Facebook deal fails is that they dont give a proper instruction to customers. there are some coupons only available at specific places, and many customers dont know how to redeem the coupon in the end in terms of using Google places to search for these businesses .... by the way, Facebook deal needs to improve customer experience.... nice post Terry :D
ReplyDeleteWhat about facebook "BranchOut" as an alternative to LinkedIn? I reckon that seems a bit of a wast of space too!
ReplyDeleteI think they failed because they couldnt actually deliver what they had promised... look at what happened to a student in class the other day when they tried to redeem getting a Coke for $1....
ReplyDeleteThere are so many different sites offering 'deals' that it is quite overwhelming. I think Facebook should give it another go with a good strategy because some of these sites are such cash cows even after 1 year of operation... There would be an opportunity to make a lot of money
ReplyDeleteI have to say, FB according to me is becoming threatened. They are trying all these things that just don't seem to work. Granted, google does too, but they usually release their products in BETA or invite only forms at the start to minimise the loss. I think FB should stick to their core business, good old no frills SM. They are good at it, keep developing that and making it an even better product. They will start alienating users with all these extra things they attempt to add on.
ReplyDeleteRoss