Will Google, Facebook Dominate Deals?

Groupon and LivingSocial have opened a large early lead in the nascent daily deals market. Both companies have socked away hundreds of millions in venture capital — LivingSocial this week closed a $400 million round — in moves clearly prepping for an onslaught from competitors. That attack will most likely come from the Internet’s reigning twin powers, Facebook and Google.

But can Facebook and Groupon succeed? That’s an open question, according to Vinicius Vacanti, CEO of deal aggregator Yipit, which has a unique insight into the deals market from its position as a one-stop-shop for all the services. Here’s his assessment he gave at yesterday’s Daily Deals Summit of the potential for both Google and Facebook:

Facebook: The social network giant is entering the category using an aggregator model. Rather than assembling a sales force and hitting the pavement in dozens of markets, it will assemble an assortment of deals from its partners, which include Giltcity, Zozi, KGB Deals and Plum District – all of which specialize in restaurants, events, and other social experiences– and then rely on a network of savvy shoppers to evaluate the deals and let their Facebook friends know about the deals. To make this model as effective as possible, Facebook is concentrating on social deals – dinners, events, group activities – in order to exploit its core asset –social connections. At least at first, Facebook will drive a high volume of deals to users and then hope that some of them buy something.

Facebook’s success in the daily deals space will depend on whether Facebook Places takes off. The key is the way in which Facebook will be able to leverage its huge user base and distinguish itself from other aggregators will be the social network’s ability to capture users’ immediate intent. This is different from more traditional deal programs because Groupon, for example, pigeonholes its subscribers, sorting them geographically and making the assumption that they intend to buy good and services in their local area indefinitely.

“Capturing the intent of people running around their city saying, ‘I want to go here; I want to go there,’” is the key to future success in the category, said Vacanti.

But when users are able to express more immediate intent – “I want a deal at a hamburger joint within a five block radius of my current location,” for example – the transaction is no longer static. Vacanti said that the impediment to this model and to any daily deal model that strives to more carefully target consumers and personalize the offers those consumers receive is that “you have to have an amazing number of deals at your disposal.”

Google: There’s no question Google is keen on the deals market. It reportedly offered $6 billion to buy Groupon late last year. Its bid rejected, Google has gone about building a competing service, slowly but surely. In January it rolled out Google Offers, designed to allow businesses to create deals they can distribute via Google.

Unlike Facebook, Google wants to go direct. This makes sense, considering it has an ad sales relationship with a million businesses. Local is a notoriously pesky market to crack, however. Google will beef up its existing sales force and create it’s own deal service using the Groupon model as a point of departure.

The big advantage for Google: data. Vacanti said that the company will also aim to create intent-based deals for consumers and in this Google may well have an advantage. Google captures “a ton of information on users,” he said. When consumers use Google maps, they tell the service where there are and where they are going. When they search for retailers, or restaurants they tell the service what they are in the market for and what they feel like eating. It’s the kind of information that could inform extremely targeted offers.

What’s more, Google has an enormous distribution network in AdSense. Ironically, both Groupon and LivingSocial have proven the power of Google’s reach by flooding its system with deals ads. Google can easily turn its ad space over to deals, which could emerge as the next big category of Internet advertising. It has already made small steps in this direction. Earlier this week, it told Gmail users that it would soon begin showing them deals offers based on their email conversations. Email about grabbing Indian food with a friend? Google could be there with a limited time offer. That’s pretty powerful.

Vacanti said both companies have enough information about consumers at their disposal to make the targeted marketing that has eluded this category a reality. The challenge for both behemoths will be “having enough deals so that you can personalize the offer for your customers.”