PALO ALTO: Facebook, the social network, is halting the trial of its daily deals service in the US after only four months, causing some analysts to question the long term viability of this model.
The company launched Facebook Deals in April, running promotions in five cities, combining offers drummed up by an in-house sales team with those of 11 other sites, like Gilt City, ReachLocal and Zozi.
"After testing Deals for four months, we've decided to end our Deals product in the coming weeks," Annie Ta, from Facebook, told Bloomberg.
"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."
"We remain committed to building products to help local businesses connect with people, like Ads, Pages, Sponsored Stories, and Check-in Deals."
Nathan Richardson, president of Gilt City, which is now active in ten cities, reported that its tie-up with Facebook had been a success.
"Gilt City is focused on exclusive experiences and insider access in the great cities in the US, and Facebook Deals performed well for us," he said. "We still believe in the Facebook platform."
Yipit.com, a daily deals aggregator, stated industry revenues in the leading North American cities fell by 7% month on month in July, and Vinicius Vacanti, the site's co-founder, argued Facebook Deals had proved an "underwhelming product and experience."
"I don't believe this means daily deals are not a viable business," said Vacanti. "It more suggests that large media and tech companies can't just 'turn on' daily deals and expect them to work."
However, Jeremiah Owyang, a partner at Altimeter Group, the consultancy, displayed considerable pessimism when assessing the outlook for services such as Groupon.
"The Groupon group buying phenomenon is a commodity," he said. "There are no barriers to entry. It's just not going to work because everybody offers it and therefore the margins go down."
BIA/Kelsey, the insights provider, has estimated the daily deals market was worth $873m in 2010, and predicted revenues will hit $1.2bn in 2011, rising to a projected $3.9bn during 2015.
Data sourced from Bloomberg, Reuters, PC World; additional content by Warc staff