The social media giant said it is revamping its “Offers” service, by making businesses pay to run promotional offers on its social network, transforming the free service into a potential revenue generator as investors and analysts demand new sources of growth from the recently listed company.
Ever since the company went public in May, the company has been under pressure from Wall Street to show how it can turn its giant social wheel into a money machine. Facebook shares have lost about 40 percent of their value since the IPO.
And now, it has embarked on to prove it can boost revenues, the change requires payments, starting at $5 per ad, for the deals offered through Facebook.
Joining the crowd, the social media giant introduced Facebook Offers earlier this year as a free service, allowing retailers and local merchants to send promotions directly to their Facebook fans. Users claim the offers from their Facebook News Feeds and redeem the vouchers at stores to get discounts.
Eventually, the offers remain free for users to redeem, but Facebook now requires merchants to spend at least $5 on related ads to accompany their vouchers, the company said today. The cost will vary depending on the budget of the business and how much it would like to spend to boost its offer, a Facebook spokeswoman said.
“They should be able to charge a fee for customer acquisition, whether it is an Offer or any other marketing tool,” said Colin Sebastian, an analyst at R.W. Baird.
“The question will be whether Facebook is charging an appropriate amount to advertisers for the right to post an Offer, for instance, if the Offer generates a positive return,” Sebastian added. “If it does, then we would expect Facebook to have some success with the Offers program.”
“We think this aligns incentives nicely,” Gokul Rajaram, director of product management for Facebook’s ad and Pages businesses, told Reuters. “The best results on Facebook Offers will come from organic distribution plus paid distribution.”
Facebook, which is the world’s largest social network with an enormous followers of 950 million members, has seen its stock price sag as much as 50 percent since its market debut in May.
The statement said the Offers ads launched this year have produced “great success” for some firms, including one resort accumulating more than 1,500 bookings from such an ad. In addition, Offers will be available globally to all companies with more than 400 fans. Facebook will allow firms to add a bar code or a unique code to an offer to allow businesses to better track the results of their ads.
Nevertheless, today’s move further escalates competition with other daily deals sites, such as Groupon and LivingSocial. Such companies provide new offers to subscribers — or fans, in Facebook’s case – each day, typically with discounts. Through the deals, merchants are able to attract new customers, while the site provider typically shares in the revenue. But increased competition in the area is pressuring Groupon and its rivals.
Facebook declined to provide details about the number of companies participating in Offers, the number of vouchers offered, or other related information. A spokeswoman said Facebook has not shared any data about Offers but said it has been a “very popular offering” since Facebook released it earlier this year.
The changes are effective immediately, Facebook said.