How Facebook plans to make money from deals

Updated

Facebook confirmed today that it’s launching a deal service that businesses can use to lure in customers. It sounds like a good way for Facebook to make money, but the social network’s executives said in a press conference that they won’t charge businesses for the deals.

That’s pretty surprising, since deals are seen as the main way for check-in services like Facebook Places (which includes the deals service), Foursquare, and Gowalla to make money. In an interview after the press conference at Facebook headquarters, Tim Kendall from the company’s local products team said the new feature should bring in money eventually. After a business creates deals and lists them on Facebook, it “will naturally want to increase distribution for those deals,” so it’ll buy ads on Facebook.

(Update: A Facebook spokesperson just emailed and said that although the deals are free for the program’s initial launch partners, the pricing could change in the future.)

Facebook chief technology officer Bret Taylor said that Facebook didn’t create the feature to increase advertising. “The main thing is to improve the user experience around our Places product,” he said.

So if you’re thinking about going to a bar, for example, you could open a list of nearby Places. Locations that are offering deals will have a yellow icon next to their names, so you might choose to go to the bar that’s offering a “second beer free” bargain to users who check in.

AllFacebook reported last week that a Facebook deals service was in the works. The initial article focused on promotions where businesses can offer discounts or free products to users who bring in a certain number of friends. Facebook said it will actually offer four different deal structures. Businesses can also reward users for individual check ins or for loyalty (i.e., multiple check ins), and they can offer to donate to charity whenever someone checks in.

During the conference, chief executive Mark Zuckerberg seemed to place a particular emphasis on the friend deals — after all, the ability to tag friends, including friends who don’t normally use check-in services, helps Facebook Places stand out. When I first heard about the deal tagging system, I was concerned that it might lead to lots of fake check ins, but Zuckerberg noted that users need to present their coupons in-person to claim a reward. So it would be hard to claim that you brought three of your friends to the store if you’re there by yourself.

During our interview, Kendall also emphasized the tagging feature: “We think it’s a real digital representation of how people discover local businesses offline.”

The deal service is first going live on the Facebook Touch website and the iPhone application. You can see a list of the initial deal partners in this Facebook blog post. Gap, for example, will give free blue jeans to the first 10,000 customers who check in nationwide, while the Alamo Drafthouse theater chain will offer a free screening at whichever location gets the most check ins.