EXCLUSIVE - Facebook to charge merchants to run Offers

SAN FRANCISCO Thu Sep 20, 2012 6:45pm IST

The sun sets on the entrance sign at Facebook's headquarters in Menlo Park, California, the night before the company's IPO launch, May 17, 2012. REUTERS/Beck Diefenbach/Files

The sun sets on the entrance sign at Facebook's headquarters in Menlo Park, California, the night before the company's IPO launch, May 17, 2012.

Credit: Reuters/Beck Diefenbach/Files

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SAN FRANCISCO (Reuters) - Facebook Inc (FB.O) said it will start charging businesses to run Offers on its social network, turning a previously free service into a potential revenue generator at a time when Wall Street is demanding new sources of growth and profit from the company.

Facebook launched Facebook Offers earlier this year, letting retailers and other local merchants send deals to their Facebook fans. Users claim the offers from their News Feeds and redeem the vouchers at stores to get discounts.

The service has been free, but in coming weeks Facebook will require merchants to pay at least $5 on related ads to promote each Facebook Offer to a targeted audience of fans and friends of fans. The cost will vary based on the size of a company's Facebook pages.

Since Facebook went public in May, the company has been under pressure from Wall Street to show how it can turn its giant social network into a money machine. Facebook shares have lost about 40 percent of their value since the IPO.

The commerce potential of Facebook, known as f-commerce, has yet to materialize, partly because retailers have been able to feast on a host of free tools on the social network to attract customers.

Tying Facebook Offers to a paid ad service suggests the company is working to change this.

"We think this aligns incentives nicely," said Gokul Rajaram, director of product management for Facebook's advertising and Pages businesses. "The best results on Facebook Offers will come from organic distribution plus paid distribution."

In the past, some Facebook Offers have not been relevant to all users, partly because some people saw deals in their News Feeds from merchants located far away from where they live, Rajaram added.

"The requirement to pay for related ads will focus merchants on who and where they want the offer to reach," he said.

Facebook is also expanding Offers to online-only businesses, he added. Before, the service was available only to merchants with physical locations.

Facebook is also adding barcodes for offers, so customers can redeem offers more easily. The barcodes work globally, Rajaram noted.

The executive declined to disclose how many Facebook Offers have been run so far, how many merchants have taken part, or how many deals have been claimed and redeemed by consumers.

However, he said Facebook is "very happy" with the success of its Offers business.

"That's why we're expanding and investing more in it," Rajaram said.

(Reporting by Alistair Barr and Alexei Oreskovic; Editing by Phil Berlowitz)

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