SAN FRANCISCO (Reuters) - Facebook is getting out of the daily deals business after four months of testing, a move that may ease some competitive pressure on industry leaders Groupon and LivingSocial.
"After testing Deals for four months, we've decided to end our Deals product in the coming weeks," the company said on Friday in a statement emailed to Reuters.
"We think there is a lot of power in a social approach to driving people into local businesses," Facebook added in the statement. "We've learned a lot from our test and we'll continue to evaluate how to best serve local businesses."
Facebook, the world's largest social network, launched Facebook Deals in April, bringing competition to daily deals leader Groupon and rival LivingSocial.
Facebook started making offers in five cities and had a small sales team arranging deals with local merchants. But the company also ran offers that were set up by 11 other daily deal companies, including ReachLocal, Gilt City and Zozi.
Facebook's exit means Groupon has one less major competitor as it prepares for a $750 million initial public offering later this year.
"It is surprising that Facebook ended their deals product after just four months," said Vinicius Vacanti, co-founder of Yipit.com, which aggregates daily deals and tracks the industry. "On the other hand, Facebook Deals had been an underwhelming product and experience."
However, Facebook's decision not to pursue the business may mean the company thinks the approach lacks merit.
"The Groupon group buying phenomenon is a commodity. There are no barriers to entry. It's just not going to work because everybody offers it and therefore the margins go down," said Jeremiah Owyang, a partner at research firm Altimeter Group.
The end of Facebook Deals is "certainly good" for Groupon and other daily deal services, Vacanti said.
"I don't believe this means daily deals are not a viable business," he added. "It more suggests that large media and tech companies can't just 'turn on' daily deals and expect them to work. It has to be more thoughtfully integrated into their existing product."
Facebook stressed on Friday that it is committed to developing other products, such as Ads, Pages and Sponsored Stories, which connect local businesses with potential customers.
The company also is sticking with its Check-in Deals offering. This lets Facebook users check in at local businesses and see offers from those merchants.
"Facebook is doing some major re-thinking around local," Vacanti said.
Reporting by Alistair Barr and Alexei Oreskovic; Editing by Tim Dobbyn and Carol Bishopric