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Facebook will now be testing a new feature called ‘Buy With Friends’ that is likely to give serious competition to social buying site, Groupon.

The new project was announced by Deborah Liu, head of Commerce Product Marketing at Facebook, during the Inside Social Apps Conference held in San Francisco this week.

As the name suggests, the new feature will allow users to make purchases along with their friends. When user purchase some virtual goods, they can share this information with Facebook friends through their news feed. Friends who see this update can then buy the same product at a discounted rate directly from the news feed. Virtual goods purchased will have to be paid for using Facebook Credits.

Facebook has revealed that during the early testing stage of this feature, over 50% of users opted to share information about their purchases, with their Facebook friends.

While Facebook is just introducing the idea of social group buying on their network, a similar system is already very successful on Groupon. Facebook might have to play catch-up with Groupon, but they already have the advantage of having over 1/2 a billion users registered on their network.

Groupon was the first site to enable discounted deals through social group buying. Users identify a deal and then spread information about it to their friends, so that they can collectively buy the item with a volume-based discount.

Discounts through group social buying on Groupon

As of now, Facebook’s Buy With Friends system is limited to virtual goods. But it is very likely that if the idea is a success, the facility could be extended to the purchase of physical goods from stores, as with Groupon. If that happens, Groupon will have to face some severe competition, as Facebook’s large user base could also entice businesses to offer better deals to Facebook in the hope of luring more customers.