Shopping with Friends

Social media giants like Facebook and Twitter are now muscling in on the e-commerce game.

By Zeid Nasser

Social Commerce fuses two already existing and massive parts of our digital lifestyles. Put simply, it means the utilization of social media platforms to buy and sell products and services.

It’s not a new trend, but two key drivers have propelled it in the past year to gain a significant share of total e-commerce sales: extensive mobile use of social media channels that has finally exceeded desktop use, and secure mobile payment technologies.

According to marketers, we are now connected customers. This means we’re connected to brands that their owners want to sell or up-sell to us. What better way to do this, then, than to use the channels where we chat about our brand experiences and recommend brands to one another?

This explains the Shop Now and Buy buttons popping up in recent months on Facebook, Twitter, and other social networks—especially during the end-of-year shopping season. So much so that some are referring to it as the battle of the buy buttons.

Commerce sites and retailers are using every trick they’ve got to generate sales from social networks, ranging from online videos which demonstrate the product or attract consumers with smart advertising, to competitions, to special one-day and refer-a-friend discounts.

A resource on online shopping information, Internet Retailer, said revenues achieved by social networks in 2015 by obtaining a share of commerce revenue from advertisers has risen 26 percent compared to the year before. The estimated total figure of $3.3 billion for all social commerce sales is quite stunning and can no longer be underestimated.

In fact, social networks want to take it one step further to complete the transaction, including payment, on their own platforms. All social networks, especially mobile-only networks like Instagram and Snapchat have been experimenting with just such technologies to enable consumers to buy items directly from them. This is the next frontier of growth beyond advertising revenue, which has its limitations.

To clarify why this is different, the current buy buttons on social networks route the customer to the retailer’s site. In such a case, Facebook, for example, would receive a fee per completed sale which it sends to an online retailer’s site. However, the value of the sale itself does not count as revenue for Facebook. So Facebook isn’t really selling the product or collecting its sales price, rather it is obtaining a conversion-based advertising fee per sale.

That’s why, as part of its efforts to keep the financial transaction on its network and tally the value charged to the customer’s credit card as its own revenue, Facebook is now testing a different type of buy button with certain partner retailers using the Shopify e-commerce platform. On this platform users can pay and complete a purchase without ever leaving Facebook. The key to succeeding here is to provide a secure payment platform on the social network itself, which is trusted by the retailer, resulting in a completed transaction. Then Facebook can collect the full amount and later deduct its commission and send the remaining sales revenue to the online retailer. It also requires integration with the retailer’s product database.

When this becomes common practice, the leap that social networks will witness in revenues will put them on par with, or maybe even ahead of, top e-commerce sites as they aggregate sales from all of them.

That’s why even networks like Pinterest, a social network that can be described as an online scrapbook, is getting in on the act by also launching a buy button in partnership with retailers also using Shopify. Currently, in the United States, buyable pins on Pinterest feature product images that include price information and the ability to make secure payments.

Again, it must be emphasized that the mobile applications of these social networks are witnessing more than half of this shopping action. In fact, PwC estimates that 60 percent of US shoppers researched products on their smartphone during the holiday season. Then up to 45 percent of those shoppers used their phones to share this information with friends and family through social media. So, the next step is that a percentage of those shoppers will pay for these products and services through mobile devices on social networks.

This brings an idea suggested five years ago to its full conclusion. Analysts, studying the combined effect of mobile and localized social media content in 2011, created the trendy abbreviation ‘SoLoMo’ (social, local, mobile). These were considered the crucial factors for marketers to succeed and have indeed proven to be important. But now in 2016 they’ll be adding a Pa for ‘payment’ to create the mouthful of an abbreviation, SoLoMPa.