The Inevitable Growth of Social Commerce
Social networking platforms are shaping up to lead the next wave of eCommerce expansion
Social Commerce is Exploding in Asia
In 2019, close to 8% of Alibaba’s Single’s Day sales were booked through live streaming — a setting where a third person explains products to an audience, while viewers (very much engaged with liking, commenting and sharing) piled up orders. In India, Meesho — a platform that allows independent sellers to set up shop and earn commissions by sharing products within one’s Whatsapp network has been growing exponentially. Facebook invested in them recently. QVC styled Indian vernacular commerce app Simsim raised a round backed by big name firms. Tons of similar platforms are sprouting up throughout Asia.
I believe the trends in Asia can be attributed to the fact that low trust societies (emerging markets with developing systems) find comfort in leaning on their social circle to reduce anxiety of participation in a booming digital economy. As a proxy to system imposed checks and balances to reduce and mitigate fraud, consumers derive trust from their existing network to establish whether a transaction opportunity is legit. Sellers find success selling directly through Whatsapp, Messenger, Instagram etc. because the platform’s network effects helps them establish direct trust with consumers.
Key Drivers in Western Market
The western world’s pain points are not the same. Developed markets have established systems that eliminate obvious fraud. Consumers have felt comfortable even buying over the phone before the internet era, so digital wasn’t that much of a leap.
The problem I believe is information overload. There is just too much data guiding shopping decisions online that consumers quickly get inundated. Reading blogs is a pain, and blogs are frequently faked. Reviews are pointless. Video-first commerce has added another useful dimension but videos can be faked too. On the other hand, asking your friend for what worked for them is simple, reliable and more trustworthy than the alternatives.
Also, the decline of malls have left a void for public socializing around consumerism. What are others buying? What do they feel about this store? These social clues can be clouded under digital only presence.
Below are a few more reasons why social will be inseparable from commerce here on out, presenting an opportunity to capture hundreds of billions in value to all players — incumbents and new ventures:
1. Social Approval is the Bedrock of Mass Consumerism
People like to shop together. They also like to get what their friends get.
Think about how grocery runs are mostly solo, but shopping at the mall is a leisurely activity involving family and friends. There’s two basic reasons behind this — first, large shopping malls great socializing venues are in fact designed to be experienced with company. Secondly, buying high involvement, high ticket items is best done with input from other people (compared to the supermarket round, where if you get something you don’t enjoy, you don’t care as much).
Migrating this behavior online, rarely do we seek friends to guide us through a purchase when buying a commoditized product on Amazon. Reviews and a couple of videos are enough to establish immediate trust (if even). But when it comes to high ticket items, we care more for input from our friends.
As more and more commerce moves online, consumers will rely on social networks for that additional dimension of trust, that’s lacking online today. Where will these conversations happen? My guess is iMessage or Whatsapp today but it’s in the interest of platforms to initiate as much of these “chats” within their own apps.
This is exactly why the influencer driven model is successful too — we feel confident buying products from people we admire. Nosy salesmen at store will be swapped by the live streamer conducting an audience. Coupons will be dominated by shareable rewards and group loyalty.
2. Niche Social Platforms are Capable of Mimicking Exclusivity
The feeling of luxury and exclusivity needed when shopping for high ticket and signaling purchases is not that far from Instagram’s general vibe, offering Facebook tons of room to do more.
Today Amazon has become the online version of a Walmart — a commoditized, basic, functional platform that guarantees you the lowest prices, delivered in the fastest and most efficient manner. If you look at the homepage of Amazon.com here’s how it looks — basic, boring and colorless. Very much unlike a modern Mall that oozes of charm and luxury.
Creating a digital equivalent of the mall that caters to high value customers and adds more dimensions to how users can experience a product, from the bottom up, is incredibly difficult — AR, VR will make it possible but still far from the hands of your average Shopify store.
But existing platforms like Instagram are much closer to this reality. Malls are flashy establishment of excess. You go to checkout merchandise, hang with friends, treat yourself occasionally and pass time. Window shopping, making mental lists of gifts you’d like to buy when the bonus comes in. These are all functions regularly done through Instagram today — who ever used Instagram to stay in touch with their friends? It’s just a new form of consumerism.
Facebook will have to do a lot of policing, vetting and testing to ensure on-boarding of merchants but Instagram (and even Snapchat, Pinterest) today is the closest it comes to a successful premium platform that has the thick margins to support such an endeavor. Facebook knows this and Zuckerberg’s intentions are already pretty clear about this.
3. Top line growth — the ultimate motivator for platforms
Trust social platforms to go after eCommerce to keep their growth wheel spinning. The digital ad market — largely controlled by Facebook and Google brought in $333B last year, growing at a healthy 17% YoY. That’s more than a third of the total global advertising spending (when you include non measured spending as well — such as flyers, posters, coupons etc.) and there’s enough runway still, but saturation of ads is imminent. For the same year, the global retail sales were a whopping $25 Trillion (25 times advertising). eCommerce globally bought in $3.5 Trillion in sales, up 18% YoY. The US alone contributed to almost a trillion of that.
The opportunity for platforms is too good to pass up on, and stakeholder pressure too heavy to ignore. Brands are scrambling for consumer attention and retention. Their struggle to compete against Amazon is real and who better as a partner than the platform where they spend most of their ad dollars? Platforms will take a generous cut for enabling it.
Google has been playing this game long but remains handicapped by its divisive focus. Google Express was their first move to compete against Amazon, then shut in the favor of Google Shopping. Instagram’s shoppable posts are FB’s first step here. Pinterest’s is looking at similar features, incorporating in-app buying. These features will be synonymous across Tiktok, Snapchat, etc.
4. In-App Shopping seamlessly closes the loop on Discovery
Internet platforms to their core are direct distribution pipelines. Instead of hard products, they distribute content, information, media, commerce, payments etc. Their sole objective, especially as public companies, is to maximizes that volume of distribution, and eventually their take rates.
Between all its apps, Facebook has more than 2.5 billion users. Google properties are being used by almost 2 billion people. The next lap for these platforms not chasing more users but thickening the velocity of transactions by packing and enabling multiple functions within.
Google has leveraged its position using “information” to connect people with things — search for anything today and you’ll receive a product or service ad. Next is obviously buying. Facebook, I believe will double down on serendipitous discovery — buy, validated by your friends and community.
Moreover, as vanilla social vaporizes, tight communities are thriving. It rarely makes sense these days to engage in endless debates on social platforms, voice political opinions or signal intellectualism to random strangers. Rather, debates are limited to people you know or are acquainted with in controlled communities — like Groups on Facebook, Lists on Twitter, Groups on Whatsapp etc. Tapping into these concentrated groups present a high value opportunity to drive mass commerce — and boost margins.
5. Innovative Enabling Technologies are on the Horizon
As AR, Video and other formats take on social platforms, it will be easy to build more trust with high ticket items. Three wildcard technologies are converging to enable new dimensions of product considerations — 5G, Cloud Processing and Artificial Intelligence — forming the bedrock of experiential retail.
Until now, products were read, viewed and compared online. New enabling technologies will make it easy to stream, experience (3D), project products more easily. A little far fetched — but imagine buying a car through Facebook’s Oculus. You can feel the car, get a look inside of it. Let your friends check it out with you, drive it on a virtual track. Then you click buy and Carvana (FB’s merchant partner) delivers the vehicle to you in a few hours. No nosy salesmen, no scouring websites for reviews. Only green light from your network.
Moreover, new brands as well as offline merchants (coffee shops, mom and pop stores, boutiques etc.) exist and thrive within social platforms, because it is here that they reach critical mass most easily and inexpensively, building an audience and loyalty base most readily without spending a hand and a tooth on ads and acquisitions costs.
Conclusion
Asia showed the way with social commerce and the West will inevitably follow suit, although led by different motivations. Established internet platforms have already begun capitalizing on this opportunity, looking to build billion dollar franchises around e-commerce. Facebook, Shopify, Google, Square, Pinterest, Snapchat, TikTok etc. are indirectly all competing for largest piece of the same pie. Building tools, services, products, APIs, to facilitate this transition and enable SMEs to leverage this generational shift can be a great venture building opportunity. Also, public market investors need to look at Facebook, Snapchat, Pinterest and Google through a new lens — as digital commerce plays, and as partners to the ex-Amazon commerce ecosystem.
Feel free to reach out to me on Twitter with any thoughts and ideas.
