Shopping on social media: the future of e-commerce?
Monday 22nd June 2020
Facebook CEO Mark Zuckerberg has seized the opportunity amidst the Covid-19 pandemic to introduce an online shopping feature to the site and application – one which he hopes will provide small businesses the appropriate platform to sell their products and quickly bounce back to business after a staggering one-third of them experienced a halt in their operations since the crisis, according to a survey conducted by Facebook in April. This new form of e-commerce will involve a so-called “cross-app plan” wherein third-party e-commerce services, including Shopify, BigCommerce and Woo will enable small businesses to create a ‘Shop’ on Facebook that is synced in with their store. Following this, Facebook users can browse through a catalogue of the advertised business’s products and from there, have the option to either purchase in-app or on their respective websites.
This differs from the services of other online retailers, such as Amazon and eBay, with Zuckerberg emphasising that he does not intend to emulate Amazon’s “end-to-end experience” (this is where the company in question is with the customer from the initial point of contact to the very end, where the customer has made consistent purchases and is deemed loyal to them). Instead, Zuckerberg will take advantage of his ownership of other social media applications, including WhatsApp, Instagram and Messenger, in order to provide his users with a fresh online shopping experience that takes ease of use to a whole new level. Customer service claims will be dealt with solely via these social media platforms, something that is likely to prove particularly enticing for existing Amazon and eBay customers who may find the process of enquiring a particularly time-consuming one.
However, as always with new tech projects, particularly when it involves the likes of Facebook, a ‘health’ warning concerning data privacy may be necessary. Additional features of Facebook’s online shop include the introduction of loyalty programmes and direct purchasing, both of which will inevitably involve the mass storing of users’ private financial data and shopping habits, all in one location. It is sensible at this stage to ask ourselves whether we may see a repeat of the 2018 Cambridge Analytica scandal. While it may be too early to make these allegations, the ongoing antitrust investigations into the Big Tech companies since spring 2019, which includes Facebook and Amazon (alongside Apple and Google), indicates that Facebook’s new project may be far from flawless. Facebook’s reliance on third-party sellers could make them more susceptible to the criticism Amazon is currently facing regarding anti-competitive behaviour.
Amazon, similarly to Facebook, made use of their customers’ personal data in order to maximise the success of its own private label AmazonBasics above that of third-party businesses reliant on their site to generate profits. Two investigations arose in two separate US states just this month – in California, it was questioned whether Amazon used the data from these third-party sellers for their own business advantage, and, in Washington, allegations arose regarding whether Amazon prevented third-party sellers from selling their products on other sites. This summer, the Big Tech companies have been asked by the US House antitrust subcommittee to testify as part of the investigation, and it is likely that the two antitrust enforcement agencies involved, including the Federal Trade Commission (FTC) and the Department of Justice, will be keeping a watchful eye on Facebook as it moves towards online shopping.
Given Zuckerberg’s intention to launch the ‘Shop’ feature on Instagram this summer, he should beware of engaging in anti-competitive behaviour – this is especially due to the FTC’s capacity to unwind acquisitions, which could dampen the predicted success of the project. Deutsche Bank analysts have estimated that e-commerce on Instagram could generate as much as net $10 billion in revenue a year by 2021, giving Facebook the opportunity to thrive after a difficult first quarter this year, wherein their 18% revenue growth was at its record slowest.
Aside from this, it is also important to note whether Facebook’s membership within the Libra Association, and thus its subsidiary Calibra project, a Libra-based cryptocurrency wallet, may also give rise to suspicion when making in-app purchases. The Financial Times (FT) praises a non-profit system of payment within the e-commerce industry, one which Facebook intends to introduce on its platform soon, called Novi (meaning ‘new way’ in Latin, after past controversies surrounding their Libra project). This will work as a standalone app and function alongside the Facebook-owned WhatsApp and Messenger exclusively made for the purpose of sending and receiving money, which Zuckerberg highlights will be “as easy as sending a message.” Efforts are being made to maximise safety, as users will be required to show a photo of government-issued identification upon signing into the app (or fulfil the alternative of signing a document). Nonetheless, the Vice Chair and Head of Policy and Communications at the Libra Association, Dante Disparte, is heavily focused on creating a system of financial inclusion, one that is less private than what cryptocurrency is used to.
Commentators have hinted that the specific design of this new e-commerce project and all the features tied to it are not coincidental. Their heavily advertisement-reliant business model may indicate why Facebook is willing to take such a sudden leap with this new venture. E-commerce has proven to be big business in these unprecedented times, with other online retailers, such as Etsy seeing their revenues increase twofold compared to three years ago. Additionally, while the e-commerce industry in the US usually only accounts for around 10-15% of overall retail, since the start of the pandemic, Amazon alone has represented nearly 40% of all e-commerce sales (Bernstein Research, 2020).
With the Facebook ‘Shop’ feature, customers will be charged an additional fee every time Facebook users utilise the application’s own checkout option, thus maximising the revenue which Facebook already receives from businesses buying advertisement space on the Facebook site. More than 160 million small businesses have already used Facebook-owned apps to sell their products. Given its unique and innovative features, it is easy to see why.
Zuckerberg has been able to fill a dissatisfaction gap which existing online retail customers experience with “end-to-end” services – the FT, in citing the research of analysts at Evercore ISI, states that approximately 10% of online purchases in the US are abandoned each year due to two reasons: technical issues and a lack of payment options. Facebook’s attempt to regain their users’ trust by fulfilling the potential of e-commerce using the latest technology could, according to Evercore ISI, “potentially unlock tens of billions of dollars in value.”
On a final note, it is unlikely that Facebook ‘Shops’ will outcompete other e-commerce giants in the next few months. Despite this, Facebook’s innovative venture has certainly opened our eyes to the inefficiency of traditional consumerism – as half of the UK intends to stay at home despite non-essential retail stores now opening their doors to the public (EY Future Consumer Index, 2020), Facebook’s new position in the e-commerce market certainly spells trouble for the high street, while paving the way for the success of retailers that make the smart decision to go online.
