The Problem with Facebook Commerce

February 20, 2012 • Blog, Commerce, Social • Views: 436

Facebook CommerceThroughout 2011, many analysts and marketers were hugely optimistic about Facebook’s potential as a shopping platform. “It’s a matter of time—within the next five or so years—before more business will be done on Facebook than Amazon,” said Sumeet Jain, a principal at CMEA Capital. “In three to five years, 10 percent to 15 percent of total consumer spending in developed countries may go through sites such as Facebook”, said Mike Fauscette, an analyst at research firm IDC.

One year later, opinions may be shifting. Last Friday, Bloomberg reported that retailers Gamestop, JC Penny, Gap, and Nordstrom – all early adopters of f-commerce – have now closed their Facebook stores. The tech press was filled with analysis and opinion, creating a fairly rare moment of criticism for the marketing value of Facebook.

Why are these brands giving up? Generally, it seems like consumers just don’t seem interested in shopping on Facebook. Sucharita Mulpuru, an analyst at Forrester Research, noted- “it was like trying to sell stuff to people while they’re hanging out with their friends at the bar.”

Similarly, many f-commerce strategies seemed to lack ingenuity. Many brands simply converted their existing e-commerce content to Facebook. For consumers, there wasn’t much reason to shop on Facebook, when buying from a website was identical and more familiar. Ashley Sheetz, Gamestop’s VP of marketing, explained, “Customers had no incentive to shop at Gamestop’s Facebook store rather than the company’s regular website because purchasing online is already convenient.”

Despite the recent buzz on f-commerce failures, it’s not as though the concept is doomed. There are still many successful Facebook stores. However, an examination of the top f-commerce pages shows an obvious trend: most big f-commerce plays are in entertainment.

That makes sense given the role that Facebook plays in the web presence of, for example, Lady Gaga. With almost 50 million Facebook fans, and nearly a million “currently talking about” her, Lady Gaga’s Facebook page is vastly more important than ladygaga.com. It just makes sense to sell through Facebook – that’s where the fans are.

While it might work for Gaga, it just isn’t the same trend for retailers like JCPenny. Although JCPenny.com seems to get more than 1 million visitors a day, with an impressive 5.3% regional reach, currently less than 40,000 people are “talking about” JCPenny on Facebook. The technical and audience limitations of Facebook make a simple commerce-cloning strategy ineffective.

At this point, it’s important to consider what exactly f-commerce is, and what different options are available for companies to do business on Facebook. Firstly, the Bloomberg-buzz on f-commerce failures was specifically talking about retail sales through Facebook. It wasn’t a discussion of Facebook’s advertising system, which continues to grow rapidly.

In fact, some recent stats from eMarketer show Facebook’s overall advertising model looking very strong. The charts below, from a recent eMarketer study, show that Facebook currently holds the #1 position in display advertising revenues, and is likely to not only hold, but strengthen that position over the next 3 years.So we can see a clear distinction between actual Facebook commerce – meaning selling directly on Facebook, and Facebook assisted commerce – a category which includes Facebook ads. To categorize things more explicitly, we could create groupings like:

Facebook Commerce

  • Facebook Stores
  • Facebook Credits
  • Facebook Deals

Facebook Assisted Commerce

  • Facebook Apps
  • Facebook Ads
  • Facebook Login
  • Open Graph
  • Facebook Marketing (in general)

More information on this categorization can be found in an excellent whitepaper by Syzygy, but the broad difference should be clear. And for now, it seems like while Facebook Assisted Commerce continues to rule the social web, actual buying on Facebook seems to be struggling.

We’ve already covered some of tactical failures of Facebook stores that are creating this divide. Beyond the straightforward concept that f-commerce needs to add value to be effective, there may be a broader strategic lesson here. Despite social’s obviously huge marketing potential, the days where mere platitudes like “Make it Social” could be considered business strategy may have passed.

Beyond the problems for brands, f-commerce problems reflect issues with Facebook itself. Facebook’s 2011 revenues were about $3.7 billion – certainly not a small figure. However, consider that Google’s 2011 revenues were $37.9 billion – basically an order of magnitude higher – and it’s obvious that Facebook still has a considerable need to grow and monetize.

A Google/Facebook revenue comparison isn’t really fair – Facebook’s a much younger company, and with big opportunities in many spaces – such as triple-digit user growth in developing countries, and the upcoming monetization of mobile, they’ve got plenty of room to grow.

That said, it isn’t all blue-sky growth for Facebook. With a monthly active user count of about 850 million, they don’t have that much room for to grow against Google’s 1 billion users. The reality is that Google and search just monetize better than Facebook and social. To get the 10X growth that Facebook will need to match Google, Facebook needs to go beyond user acquisition, and start making each user more valuable. The closing of Facebook stores is obviously a move in the wrong direction for a company that needs to get users to open their wallets. .

Ultimately, the whole issue is one of maturity – for brands, social marketing, and Facebook itself. As Facebook evolves, huge user numbers and poorly-defined marketing buzzwords aren’t going to cut it. Facebook and brands seem to have the same concern – now that we have the users, how do we make money? As the hype fades, we may be finally ready for social marketing realism.

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