A group of e-commerce start-ups are pinning their hopes on Facebook, Inc. to become an e-commerce powerhouse that can stand up to Amazon.com, Inc. and eBay, Inc. Moving closer to going public, Facebook will come under more pressure to perform and find new sources for profit growth and rely less on advertising income which accounted for 85 per cent of its 2011 revenues.
Some business minds are of the thought that e-commerce on Facebook will be the answer. BeachMint, Yardsellr, Oodle, and Fab.com are start-ups that are introducing innovative ways to persuade Facebooks users to shop on-line as well, not just to stay connected with their friends.
Backed by venture capital firms and big investors like Goldman Sachs, AccelPartners, and Andreessen Horowitz, these e-commerce outfits are pushing out shopping apps, hosting on-line garage sales, and testing out new business models on Facebook. They’ve always viewed e-commerce as such a huge category with a strong history, and as a natural move for the world’s largest social network site.
Amazon started it all by lumping lots of customers and purchase data to come up with relevant, personalized recommendations. In like manner, Facebook already has the combination of data, analytics, and payment technology that it is ready to head off the next spurt of e-commerce. Aside from understanding the importance of having an e-commerce strategy, Facebook also knows that people always shop with their friends and have come to expect it on-line, so it is working with retailers to build its commerce business on its social platform. Accel Partners, for its part, feels that Facebook understands that it’s an important strategic benefit for them to make e-commerce players successful while operating on their platform.
Big brand stores flop, upstarts show promise
At the end of 2011, Facebook had 845 million active users, as compared to Amazon’s 164 million, or eBay’s 100 million. Still and all, it is a social connection model and not an on-line shopper’s first site of choice. Big names have already come and gone on Facebook’s pages. JC Penney, Gap, and Nordstrom previously set-up e-stores on Facebook but were forced to close them down because of poor sales performance.
Venture capital firms, however, still believe in Facebook’s potential, and continue to pour money into start-ups they believe are capable of making it.
Fab.com has generated a lot of noise with its 3 million users who broadcast their purchases by a ‘bought’ button that advertises their shopping habits to their friends. They managed this partly by offering a token USD5 a month to users who agree to share their Fab purchases and favorites on Facebook, which tens of thousands agreed to and opted in.
Beachmint, meanwhile, staged StyleMint.tv toward the end of last year, a live video event that showcased their products that people could buy with one click. More than 50,000 Faceook users watched the show and a huge percentage bought something, which at that time was the biggest day in their sales history.
Yardsellr, for its part, organizes people into 3,000 communities, or blocks, based on common interests. When someone posts some product for sale, it is sent into the news feeds of people in that block and purchases can be made with a few clicks. The gross merchandise sales figures have been growing about 30 per cent a month, fuelling the idea that social commerce could be bigger than eBay.
Oodle, not the least bit slowed down by all this, boasts more than 3 million unique monthly users. When buyers and sellers post items, their Facebook identities are attached, which give the users more confidence in the transactions.
Making real and virtual money
For now, Facebook makes most of its money by selling ad spaces to merchants targeting potential customers, but analysts say that it is only a matter of time before the social network giant will either ask for a percentage of the shopping transactions or find other ways to make money.
At present, Facebook takes a 30 per cent cut from revenue generated from the sale of virtual goods used to play Zynga games. Gamers pay for those virtual goods using Facebook Credits, a virtual currency that could eventually be used to buy physical goods. The site has the opportunity to monetize e-commerce, already having the infrastructure in place and the team that can make that happen.
Other analysts, however, downplay the potential, saying that physical goods have thinner margins than virtual products. The model is not just realistic enough for them.
Nonetheless, if e-commerce proves lucrative on Facebook, it seems unlikely that Facebook won’t find a way to make money off it. Perhaps some enterprising upstart would offer cheap cell phones for sale.
Based on an 05 Apr 2012 report by Alistair Barr of Reuters