Social Commerce: Facebook’s Next Act?

Discussions abound in tech circles over where Facebook will go next. Much in the same way as Apple’s definitive strategy in the past two decades can be interpreted through their services embellishing the company’s hardware products, (though a slowdown in iPhone sales could potentially alter this approach) Facebook’s next chapter should be seen through the lens of ‘diversify fast’. Similar to its main digital ad-spend rival Google, both companies are in need of a new growth story for the next 5 years, particularly as they reach the apex of their duopoly on the digital advertising market. Indeed, Facebook’s financial resources means it is not short of options (Virtual Reality, Live Streaming, Next-Gen Media entity), but the lowest hanging fruit may prove to be the most profitable.

Facebook originally positioned itself to advertisers as one of the most effective ways of driving traffic and retaining viewership, both true statements reflected in the company's market scale and engagement on the site/app (1.1bn Daily Active Users at last count with an average global time spend of 20+ minutes per day). Yet Facebook finds itself in a position where instead of simply promoting products and services, it can also act as the payment portal to them, hence the rise of social commerce. Though the practice remains largely a non-starter in developed western markets (Facebook only recently integrated PayPal into Messenger), there are positive signs for Facebook that Social Commerce could become a vital contributor to the company’s income going forward, with statistics suggesting payments through social networks in 2016 accounted for 30% of digital sales in South East Asia following Facebook’s partnership with the payments company Qwik.

E-commerce is still impaired in markets with low credit-card penetration, which still require the traditional banking framework that many emerging markets are still yet to fully develop. The opportunity presented by social commerce is that companies such as Facebook, having embedded themselves in the daily social interactions of emerging markets (such as South East Asia) and their youthful populations, represent trusted entities. Though there is an apprehension over its data collecting practices, Facebook still represents a trusted and accountable entity that would be wary of mishandling financial resources should the resulting criticism harm its public image. This is fundamental in commerce and trade to both the consumers themselves and the merchants seeking to do business in countries with less mature financial infrastructure or robust shipping services.

Additionally, Facebook’s emphasis on building a full-stack ecosystem across its main site (Live Streaming, Messenger) and acquired apps (Instagram, WhatsApp) is core to this strategy, as these services all have considerable DAU statistics in emerging markets and each cover disparate aspects of Media: Live Streaming for video, messenger apps for Text, Instagram for visuals. As covered in our piece on Amazon’s move into the VR shopping experience, Facebook’s leverage in the purchase funnel of e-commerce is its relationship with the customer’s everyday life – something that its chief competitors (Apple, Amazon and Google) do not have. It is therefore not as huge of a leap for Facebook to foster purchasing behaviours through its App assets than it is for Amazon to expand its influence in people’s daily lives (although Alexa is a step in this direction). Consequently, if the company were to position themselves as a commerce enabler, mixing elements of banking and marketplaces while acting as a natural extension of people’s social lives into their purchases – the company could begin to rival Amazon in the enabling of frictionless and trusted e-commerce.