Facebook Shops: the timing couldn’t be better but it's not a play for Amazon
Facebook this week launched a new e-commerce service, primarily aimed at smaller businesses and brands (SMEs), which allows them to sell directly from the Facebook platform.
While Facebook has had shoppable functions within its Marketplace feature and Instagram for some time, experts believe the timing of this move is helpful to businesses that need to get online quickly as physical retail has been paused by the coronavirus restrictions.
Facebook announced the service this week, explaining that it would be free and therefore the business model would be paid ads.
“Our goal is to make shopping seamless and empower anyone from a small business owner to a global brand to use our apps to connect with customers,” said Facebook founder Mark Zuckerberg. “Our business model here is ads, so rather than charge businesses for Shops, we know that Shops are valuable for businesses. They’re going to in general bid more for ads and we’ll eventually make money that way.”
Justin Peyton, chief transformation and strategy officer at Wunderman Thompson, says the timing of the launch was helpful to small businesses during Covid-19.
“With so many small businesses and brands struggling in this time of quarantine and social distancing, the timing of this announcement couldn’t be better. E-commerce growth has long been a growing trend, but the acceleration we have seen in consumers' online spending has meant that leaders in the space have a clear advantage and has forced businesses of every size to quickly play catch up,” he says.
Many have noted that the launch puts Facebook in a position to challenge Amazon in the e-commerce space, but Stuart McLennan, senior VP APAC, Rakuten Advertising, believes a better comparison is to look at the Chinese internet giants.
“I don’t think the launch of Facebook shops is a direct play for Amazon, but it does give Facebook more e-commerce capability which is obviously a good thing in the current climate,” he says. “We should look to China for an idea of where Facebook is going with this. WeChat has enabled shopping directly from within the app for a while with great success, linking with mobile payment and keeping the purchase journey seamless. Therefore, it seems this launch is about Facebook leveraging its huge user base and existing strength in performance, to build out an e-commerce platform before making inroads into mobile/cashless payment.”
The similarities between the two lay in the fact that Facebook now has stronger data around purchase intent, which it can use to layer into its advertising.
Peyton explains: “It should allow the brands that use it to more effectively retarget consumers who didn’t convert, but showed the highest levels of purchase intent in much the same way that Amazon has been able to retarget consumers based on their product browsing and abandoned basket behaviours.”
Both Peyton and McLennan agree that this is a major launch for Facebook, not least because the SME sector is a significant proportion of its revenue.
“The SME segment for Facebook (which includes multi-million-dollar businesses) represents the largest chunk of their ad revenue. If Facebook Shops proves to be easy to use for advertisers and improves the customer shopping experience, then you can expect to see many brands building Facebook shops and promoting across Facebook’s family of apps,” says McLennan.
Another reason it’s a significant move, according to Avery Akkineni, head of Vayner Media APAC, is that the launch is a step-up for Facebook, adding to what it had already launched on Instagram.
“Facebook's launch of Shops is a natural extension for the platform, as social commerce is becoming more and more popular – via influencers, brands and most importantly consumer demand to streamline social shopping," she says. "Instagram's Shoppable features have been building for a few years, but Shops takes it to a new level."
The advertising industry has long had a complicated relationship with major platforms such as Facebook, Google or Amazon, because they keep data and services within their own walled gardens, leading to questions over transparency. The launch of Shops is not spared of this criticism.
McLennan argues that brands should experiment with Shops but be wary of these issues: “There will be obvious downsides for brands should this prove successful. It will mean more and more data is held within the walled gardens, further reducing first-party data, so this trade-off, along with many others, will have to be evaluated.
“There are also many details missing about how Facebook Shops will function. Will users be able to search across multiple stores at once? How visible will they be across Facebook apps and advertising formats? Most importantly, will the new functionality make it easier for consumers to shop and therefore see traffic flow from retailer sites to Facebook shops? I would, therefore, urge most advertisers to only dip their toe in at this point. Make sure the tradeoff works for you and then re-evaluate the impact on your wider platform strategy."
The urgency for brands to have an e-commerce strategy and be experimenting is accelerated by the global situation caused by coronavirus.
“The past few months have really forced brands to think hard and fast about their digital capabilities, resulting in surging e-commerce growth, from both a revenue and an investment perspective,” explains Akkineni.
Peyton believes this is the driver for brands to experiment, as some sectors are showing that they can keep their business thriving through tougher times with a good e-commerce strategy.
"Where once brands and small businesses looked at categories like e-commerce and thought it would be too hard or too expensive to enter, Covid has changed that," he says. "You just have to look at the restaurant industry – an entire industry where very few brands had commerce functionality and in a matter of weeks nearly everyone did. Facebook shops present a great opportunity to grab traffic and eyeballs on a platform that has a proven ability to influence desire and demand. As such, I think a lot of categories that have traditionally avoided the space will be looking at low-cost strategies to leverage the service."
Facebook launching with zero costs attached will generate scaled adoption from the outset. How it changes Facebook’s ad proposition and whether it gives it a different edge against its global tech titan competitors remain to be seen.
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