JCPenney, Gap and Nordstrom have all closed down their Facebook storefronts after giving it a go. Senior marketers report they’re pulling budget from the channel in favor of directing funds back into their own e-commerce storefronts. Is this just a downswing in F-commerce, still in its infancy, or the beginning of an exodus from Facebook as a direct selling platform?
Marketers are returning to the core uses of social media, according to The Pearlfinders Index - Q1 2012. The results of their interviews with over 4,000 senior marketers spanning IT, Industry/Manufacturing, Financial Services and a range of other industries show that awareness, monitoring, and engagement are currently the top uses for Facebook.
The use of Facebook as a direct sales channel reached its peak in Q2 2010, with just over 10 percent of marketers reportedly using F-commerce at that time. It steadily declined until another brief peak in Q2 2011; now, just over 5 percent of Facebook opportunities relate to commerce.
Facebook Has Real Incentive to Excel in F-commerce
Facebook founder Mark Zuckerberg cleverly retained control of the direction of the company throughout the IPO process. However, with major investors like Goldman Sachs and Accel Partners on board, Facebook is likely to start feeling the pressure to diversify their income sources.
Last year, advertising accounted for 85 percent of Facebook’s revenue (Zynga contributed a healthy 12 percent). Social commerce revenue could reach $30 billion by 2015, say analysts from SocialMediadd. Mike Fauscette, an analyst at research firm IDC, has an even bolder prediction: In three to five years, he suggests, 10 percent to 15 percent of total consumer spending in developed countries may go through sites such as Facebook.
Just how much of that market could Facebook corner, assuming the reality of the next three years in social commerce comes anywhere close to these staggering figures?
Could F-commerce Overtake Amazon?
I’ve heard rumblings of this over the past several months: is Facebook in a position to dethrone the far more mature e-commerce giant? Simon Hibbott from Generation X Computers published the above infographic and even went so far as to say, “It is widely contended that f-Commerce transactions will exceed Amazon’s annual sales over the next 5 years.”
Amazon is the undisputed leader in e-commerce, raking in over $40 billion annually in revenue (as of October 2011), with $96.68 billion in market capitalization. Facebook commerce certainly hasn’t taken off as many predicted; is the current slump just a bump in the road or a sign of a lack of confidence in the ability to sell direct through the social platform on the part of retailers?
Facebook is certainly nowhere close to rivalling Amazon yet and it seems unlikely they’ll jump ahead in the coming three years, unless Zuckerberg makes the development of their commerce capabilities a top priority.
Back in October, we got a peek into the inner workings of Amazon and their incredible infrastructure, courtesy of a former employee (now an engineer with Google) who accidentally published a private “rant” publicly on Google+. Steve Yegge wrote openly about the superiority of Amazon’s service-oriented architecture, one they’ve honed over several years of bumps along their own road.
If any company in the social space currently has the infrastructure, funding, and expertise to take on Amazon in the e-commerce realm, it’s Facebook. However, they’re morphing at an almost unheard of pace into a number of different types of entities, all contained within an ecosystem that - not all that long ago, when you think about it – began as a tiny social network, born out of a dormroom.
There was a time businesses weren’t even allowed on Facebook. The social network has successfully branched out into business promotion and advertising; can they do the same with social commerce? I’m not one to believe that history dictates future performance, but it does seem clear that Facebook will need to manage their foray into commerce very carefully. Only time will tell just how big they can become, though it is imperative they get big brands on board - and keep them there.
More importantly, companies of all sizes need to feel supported and have the features they need to make selling on Facebook work. SMBs are a huge opportunity for Facebook.
Are SMBs Outperforming Big Brands in F-commerce?
In response to reports of major retailers closing their F-shops, Ecwid CEO Ruslan Fazlyev wrote an article for Forbes on the performance of the shopping cart/e-tailer software company’s SMB clients in the F-commerce space.
Ecwid’s 2011 data from over 35,000 global companies (mostly SMBS) with both an e-commerce store and a Facebook store seems to buck the trend shown by Pearlfinders and demonstrated in the closing of major retail shops on Facebook. Overall, 15 percent of these organizations’ annual revenue came from their Facebook stores. In Q1 2012, that figure rose to 17.7 percent.
“From our view, f-commerce is not only alive and well, it is thriving despite the fact that some big brands have stumbled. In their rush to get on the f-commerce train, where did these major players fail?” wrote Fazylev. “What do SMBs know about engaging customers on social networks that has eluded their larger counterparts? Are SMBs the real innovators in social commerce?”
It’s a legitimate question. The fact is, SMBs seem to be finding sales where big brands are not.
F-Commerce Restrictive; Not Yet a Safe Bet, say Senior Marketers
A number of interesting insights into brand displeasure with the Facebook platform as a direct sales tool surfaced in Pearlfinders interviews with senior marketers. Some offered suggestions to make the Facebook platform easier for e-tailers to work within.
A marketer from one brand, Clarins, noted that they have considered having a Facebook shop, but won't be doing so for the foreseeable future. On Facebook, brands are governed by its design; the Facebook site is blue while the Clarins brand is red, so there's very little control over how it's perceived. Currently, Customers have to leave Facebook and go to the Clarins e-commerce site to to make purchases.
Other reservations or concerns highlighted in Pearlfinders interviews included:
- Lack of measurable ROI in social investment and hesitance to experiment and “wait it out.”
- Several expressed doubt that their target market would purchase through a social network.
- Most view social as a channel for awareness and brand building; they see potential for social commerce but are not yet willing to make it a priority.
Facebook: Educate, Support Your F-Commerce Pioneers
Facebook will have some real work to do in order to get retailers on board and convince them of the value of selling through the social network. It’s a bit of a Catch-22 for the social giant; currently, marketers are looking for evidence of success before they’ll enter the space, yet few seem to want to take the chance on it and blaze that trail.
If Facebook is to succeed as a direct selling platform, they’re going to have to help companies cut that learning curve and see the benefits clearly enough to take that leap. SMBs might be their key to working the kinks out the F-commerce environment enough for bigger brands to feel confident moving into the space.
Facebook will need to work closely with the companies already established in F-storefronts and really start showcasing their successes if this isn’t to become another of the flash-in-the-pan ideas littering the online landscape.