Why Facebook is Ripe for Commerce

I have always been up for a challenge. I read just last week a quote from someone from Forrester who basically said that anyone who believes Facebook is the commerce frontier is basically smoking something. (Well, what he said was that they had about as much credibility as the guy who bought billboards predicting the end of the world, so sort of the same difference.) And, since I was quoted earlier this year as saying that people who didn’t believe that Facebook was the commerce frontier were basically smoking something (what I said was that they’d be wishing for a Christmas miracle), I thought I’d better do something to redeem myself.

So, I decided to do a bit of digging around the “goings on” on Facebook just to wrap my head around the latest and greatest stats and facts. There is a lot of stuff out there and much of it conflicts with each other. However, sorting thru some of the most relevant and reliable data, I thought I’d share my thoughts on Facebook as social commerce frontier.

First of all, there are just a lot of people on the platform, and they are spending more and more time there. Sure, in some parts of the world the growth is slowing. When you get to 700 million people, it is hard to keep month-over-month growth in the high double digits. But that slowing is being offset by more time spent there. All age groups, by and large, are not just hanging out on Facebook, but spending more and more of their overall time online on Facebook. One in every 6 visits to a site on the Internet is to Facebook – that is positively stunning – and even the Boomers are spending about 25% of their Internet time on the site. So, there might not be as many new users coming, but the ones who are on the platform are pretty darn sticky. (More on that in a moment).

Second, not only is it cannibalizing time online, it is cannibalizing time on Web retail sites. Those same guys at Forrester who said that Facebook commerce is a fantasy published a report in May of 2011 that said that Americans spend more than twice the amount of time on Facebook as they spent on the Web’s top 500 retail sites. A real tangible data point is that Coca-Cola reported that its website traffic dropped by 40% last year, while its Facebook page skyrocketed to become the world’s most popular Facebook brand page. They believe that the two are highly correlated.

Third, eMarketer reported earlier this year that people who spend the most time on Facebook also spend the most money online. Facebook users spent, on average, $67/quarter online, while non- Facebook users spent $50/quarter. My sense is that it will only increase as the Boomers – who are among the fastest growing segment on Facebook and who control something like $3 trillion in spending each year – are tempted by merchants while they are hanging out there.

Fourth, more and more merchants are tricking out their fan pages. Not all of them have commerce capabilities – yet – but they are doing things to make them dynamic and interesting. Why? Because more than 75% of Facebook users have said they “like” a brand, and about 50% of them actually visit the fan page more than once after the initial “like.” That is pretty good. Merchants are motivated to monetize those fans and want desperately to use the power of the social graph to drive incremental sales. Since it relatively cheap to do stuff on Facebook that goes viral, like posting an offer or a notice, that is what a lot of brands are doing. Some of those offers drive users to their websites for special offers, and some even offer coupon codes to redeem at stores. Wet Seal reports that 20% of their eCommerce volume is driven by Facebook postings. If that is true, it is a relatively low tech and low cost way to drive engagement and sales.

And finally, and perhaps most important, is that Facebook as a platform has given rise to a ton of opportunity for entrepreneurs to play around with the notion of commerce on the platform. They expose APIs that provide access to all of the goodies that Facebook has to offer (hint, data on the people who are hanging out there) and have made it easier than ever for brands to use things like social plugins to enable a Facebook users network to follow them wherever they go on the Web. More and more brands are experimenting with commerce on Facebook. In fact, JCPenney launched a store and so did Westin in an effort to sell its Heavenly Beds (not many sold). Meanwhile, Payvment says that more than 50k fan pages are enabled with its application to drive sales from fan pages.

Now, all that said, and before I look like I’ve drunk too much Kool-Aid, commerce on Facebook today is infinitesimal – less than 1% of all eCommerce volume, and that is a small portion of overall commerce, as you know. It’s early days, for sure. And most of what people are doing is really testing and learning with the platform – trying to figure out what will work, motivate people to buy and to get them comfortable with the platform. JCPenney, for example, has its whole eCommerce inventory available to people so are using it as an extension of their website. My opinion is that it makes for a very clunky experience. It is much easier, frankly, to shop on their site than to shop on their fan page, and my guess is that most people will chose to do that. Wal-Mart’s “group buying” experiment last fall/winter with its CrowdSaver app (the more people that like a product, the lower the price for everyone) appears offline for now. A new application called Sneak Peeq just launched, which is sort of the same gig but with games and rewards thrown in. Sounds complicated to me, but a lot of big brands have signed on, like Kate Spade.

I’ve said this before, and I stand by this – Facebook will become an important social commerce channel. But there are a lot of things to sort out. For instance, will Facebook basically introduce its own payments scheme outside of virtual goods and insist upon Credits as the currency to conduct all transactions on the platform (as they are doing with games as of July 1)  and demand the 30% toll on the way out? I would doubt it, since merchants would likely not be too happy with that, and they’re a pretty essential piece of the pie. Discussions of commerce on Facebook usually start with the consumer and what she wants. But the conversation needs to focus on what merchants want, since they will ultimately have to be persuaded that doing business on Facebook is going to drive incremental sales – and not destroy their margins in the process. Will users want to shop on Facebook? I think yes, especially since they are spending more of their time there, but will likely want a different experience from the places they shop now.

What’s missing today from the various experiments is a strategy to harness the group influence of the platform, which has to date been mostly turned into a group deal gig. But everyone who has done that has mostly abandoned that strategy. Groupon (and now its many clones) was a group buying site for about a day. Now, every deal tips the nanosecond it goes up, because there are so many people who get their emails. There is absolutely no connection between any of those who take the deal – they don’t think of themselves as a member of a group, just a lucky schmoe who got a good deal on a paintball session. Even Wal-Mart seems to have bagged their version of the group deal concept, at least for now.

So, back to the question at hand – is Facebook ripe for commerce. I still say yes, but the “how” that happens is a book yet to be written. Thinking that Facebook is just “another” place to put up a shopping cart is like saying smartphones are just another way to make a phone call.

Karen Webster is the President of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.