Why Facebook Is Still A Tough Sell For Retailers

As the Facebook IPO nears, all eyes are on the valuation the company will command.   The vast majority of that valuation will come from the company’s digital advertising business.  As for commerce, don’t expect much.  About a year ago, I asked the question Will Facebook Ever Drive eCommerce? and the answer hasn’t significantly changed in the time since.  Not only has Facebook seemingly been much more focused on the display ad side of the business all but dismissing retail (they rejected a keynote slot at the annual Shop.org summit last year and rumor has it that they turned down the slot following Bill Clinton at this year’s National Retail Federation big show, the trade show in all of retail), but the numbers that retailers have shared with us are no more encouraging:

  • Stores or fan pages on Facebook have yet to generate any significant revenue for companies as few shoppers visit brand pages or Facebook stores after becoming a fan
  • Few shoppers buy after seeing information posted on Facebook; a holiday study we did with GSI Commerce showed that less than 1% of revenue from retailers was attributable to social networks

But maybe Facebook has it right to not focus on the retail sector.  After all, the vision for the company is to better exploit its data.  And what happens on Facebook is only a fraction of the data vision; this Time magazine piece has a great synthesis in first-person from Mark Zuckerberg (p.5 if you want to cut to the chase) that talks about the role of the open graph, and more recently, the custom open graph which should allow more seamless sharing than ever (think Spotify or Washington Post social reader on every website).  What do retailers have to gain from this?  The hope is more traffic, though that hasn’t yet come to fruition in spite of all the “likes” that shoppers share.  Better targeted display ads is another benefit, though retailers (especially the big ones) don’t even spend that much on display because the ROI isn’t great.  The biggest benefit is a universal log-in that Facebook could give retailers through this new graph, helping them identify the 97% of traffic that never converts and in the process better understanding the clickstream of those shoppers, which could be really powerful if married to a store’s master customer file.   But even in that scenario, it’s unlikely retailers will ever pony up Google-like ad dollars for this data, and many will hesitate to even share the data with Facebook in the first place.  And that’s why Facebook’s valuation will be in places other than commerce. 

Next week, I’ll be releasing a research piece on where retailers should be most concerned among Google, Amazon, Apple and Facebook, and more importantly where the greatest threats and opportunities lie.  Stay tuned for more from that research. 

Comments

Intetesting

Nigel, Very good points. Looking forward to reading more on related topics!

Correction

Sucharita, sorry....mobile phone got in the way and only later noticed its your post... Great work!

Facebook continues to underwhelm

Facebook continues to underwhelm from a retailers perspective. But we believe it will come, if not as a direct source of commerce then as a channel to the 'like-minded'. But from recent in the UK by eccomplished, only 6% of consumers surveyed had referred to a social network to help make their decision (though these peaked at 11% for the 18-34 age group). What's more only 1% actually received a recommendation (3% for the 18-34 age group).

Post purchase behaviour is more indicative of the future...10% of our consumers would ‘like’ a product (17% for the 18-34 group), 39% would complete an online review (only 33% for the younger group). 35% of would recommend a product (42% for the younger age group).

Social is coming. We are increasingly comfortable with reading between the lines, referring to, making ratings and recommendations. Plus, considering the rise of social sign-in and solutions that ask for ‘likes’ external to sites but remaining within the data pool, this will only increase.

A matter of time

I guess retailers are still trying to figure out how to tap into Facebook traffic. Mindset looks like the biggest challenge as people are still only seeing Facebook as a place to connect with lost buddies or check out their coworker's weekend updates or stay connected with family and friends.

There used to be a time when we'd go out to watch a movie in movie theaters where you could only watch a movie and do nothing else. Now we go to a mall to watch a movie, shop, eat - all in one place. Likewise, people will go to Facebook to shop as well, provided the stores are there.