Industry News

The future of e-commerce is social media

Sign up for our daily briefing on the evolution of retail, free.

 

The recent launch of Facebook Shops is taking on Amazon and Google by blending e-commerce with the world's biggest social media platform. The timing is perfect, as many consumers remain homebound during the pandemic, and turn to digital sources to shop and stay social.  Learn how Facebook Shops could evolve by following in the footsteps of China's wildly popular WeChat social commerce platform -- and how U.S. and foreign retail companies can benefit. 

Why social media and e-commerce is powerful

Embedding e-commerce within social media is powerful in that it allows customers to discover brands through social content, and find products they normally wouldn’t search for on an e-commerce platform.

This "discovery through social content” process is important for smaller, niche brands that are up and coming but may not have as many advertising dollars to spend on an e-commerce platform. The customer journey may be longer, but there is also more time for a brand to create a unique shopping experience and for the customer to get to know the brand, creating loyalty for the long run.

The social element of social media platforms also makes it easier for brands to create interactive, sharable campaigns that help new product launches go viral. For example, group-buying discounts, interactive contests, and even online games can be a part of the discovery process. 

Social media and e-commerce in Asia

Up until now, Asia has led the world in the development of social commerce. In fact, social media platforms such as Instagram account for one-third to one-half of all e-commerce transactions in Thailand. EMarketer estimates that 11.6% of total retail e-commerce sales in China are driven by social commerce.

With more than one billion active monthly users, WeChat has been the main platform for social commerce. Brands can create mini-program e-commerce stores of their own and drive traffic through digital advertising, influencer marketing, and other creative social media marketing campaigns.

For example, Burberry teamed up with an influencer called Mr. Bags to launch a new, limited-edition collection of pocket handbags. In doing so, Mr. Bags would create a post and embed Burberry’s mini-program shop. This combination includes a link that leads directly to the product page, where users can browse the item details and make a purchase with WeChat Pay for a seamless experience.

Such WeChat campaigns have become popular among luxury brands as they look to create more customized, unique campaigns that cater to a more upscale customer base. In short, WeChat enables them to create a unique customer experience that is hard to replicate on a broader e-commerce marketplace.

Why Facebook Shops could have even more potential

Facebook Shops has a leg up over WeChat Commerce because Facebook’s advertising tools are much more targeted and there are more options for small businesses and brands.

For WeChat, the advertising is less targeted and still dominated by large brands. This is because China’s internet companies historically make money off of transaction fees and value-added services, rather than digital advertising. Facebook, on the other hand, enables advertisers to create “lookalike audiences” and test ads on different user groups for as little as $500 a campaign. This means that there is more of an even playing field for smaller brands in reaching target audiences and retaining new customers. 

Another advantage Facebook Shops has is that in the US, customers are more accustomed to purchasing directly from the brand rather than on marketplaces such as Amazon, which accounts for just 49% of e-commerce and is more for smaller-value items such as basic apparel, consumer electronics, etc.

In China, Alibaba and JD.com alone account for 80% of e-commerce, and this doesn’t include other smaller marketplaces such as Pinduoduo or Secoo. So while WeChat Commerce has indeed made a splash, it is still tough to get users to make transactions on WeChat – what typically happens is that online shoppers do research on WeChat and then jump to Alibaba or JD.com to make the final transaction. This is because e-commerce infrastructure was first developed on these platforms and online shopping on official brand e-commerce websites never took off.

In short, Facebook Shops has a much greater chance of taking market share from Amazon because American users are more accustomed to buying directly from the brand than from a marketplace platform.

Things hindering Facebook Shops

But the one thing that poses an obstacle to Facebook Shops is the lack of mobile payments.

The challenge in the US is that payments are still largely driven by credit cards - users have to pull out their credit cards, input a 16-digit card number + security code and confirm a bunch of personal details - giving them more chances to hesitate or make data entry errors when making a purchase.

In China, mobile payments have a penetration rate of 86%, compared to 34% in the rest of the world. This enables mobile device users to make purchases with just a few taps of the finger and an easy-to-remember 6-digit pin code. 

The development of Facebook’s Libra cryptocurrency may be a step towards resolving this problem, but given this year’s regulatory opposition it remains questionable whether Libra will be the digital currency of the future. If it does take off and Facebook is able to integrate it into its Facebook Shops features, then we could see social commerce scale very quickly on the platform in the near future.

Key takeaways

1. Product discovery

The development of Facebook Shops could enable shoppers to discover new brands and products through social content marketing on Facebook. This may give smaller brands more tools and options to attract and retain new customers, leveling the playing field vs. big brands and moving the focus away from e-commerce marketplaces such as Amazon.

2. Global e-commerce trend

Social commerce is already prevalent in Asia. One-third of e-commerce transactions in Thailand is conducted through social platforms such as Instagram, and WeChat launched mini-program stores three years ago for brands to sell directly to its billion-plus users. 

3. US differences

Facebook Shops could have even more potential than WeChat Commerce in that 1. Facebook has more advertising tools for small brands and 2. Internet users in the US are more accustomed to buying directly from the brand rather than marketplace platforms. One main detriment, however, is the fact that most e-commerce payments in the US are still driven by credit cards. The development of the Libra cryptocurrency could make it easier for social commerce to take off on Facebook.

 

Franklin Chu is managing director U.S. for Azoya International, a provider of turnkey cross-border e-commerce solutions to assist retailers looking to expand into China through a cost-effective and lower risk method. To date, over 35 retailers in 11 countries are partnering with Azoya to expand into China with ease, including French fashion retailer La Redoute, Australia’s largest pharmacy group, Sigma, as well as Feelunique, the largest online beauty retailer in Europe.