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Spotlight on social commerce: What do Facebook Credits mean for the future of social commerce?

5 min read

Brands & Campaigns

This Spotlight on Social Commerce series is brought to you by Bazaarvoice, bringing the power of social commerce to the world’s best brands. Once a month, this blog will focus on the tactics, best practices and trends on the intersection of social media and commerce.

We’ve spent the past six months here at SmartBlog on Social Media looking at different ways companies are using Facebook as a social commerce tool. Right now you can break down Facebook commerce efforts into three major schools:

  1. Companies that blend social recommendations into their e-commerce applications.
  2. Companies that allow users to browse on Facebook, but then push shoppers over to their e-commerce platform when the time comes to make an actual purchase.
  3. Companies that allow users to browse and then place an order using their credit card without ever leaving Facebook.

Companies are getting more comfortable with Facebook as an integrated shopping platform. At this stage, shopping on Facebook is nearly identical to shopping via a company’s online store. From a customer’s perspective, that might seem be the logical endgame. But Facebook is looking to take it one step further by getting merchants to let users buy products using Facebook Credits instead of dollars or euros or any other real-world currency.

It’s not a new idea. Substitute currencies have been around for hundreds of years — some businesses used to pay their employees entirely in company scrip.  These currencies tend to thrive under one of three conditions:

  1. When real money is scare — see 19th century coal-mining towns.
  2. When customers feel they’re getting a better deal by using the faux-money — see amusement parks that will sell you a soda for $2 — or just one HappyLand Fun Buck.
  3. When a retailer completely controls a distribution mechanism– see Microsoft Xbox points for purchases made through Xbox Live.

Facebook is in a position to create an environment where one, two or maybe even all three of those conditions apply.

Right now credits are primarily used for digital goods such as games and streaming movies, areas where they control the distribution (see condition 3). These goods are often popular with children and teenagers, whose parents might not trust them with the family credit card just yet, but might be willing to give them an allowance in Facebook Credits (see condition 1). Warner Bros’ opening lineup of streaming Facebook movies reflects this a little bit, with its focus on films from the teen-friendly Batman and Harry Potter franchises.

You’ll know that Facebook is getting serious about Credits when they either start giving customers a better rate for purchasing a product in Credits (condition 2) or if they move to make non-Credit transactions difficult or impossible to complete (call it condition 1 prime).

Why would retailers put up with something like this? Isn’t Facebook taking a 30% cut of transactions made in credits?

First, most companies that sell their products online are used to sharing some of each sale. If you want to sell something through Amazon, Etsy, iTunes, CafePress or any other 3rd party retail platform, you’re going to pay a commission fee. The exact rate can be a little tough to figure out from the outside —  but it’s always there. Even folks selling their products direct from their own website have to contend with credit card fees and bandwidth costs. No one really expects online selling to be totally free.

That said, Facebook’s rate is much, much higher than what you’re going to pay at any other online retailer of physical goods. The network’s 30% take is right up there with what Apple charges for applications sold through the company’s App Store. But in both cases Facebook and Apple control the distribution for those goods to some degree. When we start talking about selling physical goods that Facebook can’t easily control, you should expect to see that rate come down at least a little.

Second, Facebook Credits provide many of the same benefits offered by gift cards. They don’t feel like real money. In part that’s because of the exchange rate. Credits retail for $.10 each — though the rate improves if you buy them in bulk.  That adjustable rate discourages consumers from doing the math and figuring out what they’re actually spending, contributing to feeling that Credits aren’t really money and as such can be spent more freely.

Have you ever bought anything with a gift card and spent exactly the card’s value? People tend to spend more than the card’s balance, so that they don’t “waste” the value of the card. But in a controlled economy, you can’t just pay the difference in cash. You have to buy more Credits. And as anyone who has ever bought something via Xbox can tell you, buying your way out is next to impossible.

What you’ve got there is a free-spending environment where customers are constantly showing off their purchases to their friends — e-commerce nirvana. Once Facebook gets serious about offering a competitive rate for purchases involving physical goods, online shopping will never be the same.

Are you as optimistic about the prospects for Facebook Credits as I am? Or are you convinced Facebook will try to play hardball and ruin a good thing for everyone? Let me know in the comments!