Facebook Shops Is a Winner – but for Whom?
Facebook Shops - Sarah Holbrook - The Robin Report

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In a recent Facebook live stream, Mark Zuckerberg announced Facebook’s latest foray into e-commerce retail. Zuckerberg described Shops as, “The biggest step we have taken yet [in social commerce].”  This time Facebook is playing for keeps.

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In August 2019, Facebook pulled rank on its two highly coveted holdings, Instagram and WhatsApp. The tech community howled about brand dilution of the wildly popular apps, and Instagram devotees held their collective noses when the titles of the apps were changed to Instagram from Facebook and WhatsApp from Facebook. In Zuckerberg’s introduction of Shops, I am beginning to see the masterplan behind that move.

I may be giving the strategic foresight team at Facebook too much credit but I don’t believe, as has been reported, that Facebook Shops is a response to the recent Covid-inspired e-commerce explosion (Adobe analytics reports that e-commerce saw a 49 percent increase in sales month over month between March 2020 and April 2020). Nor do I believe that Shops, which went live on May 19, is wholly an effort by Facebook to support struggling, small to medium-sized businesses as Zuckerberg claimed in his live stream, rather, I’m guessing that a rollout of Shops has been building for months.  The pandemic is a dark cloud for humanity, but the resultant shift to e-commerce dependence is a twisted type of kismet for Facebook.

Facebook Manifest Destiny

Shops ties together Facebook, Instagram from Facebook, WhatsApp from Facebook, Facebook Messenger, and Facebook Live. Further thickening the plot, on May 26th, the company announced changes to a digital wallet for Facebook apps currently in development. The wallet, Novi, will eventually hold the Libra digital currency managed by a diverse consortium but created by (you guessed it) Facebook.

[callout]Shops will not mimic the experience of Amazon. Rather than resembling The Everything Store, it may be more akin to The Everything Mall with storefront discovery driven by advertising.[/callout]

I will go into greater detail as to how the Facebook apps will amplify Shops, but ultimately the app-amalgam will create a muscular functionality that will feed Facebook’s relentless drive for growth. Facebook will charge retailers a moderate fee (five percent) for transactions processed in the app, but Shops critical value-add to Facebook is three-fold, first as a driver for ads, second as a rich source of personalized consumer data, and finally as protection from any legislative efforts to break up Facebook.  If Shops becomes an essential retail channel, it will be exceedingly difficult to break up the group.

Dreaming of E-commerce

Zuckerberg has no doubt observed Jeff Bezos’s recent besting of both Bill Gates and Warren Buffet as the world’s wealthiest man. Facebook has craved a bite of the e-commerce pie but to date has tasted little more than the crust. Facebook buy buttons appeared on the app in the early 2010s; that effort fizzled. Some retailers have a shop-now button on their Facebook page that simply links to the company’s shoppable website. More successful efforts include Facebook Marketplace, Facebook’s take on Craigslist, and the in-app checkout function available with select retailers on Instagram including Warby Parker, Zara and Net-a Porter.

The Everything Mall

Shops will not mimic the experience of Amazon. Rather than resembling The Everything Store, it may be more akin to The Everything Mall with storefront discovery driven by advertising. Retailers will create free custom storefronts that seamlessly relay to Shopify’s (and a few lesser-known third-party providers) e-commerce infrastructure. Shops will appear on businesses’ Facebook pages, Instagram profiles, Stories or purchased ads. A user can save an item in the app, or simply click to purchase. The fulfillment will be seamlessly processed by Shopify.  If the retailer chooses, the app can add a step and link the shopper to the retailer’s website checkout function.

Optimization

Beyond appearing on Facebook pages and Instagram profiles, Shops functionality can tap What’s App and/or Facebook Messenger for real-time chat-based customer service. Additionally, the company is developing a chat-based ordering process that may soon be available in Stores. Live stream-based shopping has been a boon to retailers in China pre, during, and post Coronavirus shutdowns. Alibaba’s live streaming unit Taobao is gaining strength as a breakthrough retail platform.  Vogue.com reported, “While in the US the target audience of shopping channels like QVC is older, in China teenagers and young adults are drawn to teleshopping channels featuring vivacious hosts trying out products and responding in real-time to consumer enquiries…Taobao Live, Alibaba’s dedicated live streaming unit, reached record-high sales of RMB 20 billion (around $2.85 billion) during the 2019 Singles Day shopping event, or 7.5 percent of the group’s overall sales.” Facebook live is planning to activate shopping via live stream in the coming months.  Facebook’s financial initiatives, the Libra cryptocurrency (whatever form that may eventually take) and Novi (the digital wallet) will complete the shopping journey. Every step on that journey will leave a rich consumer data trail accessible to Facebook.  

The Retailer’s Perspective

What does this mean for retailers? In the immediate term, most of us reading this article likely engage with the Facebook family of apps through one platform or another.  According to a current report from Statistica.com, so do large numbers of people around the world.

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While Libra, the global cryptocurrency may never actualize, the Shopify cornerstone supporting Shops offers a well-oiled international fulfillment functionality that will make a global customer base possible.

Who Wins Here?

If you believe Mark Zuckerberg, Shops will be a boon to struggling businesses that can now replace shuttered physical locations with digital storefronts. I believe that Shops will be a boon to Facebook. The driver to engagement on these platforms is ads. While most media advertising rates have dropped dramatically as brands retool their message for the new economic realities, Facebook and Instagram advertising rates are still a challenge for many of the small businesses and restaurants Facebook claims to be supporting. The retailers most likely to benefit from Shops are medium-sized or venture-backed D to C retailers, and larger businesses who can pay to attract eyeballs, and now in-app currency, whatever form that may take.

While I don’t see Shops as a win for all Storefronts, the benefits could range from a leg up to a lifesaver for certain participants in difficult times. Shops are free to open, but as with any free service, there is a cost. For retailers, the exchange is valuable consumer data. Stores will need to look at the cost/benefit ratio to the brand and calculate the net. Facebook determined this was a net plus for them long ago.

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