Exclusive Deep Dive Into Facebook’s “Buy Button” – Part III/III

August 11, 2014

Digital Marketing Scot Wingo By Scot Wingo

This is a multi-part post:

  • Part I/II – Introducing ‘Buy on Facebook’ (here)
  • Part II/III – Tour: Completing a transaction and post transaction flow (here)
  • Part III/III – What does this mean? (you are here)

Welcome to part 3 of a 3 part series – What does this mean?

In Part I, we looked at some mind-boggling stats around Facebook’s audience, and also went over the history of several failed attempts at the intersection of ‘social and e-commerce’.  Then in part II we went on an in-depth tour of the complete Facebook Buy Button user experience.  In this last post, we’ll explore what this new development means for retailers.

Sizing the FB buy opportunity

While it’s good to be skeptical when all you have to go on is a test of a buy-button and some anecdotal success from retailers such as Lolly Wolly Doodle, it’s hard to argue with this math:


This simple model takes the Facebook published Monthly Active User (MAUs) which is 1.317b and looks at the implication if this buy button was used by various small percentages of that audience to buy a $100 average-order-value (AOV) item(s).  We calculate the Gross Merchandise Value (GMV) on a monthly basis and annual (simply 12X monthly).

This model assumes that each of the 1.317b users sees ads and clicks on one a month.  Facebook newsfeed advertisers report a 3-7% CTR for newsfeed ads and there are ~200 pageviews/m per MAU so when you multiply all that out, it works out to be similar to the above.

You can see even at very small .25% adoption rates, that’s ~3m orders or $300m/m in GMV which equates to $4b in GMV annually.  As you scale up it gets much, much larger with $50b at a 3% adoption rate.

To put this in perspective, as of Q2 2014, both eBay and Amazon’s 3P marketplace had $80b run-rates.

Said another way, with pretty minimal adoption rate, the Facebook buy button could become a meaningful GMV e-commerce channel very quickly.

Case study: Groupon Goods

If this seems like a hail mary to you, there is a precedent here.  In 2011, Groupon launched “Groupon Goods” – essentially a deep-discount-deals based marketplace.  The idea was that if they offered e-commerce type product deals to their > 130m email subscribers they could great a pretty meaningful marketplace.  I actually created a table like the Facebook table that used a similar basic model in this post.

As of Q1, Groupon reported:

  • $709 gross billings for Goods (equivalent of GMV)
  • This is a $2.8b run-rate marketplace – if you approximate the Q4 bump, you get to $3.5b.
  • This took about three years to get to this scale.
  • Groupon now reports MAUs instead of email subs and their MAUs are 51.8m.

So here you have a real-world case study of a  $3.5b marketplace that was built on a similar premise and it worked.  Of course, nothing happens overnight, but the fact they have successfully done this shows that Facebook’s strategy isn’t much of a hail mary at all.  In fact, if we do the math on that 51.8m MAU number, assuming a $100 AOV you get a 4.6% conversion rate.  If we plugged that into our Facebook model, we’d have a $72b GMV marketplace being built.  That would probably take 3-5yrs, great execution and this also assumes that MAUs are constant, which they are not, they are growing.

No matter how you slice it, I think retailers need to watch Facebook’s e-commerce efforts very closely as this could be one of the largest new e-commerce channels we have seen born since Amazon, eBay and Google.

One other key is the business model. Groupon Goods decided to focus on narrow selection, but very deep discounts.  Because of that liquidation/clearance mindset they are able to charge the merchant in the 10-30% level.  This has created the DNA of their offering.

After Part I/II we received a lot of inquiries about the Facebook business model. While they haven’t disclosed how the economics of the Facebook Buy Button work, there is an interesting concept to look at from China.

What’s the business model? Reading the Chinese tea leaves (Alibaba)

In the traditional US based e-commerce channels you have two business models:

  • Take-Rate (Sometimes called CPA – Cost Per Action) – Marketplaces like eBay and Amazon have a take-rate between 8-15% depending on category.
  • Per-click (Sometimes called CPC) – Google and comparison shopping engines work on this system with either a CPC auction or category-based rate card.


  • The pro of take-rate is that it is easy to calculate and understand.  If a take-rate is 10%, you know for a $85 item, you will pay $8.50.
  • The pro of CPC is you acquire a customer, so you can factor that value into your equation.


  • The con of take-rate is two fold.  First, you frequently cannot re-market to the consumer, so this is pure ‘leasing’ of customers with zero chance at customer acquisition.
  • The second negative is the bluntness of this economic model. Perhaps you sell apparel items (15% take-rate) but you have some items with a 30% margin and others with 5%.  It obviously does not make sense to sell the lower margin items as you would be upside-down as much as 12%.   So the take-rate model can limit the selection.  Also, in theory I may be willing to pay ‘more’ than 15% for that 30% item, thus you limit the upside for the channel in that example.
  • The con for the CPC model is there is no performance guaranteed.  You have to measure the conversion rate (CR) very carefully because you can easily spend a lot of budget for a lot of traffic, but that traffic may not turn into buyers.  This model makes it very hard for mid-sized and SMB-sized businesses to understand the model due to its complexity.

At ChannelAdvisor, we have been working with Tmall (Alibaba’s B2C channel) and they have a different business model that I’ll call hybrid.

In the hybrid model, there is a take-rate and a CPC.  The take-rate is very small in the 2-5% range to essentially cover the payment costs and other hard-costs.  On top of the take-rate there are advertising options (CPM, CPC, etc.).  So essentially the retailer has a lot more control over what and how they spend $.

In many ways this is the best of both worlds.  You get a ton of selection, and the retailer gets a lot of flexibility:

  • Want to lower your price to attract buyers?  Fine.
  • Want to sponsor your listing so it gets more exposure? Sure you can do that via CPM or CPC.
  • Want to acquire customers? This model includes a customer acquisition with the sale.

In the example I gave before of an apparel seller with selection that spans 3-30%, the seller wins and the marketplace/channel wins.

Based on Facebook’s recent big moves (see the next section), I wouldn’t be surprised if they replicated some of the components of this model.  This actually fits with their advertising units and business model in addition to really differentiating their offering from the status quo of Amazon, eBay and Google.

Instagram, Messenger, WhatsApp

Another element of our experience with Chinese e-commerce that is interesting is the fact that e-commerce is not only very active in social networks, but also is infused throughout the messenger and chat applications.  A common use case that hasn’t made it to the US is:

Three consumers are having a group chat about something. One of them mentions a product, e.g. “I just bought this cool GoPro camera.”  The chat system detects this and knows that GoPro has a chat brand.  The consumer can then invite GoPro right into the conversation.  From here a live customer service /sales rep at GoPro can say “Hey everyone thanks for inviting me, we have a great deal today on our entry product.” The conversation goes from there and the consumers can purchase directly from the chat/messenger app – everything is totally wired together with one seamless purchasing experience as the mobile wallet contains everything needed to consummate the transaction.

Here’s an example of a purchase in-stream on Wechat:


With that in mind, facts like this start to make sense:

  • Instagram – Founder Systrom recently said: (bolding is my emphasis) Asked if he had considered adding commerce tools, such as the ability for a customer to see, say, a Burberry scarf in a photo in her stream and click-to-buy, Systrom says the company has “certainly thought about it.” But, for now, he is focused on “onboarding” brands. “There are still literally brands that are not on Instagram” yet, he said.  (In Fortune Magazine) Reminder – Facebook owns Instagram.
  • David Marcus, previously the GM of PayPal was recruited to Facebook to run messenger.
  • Facebook acquires WhatsApp (top messaging app) for $19b.

Facebook seems to have noticed these use cases in other regions and has designs on bringing them into their broad portfolio of applications used by billions of consumers globally.

Implications for other social media companies

When you look at the comScore data for top smartphone apps:


The top mobile sites/apps/activities are social networks, music and e-commerce.  Today the social networks are primarily monetizing that golden spot on the smartphone through brand ads and increasingly ad units designed for the installation and activation/reactivation of mobile apps.  Now that Facebook has made a move in this direction, I suspect you will see the other sites on that comScore list make moves.  In fact, there’s already evidence to this end:

  • Twitter buy buttons have been spotted in the wild like this: (article is here)


  • Twitter also has added payment/order settings to their android app (article is here)



  • Wanelo buy buttons have been spotted in the wild: (article is here)
  • Apple is rumored to be working on a payment system (here)

It doesn’t stop at traditional social media applications.  For example, Snapchat recently filed a trademark for a payment system, indicating they are on the path to implementing a Wechat like system.  Snapchat enjoys over 20m active users – most of them are in the prime millennial demographic that retailers are seeking.

The conclusion is we believe that we are in the early days of the start of an explosion of interesting new e-commerce channels for retailers and consumers.

Implications for Google

Even before this explosion of new competitors, Google is under significant pressure from the transition to mobile.  If a consumer sees a PLA (Product Listing Ad) on a phone for a product they are looking for, then goes to that mobile retail site or app and they only converts at .8% – so mobile is only 30% as effective.  On top of that, smartphone/mobile traffic is on a path to dwarf ‘desktop’, that will put a big chunk (40% by most estimates) of Google’s revenue at risk.   This is already apparent in the CPC trends which are down 7-13% (site/network ex-FX). This is tracking the movement of search volume to mobile and subsequent decrease in conversion, followed by a decrease in what advertisers are willing to pay on a relative per-transaction basis.

Now that Facebook has effectively built a marketplace that solves this problem, if they can start taking share from Google, then if the other top mobile applications join in, it could present a big problem for Google.  You could even imagine a world where you rarely use Google’s mobile search experience to find/buy products because consumers are used to using Amazon, eBay, Facebook, Twitter, Snapchat, Apple’s payment system where you can buy with the convenience of not having to ever enter your payment/shipping information.  Going through the desktop traditional Google->advertisers->site->checkout->done flow will feel like walking through molasses.

It will be interesting to see if/when Google extends the Play, Wallet and Google Shopping Express experience to the traditional shopping experience.

Implications for eBay and Amazon

Over the years, eBay and Amazon have faced competition from many different fronts.  None of those competitors have had the reach and scope that you see with Facebook and other social networks.  Also, the battlefield wasn’t fought on a platform transition as we are seeing now from desktop to mobile.  It’s easy to pit these players against each other – Amazon+eBay vs. Facebook/Twitter and certainly we will be watching that.  That being said, I think what we will see is two things:

  1. Today in the US only 10% of transactions on-line and while e-commerce is growing 15%, it will take a long time to get to 20%.  These new experiences have the ability to accelerate that and create a rising tide that lifts all the e-commerce boats.
  2. In China, marketplaces make up 90% of the e-commerce channel activity.  In the US we are at 25% with Search having a larger share at 40%.  Perhaps the real challenged e-commerce channel in this new world will not be eBay and Amazon, but Google, Bing and Yahoo!.  Can/will they make the transition to a marketplace driven world where mobile share of internet usage is greater than non-mobile? Note in China mobile is 75% vs. 35-40% in the US today, so this trend still has the potential to keep disrupting for the next 2-3yrs if China is a harbinger of things to come.

What should retailers and sellers do?

If you are a retailer already familiar with the marketplace business model by selling on eBay, Amazon or another existing marketplace you are well prepared for this world.  You are familiar with the model where transactions happen off of your website and are synchronized through inventory and order integrations.  The only thing different about these new channels is you will have more options and some interesting questions to explore:

  • Should you list all your products or just promotions?
  • Should you experiment with flash sale type models?
  • Which of your products are most viral?
  • Should you invest in advertising/promoting some of your products?
  • What is the ROI?
  • What is the value of a customer acquired through his new channel?
  • Should you invest in more fans/followers or advertising or maybe even promotional discounts?

If you are not utilizing the marketplace model, this should be the call to action to start working on this model because there is a very disruptive change in the guard potentially coming and you don’t want to be caught behind the eight ball.


While on the surface, the Facebook Buy Button is only a button, I believe in a couple of years we will look back at this point in time as ‘the shot heard round the e-commerce World’ and the mark of the beginning of a new era.  In this era with the backdrop of changing consumer behaviour from desktop to mobile, retailers and consumers will have many new e-commerce channel options.  I urge retailers to make sure adopting and experimenting with new models like the Facebook Buy Button is a strategic priority so that you don’t look up in 24 months and realize that your competitors have out flanked you and locked up a very large new way of selling your products to consumers online.