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

July 28, 2014

ChannelAdvisor Scot Wingo By Scot Wingo

This is a multi-part post:

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

Welcome to part 1 of a 3 part series – Introducing ‘Buy on Facebook’.

On July 17th, 2014, Facebook announced via blog post they are testing a new feature/ad unit that allows a consumer to buy directly from a retailer and not have to leave Facebook.  We believe this new feature has serious implications for the world of e-commerce so in this series of posts we are going to not only do a deep retailer/seller oriented tour of the new feature and put it through its paces, but we’re also going to provide some background on the history of Facebook’s e-commerce pursuits.

An update on Facebook

In talking to about retailers about Facebook, I find many vastly under-estimate the scale that Facebook has achieved since their IPO.  Everyone remembers when Facebook hit 1b active users, but there are a lot of interesting facts (these are from their Q2 results which were just announced July 23, 2014) you may not realise:

  • Facebook’s Ad revenue is greater than Time Warner and Viacom – combined.
  • 62% of Facebook’s revenue is from mobile.
  • Facebook has over 1.5m advertisers.
  • Did you know that Facebook acquired Instagram and is closing on WhatsApp (very popular chat app with > 100m users)?
  • Facebook’s search engine is handling 1b queries/month.
  • The average Facebook user spends 40mins/day on Facebook.
  • Across the entire Facebook network, they touch 2.2b people on a regular basis – there are 7b people on the planet.
  • The last bullet, said another way: “One-fifth of the world’s population now logs into Facebook at least once a month” (-Wall Street Journal).

Those are all impressive stats, but what’s most impressive is illustrated by these to charts from their investor presentation:

First, this chart shows monthly active users (MAU) across GEOs over the last 2yrs:

Fb_maus_geos

Yep that’s 1.3 BILLION monthly users and it has grown 14% y/y.  829m of those folks use Facebook DAILY!

Second, here’s a look at mobile usage.

Fb_maus_mobile

Over 1b users access Facebook via mobile device, 654m daily and ~400m exclusively through mobile.  In May 2012, Facebook had a bit of a mobile panic – broad based mobile was growing faster than anyone thought and Facebook’s solution wasn’t as good as they wanted it.  In fact they had to warn investors during their IPO process about this risk. In that short timespan, not only has Facebook embraced mobile, they are essentially one of the few ‘goto’ apps on everyone’s home screen be it iOS or Android.

Facebook has solved mobile – e-commerce has NOT and why that matters.

This is a good time to bring up an important point about e-commerce.  Our industry is in a bit of a corner because we have not solved mobile.  Retailers have been investing millions and tens of millions of dollars in improving their mobile sites, creating innovative mobile apps and the problem persists.  The datapoint I watch most closely these days as desktop usage and mobile usage are set to ‘cross lines’ (mobile on a huge increase, desktop flat, but declining as a % because of the incremental new usage created from mobile) is desktop vs. mobile conversion rate.

When we look at our data at ChannelAdvisor (see our SSS backgrounder here) the data really tells the story:

  • Desktop conversion rate (this is across thousands of customers, and fluctuates over the span of a year, so this is an average): 3%
  • Smartphone conversion rate: .8%

This data is echoed by companies like Branding Brand, Monetate and all the SEMs that publish data.

At the same time, Internet Retailer calculates Amazon’s mobile conversion rate is north of 10%.

The reason why is simple – on the smartphone form factor, nobody wants to enter their bill to, ship to and payment information.  Heck, most don’t even want to enter a login!

This creates a big problem for all retailers in e-commerce, because as mobile traffic surges, they are effectively losing share to those mobile apps (eBay and Amazon are the top 2) that don’t require data entry.

This is also a problem for the advertising platforms, because retail is one of the biggest advertisers, as mobile grows, as an industry retailers are see a decrease of 70% of the efficacy of ads (driven by conversion rate) on mobile platforms.  For example, on Google Adwords, they are willing to pay $.45 for desktop clicks, but only $.15 for mobile clicks.

Bottom line: as an industry we have to solve this problem.

Some believe that the solution is to figure out the multi-device attribution problem. For example, if a consumer sees an ad on their phone, then browses on their tablet and buys on their desktop, only the desktop gets ‘credit’ today.  While I believe there is ‘some of that going on’, I think the obvious low hanging fruit is to solve the data entry problem.

This is becoming such a big headwind for everyone, that I think a) it is one of the drivers of Facebook adding this Buy Botton  b) we will see all the popular ad platforms (facebook, twitter, google, etc.) look to solve the problem and c) even the device makers and OS providers should/could get involved (Apple, Google, Samsung, Moto, Microsoft/Nokia, etc.).

Keep this in mind as we go through the tour – has Facebook solved the mobile conversion problem with Facebook Buy Button?

A brief history of Facebook’s e-commerce efforts and payments

Retailers have been interested in advertising to Facebook’s audience since the company started allowing advertising.  Today most retailers leverage programs like sponsored posts, retargeted display ads and fan/like programs.  Beyond that, Facebook and e-commerce have had a couple of false starts that it helps to look at for perspective on this latest effort:

  • 2007-2009- Facebook Beacon – This was a feature that was broad in reach, but for e-commerce essentially shared your activity on various sites like Overstock.com back to Facebook.  The key feature was the ability for the retailer to say: “Joe just purchased a new couch” to your newsfeed.  The problem with this feature was that it was well before Facebook had the powerful sharing options you have today and frequently you would do something like buy your wife a birthday gift to find that it had been shared (thus spoiling the surprise).  There’s a good summary here.
  • 2007 – Facebook Fan Pages (aka Facebook Pages) – This creates an area where a retailer/brand can have a presence on Facebook and share updates with their fans, and offer a variety of other functionality.  It has been quite popular.
  • 2007+ – Facebook Page Stores (aka F-Commerce) – From 2007-2009 there was an explosion of companies (Payvment, all of the platform providers, StoreFrontSocial and literally hundreds more). There was a lot of venture capital poured into this concept and a lot of hype.  The name F-Commerce (for Facebook commerce) was attached to this concept.  The problem with this concept was discovery.  A consumer had to go through a complex trail of a) finding a fan page/brand, b) liking it, c) finding the store in a tab and then d) going through a traditional e-commerce experience.  The whole experience was inherently not social and not surprisingly failed.  Many industry pundits, like Sucharita Mulpuru @ Forrester, have suggested that Facebook/social will never drive commerce on the heels of that failure.  There are copious accounts of why this failed such as here and here.
  • 2009 – Facebook Like button – The Like button has been wildly popular and is present on pretty much every retail site today.  It allows the consumer to essentially like a product and have it recommended to their friends.
  • 2012+ – Comment Commerce – Leave it to an entrepreneur to figure it out.  Brandi Temple, CEO of Lolly Wolly Doodle (details here) had a problem.  She had excess inventory and wanted to sell it. So she would post the items to Facebook where she had a bit of a following for her girls apparel line.  The key to her success is that folks that wanted to buy the items would leave a comment such as “Buy size 2”.  Now imagine your friend does this and you see: “Sally just commented ‘Buy size 2’ on Lolly Wolly Doodle item X”. You would be curious and go explore – thus the ‘social viral loop’ is achieved.  Using this system frequently called comment commerce, Lolly Wolly Doodle built a > $11m business in 2013 that is growing north of 100% y/y.  Why did this work when f-commerce failed?  One word: newsfeed.
  • Q1 2014 – Facebook Call to Action ButtonsIn early  2014, Facebook rolled out a new feature on newsfeed ads called ‘Call to Action Buttons’.  There is a whole family of these action buttons (learn more here).  For example, on mobile, there’s a ‘install now’ button for apps (pictured below) and most importantly for e-commerce, you can ‘shop now’ (also illustrated):

400_fb_buy_shop_now_button

(above -> desktop ‘shop now’ Facebook Action Button)

Fb_install_now

(above -> mobile experience, “Install Now” Facebook Action Button)

Can Facebook and E-Commerce ‘work’?

That’s a lot of history and the reason I bring it up is in the world of e-commerce we spend a lot of time talking about this.  In my experience, you have two camps:

  1. Those that have tried F-commerce and the like and proclaimed that Facebook will never ‘work with’ e-commerce.
  2. The other camp that believes that Facebook and e-commerce will eventually stop flirting and get married.

Personally, what I’ve always believed and said is:

  • With an audience over 1b as a retailer it would be foolish to ignore Facebook and/or count them out as a potentially large e-commerce channel.
  • Stores in tabs was doomed to fail.
  • But shopping for many can be an inherently social behaviour.  Product reviews are a good example where we’ve seen a lot of value at the intersection of e-commerce and social.
  • I’ve been watching the comment commerce trend closely and you can’t argue with the success firms like Lolly Wolly Doodle are seeing there.  There is real, material GMV to be had if you can figure out social commerce.
  • Facebook is one of < 10 companies that have really figured mobile/smartphone out.

Up next: The Tour!

With that background and history, part 2 will walk through the complete Facebook Buy Button user experience (UX).  As we do that, keep in mind two key questions:

  1. Can Facebook’s Buy Button solve retail’s mobile conversion problem?
  2. Can the Facebook Buy Button be the solution to the ‘will Facebook + E-Commerce’ work?

 

This blog post was written by Scot Wingo, CEO of ChannelAdvisor.


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