We are heading toward a future where Instagram and Facebook could be amongst the largest retailers online. Their new focus on enabling transactions is likely to solve one of retail’s biggest problems: the extremely low conversion rate of shoppers on mobile phones.
Social media networks have already figured out how to deeply engage billions of potential customers each day through their fast native apps, and have recently decided it is strategically important to partner with retailers to solve the mobile shopping problem.
There’s a lot of money at stake, and both retailers and social networks could win big with some of the changes afoot.
This tectonic shift in retail can be first marked with the launch of “buy” buttons and “personal assistants” (read “personal shoppers”), where sites such as Twitter, Facebook, Pinterest and Google are in the early stages of enabling product purchases directly from their sites. They have decided they want to do more than simply inspire the purchase of a product. They now want to power that purchase. We are entering a new era in retail where all products and services across the Web will eventually become “shoppable” at the point of discovery.
In fact, I believe this is the most significant shift to impact consumer shopping since the popularization of the Internet in the late Nineties.
To put this into context, only five to 10 out of every 1,000 visitors to a mobile site today will actually place an order. I believe this is because of problems inherent in retailers’ mobile site designs, most of which have built “responsive” Web sites that are nothing more than scaled down versions of their desktop sites.
When traffic was limited, this was an efficient approach for serving mobile visitors. But, these shrunken sites are slow to load, not easily navigated and lack a quick checkout experience. As consumers become increasingly accustomed to super fast and easy mobile experiences such as Uber and Hotel Tonight, the bar for retailers inevitably rises. With 60 percent of consumers’ online retail browsing currently done on mobile devices, the existing solutions no longer will work.
This is where the large social networks and online content companies come in. For the last five years, companies like Facebook, Pinterest, Google and Instagram have built enormous app-centered audiences, inspiring the product interests of millions of customers every day, yet powering the purchases of none. These companies have, until now, chosen to direct almost all of these engaged and excited prospects to retailer sites that offer poor mobile experiences.
Each time the social networks send their users off their native app, they are doubly hurting these visitors. First, they send them from a personalized, logged-in state to an anonymous, generic one. And second, they almost always eject them from a fast app experience to slow responsive Web sites, which are burdened by cumbersome checkout experiences. The low conversion rates that have been the hallmarks of these visits means lots of advertising money was never making it back to the social networks. This has not only adversely impacted the social networks’ revenues, but it has probably impacted their valuations as well.
Because the social networks have finally reached a scale where monetization matters more than growth, some such as Pinterest and Twitter have recently taken matters into their own hands. These two announced they are enabling “buy” buttons on their sites. And you can expect Facebook, Instagram and perhaps millions of other social networks and content sites to follow suit.
Enabling transactions to happen on content sites is becoming one of the highest priorities of social media sites, as it dramatically speeds visitors’ browsing and shopping experiences, anchors them on their sites, and increases the likelihood of purchases.
To be massively successful with this transition, social networks don’t have to get every retailer on board. All they need is a good base of brands to power “buy” buttons. Once they have that, the social networks can change their algorithms to disproportionately showcase the items with these buttons. Over time, the retailers who lag in powering “buy” buttons will likely see their traffic from social networks severely drop.
And this won’t just be lost traffic. Great retail has always been about the creation of desire, and social media sites are places where desire is formed. Brands that lose traffic from these sites could lose relevance.
So where is the opportunity for retailers? The opportunity is to get ahead of the curve. Build a native app, integrate with Apple Pay, Google Wallet and Paypal and then connect shopping carts with the thousands and potentially millions of sites that will soon launch “buy” buttons.
This will not be easy for retailers to do. But locating “buy” buttons on thousands or even millions of content sites will favorably impact 60 percent of their online traffic. After all, this is a business of location, location, location. And retail’s newest prime location is the “buy” button.
Ken Seiff is the founder and managing partner of Beanstalk Ventures, a venture capital firm focused on investing in early stage retail technology companies that solve real problems. The fund has an investment in PredictSpring, which is powering retailer integration into these buy buttons.