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Joseph Einhorn is a 30-year-old serial entrepreneur with a simple, if audacious, goal: to render Amazon obsolete.
This story first appeared in the May 11, 2012 issue of WWD. Subscribe Today.
His battle-ax is TheFancy.com, a Web site that launched in 2011 and aims to create a seamless integration between social media and e-commerce by enabling users to purchase products without leaving its platform. PPR’s Francois Henri-Pinault, Twitter founder Jack Dorsey, hedge fund manager James Pallotta and Facebook co-founder Chris Hughes have all signed on as investors.
“There is an explosion in self expression and discovery.It’s time for [that] to give way to commerce,” says Einhorn. “You have sites like Tumblr and Pinterest which are great, but you reach a dead end. They don’t have the commerce bit,” he continues, before declaring:
“Now it’s time to get down to business.”
Einhorn is far from alone in his ambitions to build the biggest social commerce platform. Ever since 1-800-Flowers made history by launching a chrysanthemum-bedecked “birthday cake” on Facebook in 2009 as the first-ever product to be retailed on the site, cracking the social commerce code has been top of mind for marketers and technocrats alike. The management consulting firm Booz & Company estimates that sales via social commerce will increase sixfold by 2015, from about $5 billion in 2011 to #30 billion in 2015. Granted, that’s still a blip compared to the $194 billion in e-commerce sales reported by the U.S. Department of Commerce for 2011 — but the potential is clearly there.
“We are in the very early stages — it’s probably the first inning for social commerce,” says Wade Gerten, the founder and ceo of 8thBridge, the pioneering Minnesota-based company that has created the technology many brands use to enable social shopping on Facebook, Web sites and mobile apps (including the aforementioned 1-800-Flowers experiment). “Shopping is giong to look very different,” he continues. “Our vision of social commerce is a multichannel one.”
“What we’re talking about is the online reflection of something that has been happening since the Roman marketplace — people who trust one another’s opinions and enjoy spending time together and influencing each other’s purchasing decisions,” says Amaryllis Fox, the founder and ceo of Mulu, a socially “curated” commerce site that lets users choose a charitable cause to receive a portion of the proceeds from purchases. “At the moment, social discovery and commerce are still in their infancy and quite fragmented. Increasingly, there won’t be much of a distinction between the online and offline purchasing realms.”
Fox describes the landscape thusly: Right now, many sites, such as Pinterest, are focused on “fortuitous discovery,” where users may not know they wanted a particular object — say, an earthenware mortar and pestle — but then want it when they see it. Then there are the evaluation sites, such as Quora and Yelp, where users can ask the community for their opinion on a particular product or service before purchasing it. More recent additions are curated purchasing Web sites, where users can see what other people (often celebrities) recommend for purchase. Finally, there’s what Fox calls the “game-ification element,” in which apps like FourSquare enable users to check in where they’re shopping and communicate online with their friends about what they’re doing.
“It doesn’t make sense for these four elements to be segregated and we’re moving towards melding them,” says Fox, lauding The Fancy for its approach in doing so and explaining a unique feature that Mulu has pioneered. “Say you’re going to Coachella for the weekend,” she continues. “You can say, ‘Help! What’s your survival kit?’ And Coachella veterans can go on and put in their kit. The answer is then search engine–optimized, so you can go on Google anytime and see the answer.”
And — if Mulu and others social commerce sites have their way — buy whatever product catches your fancy instantly.
“Consumers crave shopping that is an edited assortment of great things,” agrees John Caplan, the ceo and founder of Open Sky. “Online shopping in an Amazon world is a search engine, where you have a search box and millions of products. That causes the paradox of choice. There is too much stuff to find the right thing to buy.”
Open Sky, which launched about a year ago, features different vertical boutiques in categories such as fashion, home and, as of May 2, beauty (overseen by former Sephora exec Alison Slater). Well-known people in each category are invited to curate their own boutiques with products that their followers can buy. Caplan says Open Sky has been growing at 40 percent month over month, and says its customers are 85 percent women, with 70 percent of buyers making a repeat purchase within 90 days of making their first purchase.
“What is happening is there is a wave of innovation in commerce, whether it’s subscription models or flash sales or sampling,” says Caplan. “There is a creativity to how consumers are going to discover a product and what really matters in those businesses is the loyalty they create. We see this customer who is really excited about what she is discovering and who she is discovering it from.”
While the past 12 months has seen the rise of a panoply of imaginative social commerce sites (see The Next Big Thing? at right for a broader picture), Facebook, with its 800 million active users, remains the apogee against which all others are measured. But as 8thBridge’s Wade Gerten admits, early attempts at selling on Facebook haven’t worked well. Yet.
“If you added up all of the shopping activity over the last two to three years on Facebook, almost all of it is friend-to-friend. Less than 10 percent is brands pushing at you,” says Gerten. “If you want social commerce to be a significant driver, it has to be re-shaped around people. Instead of taking a product catalog and putting it on a Web site or Facebook, people have to be at the center. Then it will become much more significant from a total revenue point of view.”
For the past year, the company has been developing a platform called Graphite, which Gerten says will allow brands to leverage social media without giving up brand control. Rather than use Facebook’s blue “Like” button, the Graphite platform will enable brands to customize their buttons. So the online clothing store Nasty Gal might have “Neeed” or “Gimme” while Hallmark’s buttons says “Tearing Up” or “Love.”
Additionally, users will be able to click on a “shoppable story,” which enables them to browse on the item they like without leaving Facebook. Those ready to buy are taken back to the brand’s Web site.
“We think to get scale requires an integrated approach with your existing channels,” says Gerten. “If people drive social commerce by ‘sharing’ what they like, the trick to getting more people to share is to integrate more customized sharing functionality on your existing Web site.”
One of the first beauty companies to experiment with myriad forms of social media and commerce, Avon has learned this firsthand. “If you put the entire store into a Facebook application, it is overwhelming for representatives to curate and overwhelming for consumers, who aren’t necessarily in the mind-set at this point of, ‘I’m going to Facebook to shop,’” says Van Vahle, Avon’s executive director of digital content, community and social media. “They are going to Facebook to learn, discover, share and converse. So we took the boutique and shrank it. We thought of it more as an engagement device, so that people can see the newness in the context of a beauty expert who is a friend of hers.”
For Bobbi Brown, a brand that has primarily relied on word of mouth rather than traditional advertising, its forays into F-commerce have been all about engagement rather than sales. Recently, it created a Facebook program called Bobbi Brings Back, where consumers in six markets (the U.S., U.K., Australia, Japan, Germany and Korea) could vote on which discontinued lipstick shade they wanted the brand to bring back. More than 40,000 votes were tallied, and the winning shade will be sold only via Facebook in October. “The point is not the revenue,” says Maureen Case, president of specialty brands at the Estée Lauder Cos. Inc. “The point is to engage with our consumers and show them how much we appreciate them and that we are listening. A brand might have millions of Facebook fans, but whether they’re engaged is a different story.
“It’s not about throwing seeds into the wind,” Case continues. “It’s making sure they find places to land and begin to grow.”
Louis Desazars, ceo of Nars, is getting increasingly aggressive at making sure that the edgy makeup brand is courting its most ardent fans online. “At yearend, we will have one million fans,” he says. “These people are passionate about the brand and there is definitely something that we can be doing in order to get more business out of this — but in a smart way. You can’t just put regular items up on Facebook,” he continues. “They are expecting something that they can’t find anywhere else. If you invite them to the party, you have to feed them something unique.”
Unique doesn’t mean expensive, adds Heather Park, Nars’ director of digital, noting $30 constitutes the current price ceiling for now. “There is a misperception that when people say 850 million people on Facebook they see 850 million shoppers,” Park says. “But for most people, it’s a big leap of faith to buy anything more expensive than that.”
Oscar de la Renta may reside in the pantheon of American luxury designers — with price points to match — but the brand has been among the earliest adopters when it comes to social media and commerce. “The word experiment is important,” says Alexander Bolen, chief executive officer of the fashion house. “There are a lot of first-mover advantages in this world. If they’re well thought through, the experiments don’t have a tremendous amount of downside, as long as you’re not afraid to be associated with something that doesn’t work. As a cost matter or regarding brand image, there isn’t a tremendous cost.”
Oscar de la Renta has experimented with selling bangle bracelets and notebooks as Facebook exclusives, and also ran a fragrance sampling program. As with Bobbi Brown and Nars, price and exclusivity were the key purchasing drivers. “For us, we want to talk to new and younger consumers,” says Bolen. “This is the way people are communicating today and we need to be communicating with potential customers in whatever way they want to communicate with us. It is just as much about communicating and engaging as it is about a commerce opportunity.”
In fact, the very ubiquity of Facebook and the changes it has wrought in how people communicate and transmit information to others has prompted brands to take a much broader view of social media in general, and commerce in particular. “We are defining social commerce as the socialization of the digital commerce experience,” says Marisa Thalberg, vice president of corporate digital marketing for the Estée Lauder Cos. “Our philosophy is not to replicate our commerce on our social channels. It’s more about understanding how people behave through digital and travel through the ecosystem.
“There isn’t a need to turn a social channel, where people are there to connect with friends and family and colleagues, into a full-on shopping experience,” Thalberg says. So instead, Lauder’s Smashbox brand has experimented with allowing consumers to overlay their social graph on top of its commerce site, so that they have a different way of sorting products. “You can sort products by what your friends like versus category of product,” explains Thalberg. “It’s pretty compelling.” Indeed — Thalberg says the brand found that those who used the program spent 47 percent more than those who don’t.
Most agree that that kind of person-to-person communication will drive the development of online commerce. “There is an overarching trend that consumers want to discover in the most personal way possible,” says Hilary Peterson, vice pres- ident of business development for Lyst, which gives users a personalized “style feed” according to their favorite brands and designers. “It’s really cutting out the noise and allowing consumers to focus more and more on what they’re interested in.”
Ticketmaster has been at the forefront of adapting personalization. Users can import their social graph to the site, which then tailors a concert list based on what they and their friends are listening to (and, of course, where they are). When someone buys a ticket, that information then gets automatically shared with their friends, however, the brand confirms with the user that it’s posting the information.
“Personalization still feels a bit creepy,” says Gerten. “My wife was using the Yahoo Social Reader, and a friend had read an article called ‘The Top 5 Things He Does That Turn Me On.’ My wife opened it and an hour later, I see on Facebook my wife post ‘The top five things,’” Gerten laughs. “This is a good example of what not to do.”
Conversely, “When someone buys a ticket on Ticketmaster, we automatically post it on Facebook,” Gerten continues, “but on the confirmation page, it says, ‘You opted in for us to share your information. If you want us to remove it, click here.’
“Just because you can share something,” Gerten concludes, “doesn’t mean you should. That is the risk. Some brands might become overzealous in their sharing.”
The connecting link in social commerce is engagement, between the brand and the consumer — and it doesn’t necessarily need to be online. At L’Oréal, executives talk about the path to purchase, which consists of four steps. Step one is about building brand awareness, step two is about evaluation and creating the desire to learn more about a product by, say, watching a how-to video on YouTube, explains Marc Speichert, chief marketing officer of L’Oréal USA. Third is the buy phase and step four is brand advocacy — getting customers to come back and buy something automatically without going through steps one and two.
“The lines between online and offline are blurring more and more. We have to give the ability to consumers to shop whenever and wherever they want,” say Speichert. “The whole conversation around the buy phase becomes more and more fluid. Speichert cites two examples, from Tesco and L’Oréal. For Tesco’s “Virtual Store” in South Korea, the retailer put up billboards that looked like supermarket shelves in subway stations. Consumers could scan a QR code for whatever products they wanted with their mobile phones and the products were delivered to their homes later that day.
For its part, during fashion week last season, L’Oréal rebranded 50 New York City taxis into either Lancôme or Yves Saint Laurent Beauté “boutiques,” which displayed how-to videos and then enabled shoppers to click on the products used and buy them. Two out of three people who got into the cab snapped the tag, says Speichert. Granted, these are both offline examples of social commerce. But the on- line implications are enormous. “We know that there is a huge correlation between how a brand interacts with the consumer and how it drives commerce. In the past, people looked at it too much in silos,” Speichert says. “It’s not all about thinking that if you want to be successful in social commerce, it has to live on a social platform. It’s that everything that we’re doing will have a social commerce experience inte- grated into it and it will be part of the overall experience.”
Sizing Up Social Commerce: 5 Key Points
It’s Exponential, My Dear: Booz & Company estimates social commerce sales at $5 billion in 2011, a figure expected to increase sixfold to $30 billion by 2015.
Engagement Rings: At this stage, social commerce is about engaging consumers — not generating revenue. But companies who don’t experiment lose the first-mover advantage in connecting with key younger consumers.
People Power: Social commerce is fundamentally changing e-commerce by making the shopping process people-centric, rather than product-centric.
Think Community, Not Catalog: To that end, selling too many products on Facebook is overwhelming for users. F-commerce is about exclusivity and price.
Offline is the New Online: Savvy marketers are integrating social commerce into all aspects of their brand experience across multiple platforms.
The Next Big Thing?
Social commerce may be in its nascency, but numerous sites have already launched. Here, some early front-runners. By Jayme Cyk
This personalized beauty site allows users to buy makeup, skin care and hair care based on their personal profile and recommendations from thousands of women similar to them.
In addition to buying and selling, The Cools presents users with suggested products that are specifically curated based on their style, taste and personality.
THEFANCY.COM Part store, part blog, part magazine and part wish list, The Fancy allows users to
“fancy” items they favor and purchase them without leaving the site.
By taking part in activities on the site, such as watching a video or participating in a poll, Lockerz allows members to build up points that can be redeemed to buy merchandise offered on its shopping site.
By following favorite designers, boutiques, bloggers and stylists, users can create their own “lyst” of coveted items. When a user’s “lysted” item goes on sale, Lyst will e-mail sales alerts from stores worldwide.
Material Wrld allows users to shop the closets of people within the fashion industry, discovering exclusive finds and uncovering the personal stories behind them.
Besides sharing, recommending and shopping products, Mulu users can decide whether their portion of the sale goes to themselves or their choice of one of 50 charities.
Curated by celebrities, Open Sky allows users to shop products chosen by the likes of Cynthia Rowley and Julianne Moore. About 80 people in a variety of fields, including food, style and, now, beauty, have “curated” shops.