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NEW YORK — What does Facebook mean for fashion?
That’s the $104 billion question as the social-networking site’s initial public offering takes off today, priced at $38 a share and potentially raising $16.4 billion — the third largest in financial history. While pundits have spent the last few months poring over the most minute aspects of the Internet phenomenon — including how rich its backers and founders will be after today — the biggest issue is whether Facebook will have the long-term transformative and dominating impact of Google or Amazon — or be more like Yahoo or eBay.
This story first appeared in the May 18, 2012 issue of WWD. Subscribe Today.
The fashion world, like almost every other industry, is still trying to figure that out. There’s talk surrounding where Facebook will focus its energies with its increased cash flow, ranging from further developments in its open-graph technology to further engagement, to mobile innovations to fuel brand partners’ brick-and-mortar shopping experience, to improving client account management services for companies. Observers also believe Facebook will become more aggressive in pushing its advertising model, stirring even greater competition with traditional media companies.
RELATED STORY: Fashion Brands Ramping Up Facebook Presence >>
At the moment, most brands have simply focused on the race to accumulate the most “likes” on their fan pages and to encourage engagement — even those like Burberry and Sephora that advertise heavily on the site. How quickly Facebook can convince brands it can be more important to them than that will be key to its ongoing growth — especially since it’s now widely accepted that early attempts to encourage e-commerce via Facebook have been a flop.
Maureen Mullen, director of research and advisory at NYU think tank Luxury Lab, or L2, said that the “dirty little secret” industry-wide is that companies have been spending money on advertising on the platform for a while, with Burberry leading that charge. The brand has been an aggressive advertiser on Facebook in the fashion world in the past 24 months, as have Chanel and Gucci. While this has greatly contributed to creating an aspirational aura around the value of Facebook, she thinks it is too early to know exactly how the IPO is going to play out with respect to the fashion and luxury sectors.
“Facebook advertising is most effective for driving behavior within the platform, and specifically how most fashion brands use it successfully is to drive ‘likes’ and to grow the communities on their pages,” Mullen said. “I think that will continue, but the question will be whether it can take those communities one step further and monetize them off the platform. I don’t think in the short term we’ll see massive generating of revenue directly from Facebook advertising or directly on the Facebook platform.”
She doesn’t foresee these brands abandoning Facebook anytime soon, but to guarantee success on the medium going forward, Mullen said it’s going to take the right mix of paid advertising and really strong content to increase engagement on a brand’s open graph.
Facebook, she contends, shouldn’t be held to a school of thought that demands instant return on investment, because if one looks at where most fashion brands advertise — print — it’s not as if those ads generate immediate sales. “[Print ads] generate aspirational values for the brand, awareness, editorial mentions, and for the most part, Facebook should be held to the same measurement,” Mullen said.
Sucharita Mulpuru, online and multichannel retail analyst at Forrester Research, compared Facebook advertising to television in that they’re both entertainment vehicles with a huge reach but not a place where every brand finds value.
“It’s a place where you can discover things you might not have known about otherwise, and reinforce people’s loyalty to existing brands, and that’s why some of the most famous brands in the world all have huge fan bases,” Mulpuru said.
Sephora has been advertising on Facebook for nearly four years — and although senior vice president of Sephora Direct Julie Bornstein declines to reveal the percentage of the company’s advertising budget dedicated to the platform, she said that investment in Facebook ads has grown each year. With Sephora having over 3 million “likes,” Bornstein contended that much testing, research and targeting has helped the company figure out the formula that works, adding that the main goal is to bolster its Facebook community, followed by a secondary goal of driving sales.
Coach, at almost 3.4 million “likes,” has advertised on Facebook for the past year, and David Duplantis, executive vice president, global Web and digital media, said the goal is to drive fan acquisition and engagement.
“Facebook has changed the world and brands and people have truly benefited. It’s going to be fascinating to see how Facebook evolves post-IPO. I believe advertising will become a bigger priority, and that, coupled with continued innovation, means the opportunities are limitless for both Facebook and the fashion industry,” he said.
Nordstrom, which has about 1.4 million “likes,” began advertising on the medium in 2010 in support of its annual anniversary sale — and, according to the retailer, it will continue to do so. In addition to advertising, the company will explore other approaches to social commerce, with an emphasis on finding seamless and convenient ways for its customers to purchase online.
Many firms have developed fashion apps for the Facebook platform. One of them is TheFind, which aggregates Facebook “likes” from retailers across the Web. TheFind, through its social shopping app called Glimpse, then uses that data to create a curated shopping experience that lets users see other items they might be interested in buying based on their “likes.” Like Pinterest, Glimpse can be available for everyone’s friends to see or can be hidden from view.
RELATED STORY: Social Commerce, From Hi to Buy >>
Glimpse is hoping it can facilitate F-commerce on the platform, even after brands like Gap and J.C. Penney have shuttered Facebook stores.
Fiona Dias, chief strategy officer of ShopRunner.com, believes that the jury is still out on Facebook’s impact on retail and fashion.
“Facebook is very good at building relationships among people.…People go to Facebook to hang out with their friends. [However], anyone who has advertised on Facebook has been disappointed, as [many] ads are rarely clicked on,” Dias said.
She said that many companies don’t have a clue as to what Facebook’s impact is on their business, because measuring it is very hard. She explained: “It doesn’t show up on a sale. ‘Likes’ [may] go up, but what’s the value of a ‘like’?”
Dias points to sister company Rue La La — both are under the Kynetic umbrella — and Gilt Groupe, where Facebook can be helpful for flash sales due to the flash-sale business model’s limitations on either inventory or time duration for the sale as exceptions.
Beyond fashion brands, many wonder if Facebook’s new public status will pressure the medium to become an even greater competitor for ad dollars with magazines and newspapers, especially in light of General Motors’ decision to pull $10 million in advertising earlier this week. Traditional publishers such as The New York Times, Dow Jones and Hearst Magazines view Facebook as an opportunity — but not without some trepidation.
“Facebook is certainly a competitor to Dow Jones, as is television and every other media competitor,” said Mark Fishkin, vice president of digital sales at The Wall Street Journal Digital Network. “It’s no surprise that ad dollars have flowed to Facebook over the last few years as clients have felt they ‘had to’ be there.”
“For the industry in general, there is always concern when a player of the size and scale of Facebook enters the marketplace,” said Eileen Murphy, a spokeswoman for the Times.
Complicating the direct competition is that the social network is also a huge distribution channel for publishers, one whose 700 million users they can’t help but capitalize on as they look to connect with new readers. Even GM said it will maintain a large presence on Facebook.
Robin Steinberg, a media buyer at MediaVest, said the benefits of Facebook for publishers are greater than the risks. This is especially true as most publishers begin to move toward balancing consumer and advertising revenue.
“As publishers transform their business, this is one component of how they’re creating content and connecting to consumers,” she said. “It allows them to start a conversation in the social ecosystem.”
It is also unclear as of yet how the value of advertising on Facebook versus traditional media is different, and so it’s likely that for the near future marketers won’t reallocate their advertising budgets wholesale to the social network.
“Every client is going to have a different objective,” Steinberg said. Some clients find the long periods of time consumers spend on the site to be highly valuable. For others, traditional media yields other dividends, she added. “[Facebook and traditional media] deliver different experiences and therefore deliver different values,” said Steinberg.
Publishers say this is what sets them apart from Facebook. Marketers know exactly what they’re getting in return for their ad dollars, and they can track a campaign’s performance.
“We know that some of those dollars went to Facebook without some of the usual digital efficacy metrics as part of a broader experimentation agenda,” the Journal’s Fishkin said. “We have heard anecdotally that some clients are now looking carefully at their Facebook investments, and, in the case of GM, pulling.”
Said the Times’ Murphy, “We offer premium and highly differentiated content, and we believe our advertisers recognize the value in reaching our engaged and affluent audience.”
For now, the approach to take is two-pronged and cautious.
“Like most media companies today, we have a multidimensional relationship with Facebook,” Murphy said. “We collaborate with them and we compete with them.”
The Times, in addition to having a strong social-media presence, has also experimented for the past year with advertising on Facebook “on a very limited basis,” Murphy said, and intends to continue doing so. As a matter of policy, it did not disclose the results of the campaign.
A spokeswoman for Condé Nast declined to comment for this story.
Advertising aside, James Gardner, founder and chief executive officer of Createthe Group, believes Facebook’s historic IPO will give a lot more money to implement site-wide changes with the potential to affect the fashion and luxury sectors.
For Gardner, one of the biggest challenges with Facebook thus far has been a lack of transparency from the platform, and he hopes that, going forward, the company will provide more guidance before major changes are released, for brand pages specifically. He also expects Facebook to “really up their resources” in terms of client account management, as well as other strategic development investments that will allow them to leverage and sell their data outside the confines of Facebook.
“With all of the pressure from investors to monetize and increase revenues, we believe Facebook will start to add more innovative ad products that increase profitability, continuing to expand with new ads outside of Facebook — which will focus on new types of content-driven ad units,” Gardner said. “This will present a major opportunity for fashion brands to spread their content through more innovative types of ad products.”
Wade Gerten, co-founder and ceo of technology solution provider 8thBridge, anticipates that there will be three major Facebook investment areas with the potential to dramatically impact the fashion industry: the open-graph platform, mobile and payments.
On the platform front, Facebook is opening itself up to be used as a development or technology platform, and instead of being solely a destination Web site, it will offer social shopping functionalities on thousands of other sites outside of Facebook.
“This looks more like Microsoft than it looks like Twitter. Companies like us are building software [such as Graphite] on top of the Facebook platform just like how 15 years ago companies were building software on top of the Microsoft platform,” Gerten said, noting that this will provide fashion brands with a way to inherently improve the shopping experience by making them more social and by more deeply integrating social into their business models.
Gerten contends that because such a high percentage of Facebook users operate the platform from a mobile device — 488 million of 900 million users logged into Facebook from both a computer and a mobile device in March — that funds from the IPO will go toward significant investments in the category. This includes finding innovative ways to drive foot traffic in-store through a Facebook offer.
With respect to the payment aspect (the platform generated $557 million from payments, primarily from social gaming), Facebook will likely make this aspect more ubiquitous and “friendly” toward all merchandise. Gerten explained that the current model, with a 30 percent fee on purchases, has made sense economically for virtual goods (which have virtually no overhead costs), but this would be too high of a percentage for fashion brands to sell anything.
“What gets me the most excited is the potential for integrating all three. In the future, a brand might incentivize a Facebook user to visit a store and make a purchase through Facebook Offers. The customer could use Facebook to buy the merchandise and then easily share their purchase to their Facebook Timeline via the open-graph platform. Their friends would then see the purchased item in their Facebook in their news feed and ticker,” Gerten said. “That’s a whole closed loop social shopping experience. That’s where things could go, and the IPO will help fuel innovations towards more integrated experiences like that.”