Better for browsing than buying?
This story first appeared in the July 24, 2014 issue of WWD. Subscribe Today.
While Facebook continues to solidify its place as an advertising giant — second-quarter ad revenues shot up 67 percent to $2.68 billion — the social network is still seen as more of a place to bolster a brand’s profile than sell its products.
Still, Facebook’s tiptoeing back into the world of e-commerce with its very small, although highly publicized test of a “buy” button that began last week. Experts are skeptical that the network’s 829 million daily active users will come to view Facebook as a shopping destination.
In part, that’s because Facebook has tried its hand at commerce before.
Selling on Facebook, or F-commerce, was one of the most buzzed-about digital ideas in 2011. But the effort was ultimately seen as a flop after brands failed to gain much commercial traction from the social platform.
Now, Facebook is betting on a “buy” button on ads and page posts that lets users purchase a product without leaving the social network. The button is being tested on a few small- and medium-size U.S. businesses. Facebook declined to give specifics on the program, but a larger rollout is expected later this year.
On Wednesday, Sheryl Sandberg, Facebook’s chief operating officer, stressed to analysts on a conference call that the company was trying to facilitate the buying process for its users.
“Commerce is really important and is a growing, important part of our business,” Sandberg said. “But I don’t think people can confuse that with Facebook selling things directly.”
The new “buy” button is similar to some of the social network’s previous efforts at commerce.
Oscar de la Renta was one of the first luxury brands to test F-commerce in November 2011 with the release of its $65 Esprit d’Oscar solid perfume ring. But Alex Bolen, chief executive officer of Oscar de la Renta, has since acknowledged that initial experiment was not as successful as anticipated.
Many experts argue that people aren’t accustomed to coming to Facebook to shop.
Amy ter Haar, ceo of Flow Inc., a mobile payments ecosystem driven by social networks, said Facebook needs to get into commerce, but that its most recent effort is still far from game-changing.
“It’s necessary to offer really [seamless] transactions,” ter Haar said of Facebook building upon its commerce experience. “It’s necessary but it’s not visionary. It won’t enable an omnichannel experience.”
Ter Haar said Facebook seems to understand that there is an opportunity with mobile payments and social commerce, but ultimately needs to do more.
“They have to offer a value proposition for merchants — [such as] increased sales, a decreased cost of sale and a new source of revenue,” ter Haar said.
Bulgari and Chanel were other early adopters of F-commerce and in 2011 began directing Facebook users to their respective e-commerce sites, interrupting the linear path to purchase that Facebook is now encouraging.
However, Debra Aho Williamson, a principal analyst at eMarketer, said commerce on Facebook will revert back to the approach initially taken by Bulgari and Chanel.
She said companies will want purchases to take place on their own sites instead of on Facebook and compared this with what happened to advertising on Facebook.
“A few years ago, brand advertising was aimed at directing people somewhere back on Facebook — either a Facebook page or app,” Williamson said. “Now that’s not the case. Now most ads direct [users] off Facebook. I think we’ll see a similar pattern with commerce. Brands will want to make it so that a consumer can make a purchase with one click — but on their own Web site, not to Facebook.”
Todd Huseby, partner in A.T. Kearney’s Digital Business Forum, is more optimistic about Facebook’s place in the e-tail landscape.
Although social commerce has been a challenge, he said Facebook has a better chance than most to gain in the area. He pointed to a change to Facebook’s algorithm last year that was successful in “placing ads that consumers had ‘skipped over’ into the stream of relevant news feeds, and this seems to have significantly increased the number of ‘shares’ from consumers.” Also, the sheer nature of anything that makes commerce more seamless will likely get traction.
“If an ad is shared from a friend, then it will appear endorsed,” Huseby said. “And if I can buy from an easy button without any or many other hurdles, then it has a good chance to succeed.”
For now, Facebook’s ad-based model seems to have plenty of momentum to carry the company forward. Second-quarter profits surged 138 percent to $788 million, or 30 cents a diluted share, on a 60.5 percent gain in revenues, to $2.91 billion. About 92 percent of the company’s revenues come from advertising.
TIMELINE: SELLING ON FACEBOOK
The social networking giant has tried to repeatedly open the door to commerce, but has failed to gain traction.
2009: 1-800-Flowers becomes the first brand to sell directly on Facebook.
2011: Oscar de la Renta becomes one of the first luxury brands to sell on the site, but later drops the effort.
2014: Facebook begins testing its “buy” button with a few companies.