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In 2000, e-commerce primarily took place on individual websites. Today, it happens in marketplaces. In early 2020, Bank of America analyst Justin Post released an update on the latest e-commerce market share trends, and it indicates Amazon alone dominates the e-commerce market with 44% market share and growing. Tomorrow, however, companies want to drive sales from where users spend more of their time—on Facebook, Instagram, or TikTok.
Welcome to the third era of e-commerce: social commerce.
Companies are constantly searching for ways to reach online users. In its analysis of digital advertising budgets, market research company eMarketer found digital advertising spending still growing as companies rush to court digital audiences.
Those digital advertisers face a challenge maintaining the effectiveness of their advertising models. Deloitte points out that total digital advertising spending has increased at a compound annual growth rate of 20% over the past five years, while overall retail and consumer product industry revenue growth remains at around 5%.
A new social approach to retail
As advertising channels proliferate, companies are spending more dollars to chase each sale. Social media enables them to refine their model, explains Rachel Tipograph, founder of social commerce software company MikMak.
“The power of social commerce is really the ability to use first-party data to find highly qualified shoppers,” Tipograph says.
Social commerce takes a step beyond marketing products and services via social media. It enables companies to use social media platforms for a direct, fast product sale, blurring the lines between newsfeed and shopping cart. It also introduces more people to a company’s products. Tipograph adds: “It allows for more eyeballs on the products that you have available for sale.”
Traditionally, influencers and brands on a social network like Instagram could include a “swipe up” option on their Instagram feed that would take visitors to a product page on a third party website. MikMak provides an alternative, embedding short infomercials inside the app. Visitors tap the video to add the product to an online shopping cart without leaving their app and breaking their flow. Where traditional ads get in the way, this reduces the friction between the social advertising and the final sale.
Success in China
Social retailers have been especially innovative in China, where McKinsey predicts that social commerce will account for $166 billion—a fifth of all Chinese online sales revenue—by 2023.
In 2019 Douyin, the Chinese version of the popular social media app TikTok, launched an in-app e-commerce service for social media influencers. People with over 8,000 followers and more than 10 posts can set up personal e-commerce display pages on the service, embedding product links into videos and live streams that connect directly to in-app purchases.
Some Chinese social commerce platforms capitalize on viral effects to drive sales. One popular social app, Pindoudou, displays two prices for products. The first is a standard single-purchase price, while the second is exclusive to communities of at least two buyers. Users can unlock this price by persuading others in their social network to join their purchase, creating large orders and better economies of scale for retailers. It’s essentially the social media version of a group discount.
One reason for China’s success in social media is the rise of the “super-app.” There are a handful of these apps, with Tencent’s WeChat chief among them. They offer their own messaging and payment functionality but also enable users to install third-party apps from other providers, turning them into mini-app stores.
TikTok, the international version of Douyin’s social network, has been helping western retailers to explore social commerce. Levi’s used the social network’s “Shop Now” button to let consumers buy products via links posted to the social media service. The manufacturer also partnered with TikTok influencers who used its online customization service to design their own unique jeans. When they posted these to the app, others could click on them and buy.
Social networks catch on
Western social media networks are determined not to be left behind. Facebook launched Facebook Shop for its social network in May 2020, which lets people sell directly on the platform. Its Instagram network launched a shop feature in the summer, allowing brands and influencers alike to tag products from their shops before demonstrating them in live videos.
Google, too, is experimenting with its own social commerce plays. In June 2020, it launched a direct response ad format that adds browsable product images below a video. Clicking on them can drive traffic through to a retail site. The company also began targeting mobile users explicitly with a product called ShopLoop in July. It lets people watch product demos from content creators and then click through to the merchant’s website to complete a purchase.
Products like ShopLoop are especially timely because video promises to be a far larger part of the social commerce scene. “Influencers are using video, absolutely, and that’s becoming more prevalent during COVID, where longer-form video formats like Instagram TV are being more widely adopted,” says Tipograph.
In October 2020, Instagram announced the expansion of its shopping service onto Instagram TV, which allows people to post longer-form videos than they can on the regular service. This enables people to watch a video and check out with just a few clicks.
Threats to traditional advertising
China’s early traction in the social commerce market outshone that in the west, but eMarketer believes that’s starting to change as the west catches on. Social referral to e-commerce sites grew 110% between 2017 and 2019, the company found, though there’s still a lot of room for growth—social traffic still represented just 9.1% of inbound e-commerce traffic in Q1 2019.
Another development threatens traditional advertising models on mobile platforms, warns Sid Hasan, co-founder of social commerce company MeSpoke.
For now, advertisers can easily track what users of Apple’s iPhones and iPads do when using apps, enabling them to target them more effectively with commercials. However, Apple will introduce a feature in iOS 14 that invites users to opt out of that tracking. The reaction from online advertising companies including Facebook was so negative that the phone manufacturer was forced to delay its introduction by a few months—but it’s still coming at the start of 2021.
“It’s time to give power back to the users,” says Hasan. His company plans an alternative to the native store features offered by the likes of Facebook by connecting influencers and retailers directly.
MeSpoke uses artificial intelligence to automatically recognize products in influencer photos, creating hashtags to describe them. The company embeds links to the retailers selling those products, so that visitors can buy them directly from the influencer’s post. MeSpoke receives a share of the revenue from the retailer, while the influencer gets traffic from the hashtags, along with reward points or digital currency.
“We’re moving the world back to a model where consumers are playing the role of the sales agent, and brands and retailers are reaping the benefits of orders,” Hasan says.
This looks a lot like a digital version of the Tupperware parties that your grandma held, he says. She’d demonstrate kitchen products to her friends and then take orders from the manufacturer. Even in the fast-moving world of social networks and mobile, what’s old is new again.
Originally published on DellTechnologies.com by Danny Bradbury