Referrals are the future of Social Commerce, not conversations

“Social Commerce” is a big buzz word these days. As many continue to talk about merging social media and e-commerce, there is no clear consensus as to what the main driver of social commerce will end up being. Many think its about finding ways to promote and sell products on Facebook, others think its about “group shopping”, and some think social commerce is primarily about igniting conversations.

Of the three, the most successful so far has been group shopping sites like Groupon and LivingSocial. Why? The answer is pretty simple. Group deal sites give users a clear value proposition (50-90% off something), with a clear incentive to share with friends through social media (if enough people don’t buy it, you don’t get the deal).

While it has been and will continue to be quite effective, the popularity of group shopping has distracted us from what I believe is the bigger future of social commerce: the power of the personal referral.

In “real life”, what factors help you make decisions about how to spend your money (like what restaurant to go to this weekend, which mechanic to take your car to, or just generally what to buy and where to buy it from)? You might do a Google search, but what you’d probably like to do most is ask people you trust. How do you go about doing that? Do you post a status update on Facebook asking your 500 friends where to find a great deal on designer jeans? Maybe – but for most people maybe not.

What if you could automatically ask all of your friends what to buy and where to buy it from based on their own experience, without actually taking the time to ASK?

For merchants, marketing their products online compared to marketing in the “real world” is quite different. Merchants in the real world build their reputation by providing quality products and great service to their customers, who spread the word to their friends about their experience. As the number of satisfied customers increases, the merchant’s natural word of mouth marketing presence grows along with it. This is how good companies build a brand and a loyal following.

But the e-commerce environment has primarily become a price war among both large and small merchants selling common products, and a difficult place for merchants selling unique or handmade items, struggling to find ways to acquire customers who aren’t searching for their exact product (because they don’t know it exists), and then leverage those new customers to evangelize their largely unknown brand.

Unlike the real world, the advantage of the Internet is that everything can be found and organized quickly in a structured way unavailable in the offline world. But now that our offline relationships have been enriched and expanded online (primarily because of Facebook), the two worlds now have an opportunity to merge. The merging of these two worlds means that we can use our offline relationships to effortlessly get recommendations from our friends, in a seamless and structured way.

That’s the future of social commerce, and it will be here before we know it.

Corey Kossack in an Operating Partner at Addoway, an online marketplace where people buy and sell with their friends and the merchants they trust. Corey is also Managing Partner at Game Change Ventures, a venture development firm focused on Internet startups that utilize social media.

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