Facebook Makes a Play for Social Commerce

Today, Facebook made three announcements that, collectively provide some strong clues as to where they will continue to place their bets. The short answer:

Moving toward a mobile platform + courting the location-based developer community + courting brands with the introduction of Deals = huge stake in the ground for social commerce.

1. Moving toward a mobile platform

Anyone who’s used Facebook Mobile will agree that it suffers mightily in comparison to the web version. But with 200 million active mobile users – triple last year’s number – Facebook is doubling down on its mobile focus.

Today’s announcement includes a collection of updates, including the launch of Facebook Groups and an update to Places that they say will make tagging faster. Additionally, they’ve made Places available on Android, which they’d promised to do at the launch in August. There are a few other tweaks as well, like an update on notification behavior, plus support for RIM and Windows 7, that should make those users happy. But make no mistake; all of this incremental change is in support of a move toward a true mobile platform.

That’s step one. It remains to be seen how elegantly Facebook can deliver on this vision; mobile user experience hasn’t as yet proved to be a strong suit, and as is clear from the next two announcements, a lot will rest on their ability to execute here.

2. Geolocation Developers, Start Your Engines

Facebook is continuing to show its hand. First, they’re moving to single sign-on for partner apps, and are announcing search and write APIs for Places. This will allow application developers like Loopt to write back to an activity stream on a place page, making Facebook the “universal translator,” in Jeremiah Owyang’s words. This also opens up a lot of possibilities for developers to try to beat ‘em or join ‘em. So far, the trend seems to be toward joining.

Impact to location based services
Huge distribution, though at the cost of brand equity for some of the location-based players, who will have to continue to innovate on experience to give customers a reason to check in on their services rather than simply using Facebook Places. Given the user population of Facebook and the fact that a broader range of check-in activity will now show in their feed, what will be the compelling reason to use the other services? Each of these players will need to answer that question. It also opens up a range of possibilities for services focused on specific interests, such as Chowhound, that can now leverage their communities on Facebook much more easily.

Impact to brands
Brands are going to love this, because now they don’t have to worry whether customers use Gowalla, Facebook or Foursquare; even if people check in on Gowalla, for example, the check-in will show up in their Facebook feed.

Impact to developer community
Developers are now able to get location data from Facebook, so there’s no need to buy it from third-party data sources.

Impact to Facebook
Facebook owns the geolocation feed created by members, which is emerging as their killer asset. Managing the feed to address privacy and control preferences, freshness and relevance in the context of a growing stream of data will become more complicated, even as it becomes more central to Facebook’s success.

3. Deal or No Deal

This announcement should effectively quash any speculation about how Facebook plans to address the group-buying phenomenon, but it has even broader implications. With Deals, Facebook now enables users who check in to a location to view a deal, purchase and redeem it immediately. It’s also an incentive to tag friends and allow yourself to be tagged so that you too can benefit from the deal.

Deals is launching with 23 marquee merchants and, on a self-serve basis, to 20,000 small and medium businesses. Launch partners include Gap. the Palms Hotel in Las Vegas; The North Face; Lululemon and the Golden State Warriors. While it’s a beta release, and is free of charge initially to merchants, expect it to scale quickly.

Impact to Facebook
Expect more privacy concerns as people discover that they can save money by tagging friends. You can imagine some interesting (read: awkward) social situations as friends attempt to convince their friends to join them for yoga-gear shopping, Vegas vacations, Botox parties and bikini waxes. (Some experiences were just never intended to be social.)

Another significant impact: Facebook is now going to need to learn how to work effectively with brands. This hasn’t traditionally been a focus, and adding a commerce layer to the core Facebook experience will definitely require a culture shift.

Impact to merchants
Huge distribution, leveraging the online channel to drive foot traffic. For SMBs, the self-service aspect means that Facebook is eliminating a huge barrier to entry: the uneven scale of the smaller players. The hitch? Quality. We all love a deal, but no one loves a feed cluttered with friends’ cosmetic dentistry, dry-cleaning, tattoo and pet food-buying habits.

Impact to LBS and group-buying companies like LivingSocial, Groupon, Foursquare, etc.
The market just got a lot more interesting, but it will take some time for people to accommodate themselves to Places and by extension Deals. With Groupon, for example, consumers receive daily deals in their email box, which while hardly technically sophisticated is still the most powerful way to reach most people. With 500 million+ active Facebook users and 200 million now on mobile, however, Facebook is a force to be reckoned with. Over time, smaller companies will have to innovate on experience, service, selection, quality and local relevance.

We also expect to see intense effort expended in hopes of “spoofing” Facebook to tag imaginary friends, check into places fraudulently or otherwise game the system. Facebook insists that they’ve engineered Deals to minimize this, and of course in most if not all cases a customer must present the deal in person to redeem it, but there is no end to the ingenuity of fraudsters.

Bottom line: there are a lot of moving parts here that take Facebook out of its customary comfort zone and well into the social commerce arena. The two biggest risks in my opinion: executing on the mobile platform, and the ability to prioritize brands, which has not traditionally been a core strength.

But, as they say in football, big players make big plays.

About susanetlinger

Industry Analyst at Altimeter Group
This entry was posted in social commerce, Social Graph, Social media. Bookmark the permalink.

One Response to Facebook Makes a Play for Social Commerce

  1. Sam Whitmore says:

    A very good read, Susan!!


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