Zenith’s Commerce Director Stuart Johnston, in partnership with Publicis Commerce, reviews Facebook’s latest announcement and venture into Commerce. 

Last week Facebook announced the arrival of Facebook Shops, a brand new e-commerce solution enabling brands to develop digital storefronts on Facebook and Instagram.

Accelerated to capitalise on the dependency of e-commerce during the COVID-19 pandemic, the timing of this arrival plays into the hands of Facebook’s desire to both attract brands who are desperately shifting spend online channels and to leverage the obvious rise in digital consumer spending.

Facebook needed this new development

Facebook Marketplaces, the platform’s existing commerce solution, is more of a classifieds peer-to-peer space than a credible e-commerce destination. At the time of writing, the top marketplace items in my local London area include a pair of used trainers, a caravan from 1974, a second-hand sports bra and a listing for what I can only conclude is a Bitcoin scam. Just last weekend, I used the platform to sell an open bag of cement I no longer had any use for; hardly an appropriate ecosystem for brands or consumers to engage in mass online retailing.

With marketplaces like Amazon, Zalando and eBay asserting their dominance in this space, Facebook was clearly left behind. Similarly, the growth of stand-alone first party owned brand stores on Shopify platforms have also diverted ad spend externally, as brands target customer acquisition on the likes of Google where consumers intent is far stronger. Clearly, Facebook needed to do something to alight its commerce credentials.

Facebook Shops’ arrival offers an interesting solution to attract marketplace activity within its walled garden ecosystem, allowing brands to integrate a virtual storefront and interact directly with consumers within Facebook, Instagram and in the not too distant future, WhatsApp.

Will Facebook Shops dethrone Amazon?

The billion-dollar question that many will be asking is what impact Facebook Shops will have for brands and, more generally, the commerce landscape.

The current iteration of Facebook Shops is a major foothold into the commerce landscape for small to medium sized businesses and entrepreneurs. Initially, I see this working really well for the surge in direct-to-consumer brands and a large chunk of small to medium sized businesses, where traffic acquisition and initial discovery is often a major challenge. I suspect this is more of a longer-term threat to Shopify as a standalone solution, as brands may elect to focus resources and media investment into maintaining and driving traffic to a Facebook virtual storefront rather than an owned transactional website.

Short-term, Facebook Shops is mostly about embedding call to actions into social content or a perceived virtual storefront, beyond the limited existing capability we see within Instagram.

However, the solution is still far too nascent for significant impact for major brands at this stage, particularly those in the FMCG space; the muddled customer journey and lack of checkout integration, forcing customers off-site to complete a transaction, are major obstacles in achieving a seamless commerce experience that rivals the likes of Amazon. It’s worth noting that Facebook Shops only works as a solution for brands who can handle order fulfilment, delivery and payment processing themselves, notwithstanding owning their own product feed, so it won’t be right (or even open to) mass brands just yet.

We should not forget that the overwhelming majority of consumers head to either Amazon or Google for product discovery and transaction intent too, so changing this behaviour and disrupting dwell time across Facebook and Instagram to stimulate a purchase will inevitably take time. Amazon, for instance, also has far superior capability in terms of fulfilment, with over 150m global Prime subscribers, which cannot be overlooked.

What is interesting is that Facebook’s Mark Zuckerberg has confirmed that there will be no charge for Facebook Shops – perhaps there will be some kind of commission for future iterations of checkout integration and payment processing – but the main play here is for advertising revenue. Clearly, Facebook has watched Amazon’s ad business boom exponentially, growing 40% to surpass a whopping $141.bn in 2019 alone, as brands hand over ad budgets to elevate visibility through their marketplace media offer.

Whilst large brands may consider leveraging Facebook Shops to test and learn or just have some visibility on the platform where product discovery may be a long-term opportunity, I think further iteration will truly unlock the potential of what Facebook are sitting on.

I suspect the most sizable impact will arrive when consumers, who can have payment and delivery address details saved within Facebook, Instagram or WhatsApp, can purchase directly from in-app media or organic content, without leaving the ecosystem or live-chat. Such development increases the significance of calls to action, dramatically reduces the barriers to purchase and Facebook’s future end-to-end solution starts to become a worthy game changer. Be under no illusion that this will be coming very soon.

Right now, Facebook Shops is not an Amazon-killer and I am not convinced that even medium-term it poses a significant threat to Amazon’s 30% share of the UK retail market and dominant power in the global market. Brands should keep an eye on the development roadmap and perhaps consider testing lightly where capability allows, but should not expect significant disruption just yet – it is certainly more of a long-term play and opportunity for Facebook.

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