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How to Make Facebook Stores Pay Off May 31, 2011

Posted by David Card in Uncategorized.
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Last week, investors poured money into ShopIgniter ($8 million) and Milyoni ($3 million), two companies that build Facebook storefronts for merchants and retailers. I’m not the only analyst that’s skeptical about that opportunity, but with literally thousands of merchants building Facebook stores, it’s worth examining the challenges facing them and what could make them effective shopping vehicles.

Over 150 big brands have built stores as Facebook apps that can actually handle transactions rather than just function as marketing brochures or catalogs. At the same time, Facebook store–builder Payvment claims it has 60,000 stores running in its network of Facebook apps. Payvment CEO Christian Taylor told me that some of Payvment’s leading merchants are artists selling crafts, similar to Etsy’s e-commerce community, or unsigned bands selling merchandise. Indeed, most of the leading Facebook stores — ranked by Likes, as no one’s tracking sales volume yet — are band-, entertainment- or sports-related.

ShopIgniter, Milyoni, and Payvment compete with a dozen or more startups offering white-label e-commerce platforms for Facebook, including UsablenetMoonToastFluid and 8thBridge, which raised $10 million in March. Companies that help retailers integrate Facebook pages to online stores include ShopTab and SortPrice. With so many stores, the space feels like it’s getting a little crowded. However, many of these companies are equal parts platform and agency, meaning they do development and integration services, including helping strategize social promotions. That may be necessary now, but it’s a far less scalable business model than software. It’s also one that could be rolled up by existing digital agencies with social media ambitions. Publicis, for example, with Razorfish and Digitas already in its stable, snapped up Rosetta two weeks ago.

Stores Themselves Face Tough Challenges

While a Booz & Co. survey of social network users who shop online implied that 27 percent of them would be interested in buying within a social network, the flip side interpretation is that 73 percent wouldn’t. Based on interviews with online retailers, Forrester doesn’t even think social networks are very effective at promotion, let alone generating actual sales.

In my recent social commerce report, I describe other Facebook store challenges. First, online shopping is a directed, search-driven activity, where shoppers take advantage of the Internet’s price transparency and comparison capabilities via Google, Amazon and Kayak. Second, the mall approach of aggregating stores didn’t work for big portals like Yahoo and AOL, even with their powerful promotion capabilities. Finally, big retailers have been using recommendations and reviews effectively for years, without needing stores on social networks.

Tips for Making Facebook Stores Pay Off

Based on his analysis of the psychology of shopping, social psychologist Paul Marsden thinks Facebook stores will be good for impulse buying as well as more-considered purchases that depend on word of mouth, especially for first-time buys in high-risk categories. That makes sense to me for expensive vacation packages and high-end baby carriages for new mothers, where personal experience is highly valued. I’m less convinced it will outweigh structured comparison searching for financial services or consumer electronics, where exhaustive inventories, “technical” info, price comparison and expert advice should rule. Impulse purchases often require instant gratification, which would seem to point in the direction of digital goods like movies, music and games.

Tactics to make Facebook stores effective include:

  • In-stream promotion. Facebook lacks a big front-page ad format that could drive new DVD releases or Mother’s Day flower purchases. The closest equivalent is promoting products in the news feed. Sales and group offers might cut through the clutter.
  • Social commerce integration. Facebook says its own Offers will focus on group purchases rather than discounts. Integrating proven social commerce elements like daily deals, flash sales and group buying for fans with the store will be critical.
  • Ties to brick-and-mortar loyalty programs. Retailers should allow points redemption in their Facebook stores and even count Facebook store visits toward check-in deal points.

Question of the week

How can you make Facebook stores pay off?