Facebook Shops Opens For Small Businesses
The coronavirus shutdowns have decimated small and midsized businesses (SMB). One-third of SMBs in the U.S. never expect to reopen, according to an April State of Small Business report that surveyed nearly 40,000 small business owners and managers conducted in part by the World Bank, the Organisation for Economic Co-operation and Development (OCED), and the Small Business Roundtable.
To the recuse comes the lead partner in the State of Small Business survey, Facebook, which just announced the launch of Facebook Shops to allow businesses to sell products not only advertise on its platform.
“Right now many small businesses are struggling, and with stores closing, more are looking to bring their business online. Our goal is to make shopping seamless and empower anyone from a small business owner to a global brand to use our apps to connect with customers. That’s why we’re launching Facebook Shops and investing in features across our apps that inspire people to shop and make buying and selling online easier,” the company said in a statement.
It will complete shoppers’ journey who already use Facebook and Instagram for discovery and enable them to buy on the platform too.
“People have used social media as an upper-level funnel to discover products they might eventually buy,” says eMarketer’s Andrew Lipsman, principal analyst focused on retail and e-commerce. “This will flatten the funnel to give consumers the ability to purchase within the platform.”
Or in Facebook’s terms, “We want to give people a place to experience the joy of shopping versus the chore of buying.”
Facebook has a lot riding on the success of their SMB partners, with a reported 90 million small businesses using its offerings. SMBs also make up the vast majority of Facebook’s more than 8 million advertisers.
Through March 2020, Facebook’s advertising revenue remained strong, growing 17% year-over-year, but in the first three weeks of April, when the full effect of the retail shutdown were felt, ad revenues flatten to levels seen in the same period last year.
E-commerce made easy
Facebook promises SMBs an easy onboarding process. After retailers create a catalog of products they want to sell, they can customize the look and feel of their Facebook Shop. If they have a Shopify website, for example, their website catalog can be seamless integrated into a unified Facebook channel.
Creating a Facebook Shop is free, but with a catch. Facebook charges no fee for transactions, if retailers process sales through their existing platforms, such as Shopify, WooCommerce, or others. For retailers without these capabilities, they can use Facebook’s Checkout feature and pay a 5% processing fee, which is lower than what Amazon AMZN or eBay charges.
It’s likely that many specialty independent retailers will opt for the Checkout service, since in Unity Marketing’s most recent survey among specialty independent retailers, only about one-third had an e-commerce-enabled website. A ShopKeep survey found even fewer (23%) identifying e-commerce as a channel they needed to pursue.
However, eMarketer’s Lipsman doesn’t see Facebook Shops’ strategy so much to derive revenue from sales as it is to bolster advertising revenue from SMBs that already depend upon it for advertising and marketing.
“Clearly, this is an effort for Facebook to build their advertising revenue, to keep speciality retailers advertising,” he says.
“These small and midsized businesses are already running their organic and sometimes paid marketing efforts through Facebook. They’ve got a level of comfort there. So, the more transactions they can also derive there, the more important Facebook will be to their business,” Lipsman continues.
Ready, Set, Sell
“What have you got to lose?” asks Bob Phibbs, CEO of The Retail Doctor, a New York-based consultancy. “For retailers that haven’t come up with an e-commerce strategy, this is great. It will probably have a lot of training wheels on it so people can easily adopt it. I think the adoption will be great.”
Reinforcing that point, nearly one-quarter of a million people have visited the Facebook Business Help page that explains how to set up a Facebook Page Shop.
But as good as Facebook Shops can potentially be for small businesses, it will be even better for Facebook.
“Make no mistake, this is a data ploy,” Phibbs stresses. “All the big e-commerce platforms are trying to get to that ‘one basket’ that the consumer can carry wherever they go, like WeChat and Alibaba BABA in China. Amazon is the closest, but China is far ahead of us in the concept of ‘one basket’ that feels seamless for the user.”
Information is power and the information Facebook will gain about its 1.7 billion daily users will be powerful indeed.
“Facebook is trying to keep people within its ecosystem and not let them leave, so they can connect the dots from their political activities, their restaurant recommendations, the ads they click, the products they buy,” Phibbs says.
“Yes, that will enable Facebook to serve up more customers for a retailers’ ads, but more importantly, it will reveal trends a lot quicker to Facebook than anybody else. After all, people are on Facebook a lot more than they are on Amazon,” he continues.
That information can also be weaponized, perhaps to the detriment of retailers on the platform.
“Look at what Amazon did with its marketplace. Brands made a deal with the devil to have their products on Amazon, then six months later, they see the exact same products knocked off at a third of the price. Amazon used all that information to boost its private label,” Phibbs shares.
Not only that, but Facebook Shops puts one more degree of separation between small businesses and their customers. Specialty retailers thrive on the personal connections they make with customers.
While customers will be able to message the retailers through WhatsApp and Messenger, Facebook Shops still effectively fences customers within its platform.
Digital advertising and commerce collide
In closing, eMarketers’ Lipsman provides a boarder context for the meaning of Facebook Shops in the digital era.
“We are at the tail end of the digital-advertising era, which was dominated by Facebook and Google GOOGL and transitioning to the digital-commerce era. Digital advertising and commerce are colliding,” he believes.
Describing the digital business as a three-legged stool – advertising, media content, and commerce – Lipsman sees the battle lines between the digital giants, Google, Facebook, and Amazon.
“Facebook and Google have always been really strong on advertising and media, but light on commerce. Now, they are moving in that direction,” he says. “Amazon was strong on commerce, light on advertising and media. But in the last couple of years, Amazon has become a major player in advertising and media.”
“Facebook looked at what was happening and said it needs to race into commerce faster so that Amazon and Google don’t take a bigger bite out of its advertising and media,” Lipsman continues.
Facebook Shops represents the natural evolution of Facebook to shore up its leadership in digital advertising by bringing e-commerce capability onto its platform, a strategy it has tried in the past, but not as successfully as expected now after the COVID-19 retail shutdowns.
It provides an opportunity for SMBs to participate in e-commerce and make sales online, but they may pay an unexpected cost down the line by making their business too dependent upon Facebook.
“Facebook or any other platform can either extract a bigger toll by increasing the CPM [cost-per-thousand] or pull the rug out from under them entirely, exactly the way Amazon seems to have done for so many of their marketplace partners. They make the rules,” Lipsman concludes.
Source article: Pamela N. Danziger @ forbes.com (May 31, 2020)
