Social Commerce – A serious threat for Amazon?

Key lessons

  • The acceptance of social media shopping is constantly increasing, especially with young generations and digital natives, riding the influencer wave
  • Social media can massively increase the visibility of retail offers and ensure their targeted distribution. Influencers use their networks on social media to give brands visibility and place products exclusively
  • Facebook (or any other social media provider) and Amazon utilize different business models and differ in the buying experience from the customer’s perspective. While Social Commerce focuses more on entertainment and discovery, Amazon offers a high level of comfort and convenience

Introduction

Social Commerce describes the distribution of products and services via social media and is becoming increasingly important. Over time, Social Commerce even became the subset of E-Commerce, in which the active participation of users and the personal relationship and communication between takes center-stage. The integration of E-Commerce functions into social media platforms gives these platforms a completely new character. Already in 2005, Yahoo resembled a social media site that specifically aimed to draw the attention of its visitors to certain products. With not just a simple search box (like Google), it contained a lot of additional content. Social Commerce was born.

The most important and most known player in E-Commerce today is Amazon, while the most popular social media channel is Facebook who also owns Instagram. Through technological development, social media platforms have entered the E-Commerce world and the market landscape registered a tremendous change. To what extent this change has had an effect will be briefly compared and discussed with underpinning examples in this blog post.

Social Media Shops – Top or flop?

With over 3.6 billion users worldwide, social media reaches almost 50% of the world’s population. On these sites, the most popular pastime for their users are viewing pictures and videos, sharing content, networking, or scrolling for news. In most cases, this is done via smartphones, which are usually carried on their user. Beyond that, it is also used nowadays to promote businesses and to search and find products for purchase. It is unlikely that online shoppers get forwarded to another page to finalize the purchasing process. Social media providers like Facebook, Instagram, Twitter, and Pinterest have recognized great potential in precisely this issue and started quite early with their efforts into this direction.

Facebook, for example, launched its marketplace as early as in 2007. In 2014, the buy button was added, which can be integrated directly into posts. In this way, merchants give users the opportunity to directly purchase a product from their shop offering with just a few clicks, without even leaving the platform. These new functions appear particularly effective for younger people. As shown in the following graph, the number of users who have never made a purchase through online or social media advertisements increases with age.

Source: iVend Retail (2019)

Furthermore, this topic requires a global consideration. The impact of social media is dependent on the country and its cultural appreciation towards these platforms. For example, almost half of digital consumers in the UK have never made a transaction based on online or social media advertising, while in Turkey 24 out of 25 users (96%) have realized a purchase online. Interesting at this point, the doubts users have about purchasing on social media channels. According to an US study by Sumo Heavy in 2018, the biggest concerns in descending order are security, privacy, legitimacy to sell on a proper channel, lack of customer service and unfamiliarity with the process. These concerns slow down the development of Social Commerce. Due to the high reach, the potential to sell via social media can be rated as high. The target group and specifically its usage behavior and interests, its concerns and geographical location must be considered.

Competing online giants? Facebook vs. Amazon

For online shoppers, a purchase on Amazon feels different from a purchase on Facebook. Above all, it is important to underpin the difference in the shopping experience: Anyone who first sees an interesting product in advertising, searches online for it, then heads for an online shop, adds the item to the shopping cart and finally the payment. This model is used effectively and successfully by Amazon, with an extremely wide product assortment and quick delivery times. On the other hand, a social media (here: Facebook) user can simply click on the object of desire in their (Facebook) feed and end up directly at the checkout. The chances of a successful transaction may be increased as a result.

The daily time spent on social media has been rising continuously for years. In 2019, 144 minutes were spent daily on social networks worldwide, with Facebook topping the list with 58 minutes. Thus, Social Commerce gives the shopping experience an exploration and/or entertainment factor. The time spent on Amazon is certainly not as high as on Facebook. Therefore, the buying experience can be assumed to be more convenient or comfortable. When comparing the sources for discovering brands between generation X (between 18-21 years) and Z (38-53 years), their attitude towards social media is different. In a direct comparison, twice as many generation Z representatives use social media to discover brands, as shown in the following diagram.

Source: Bloomberg Businessweek (2019)

Another important point or difference is that influencers are present on social media channels like Facebook, but not (yet) on Amazon. They have an inspiring effect on their followers and can arouse emotions through personal connections, which in turn can promote sales.

What conclusions should companies draw from this?

The impact of Social Commerce, especially for younger generations, cannot be ignored but needs to be embraced. Combined with the large reach and targeted advertising opportunities, this holds great potential for the future. Although Social Commerce also requires a country-specific approach, the increased Mobile Commerce shift supports the whole trend around social media shopping, as social media use is mostly done via mobile devices. These arguments are currently still limited to the B2C sector. Nevertheless, when online shoppers look for certain products on the internet, they first name Amazon as their first online source. In this context, Amazon has already caught up with search engines, because of its wide and bundled product assortment and its market dominance. In contrast, social media is rarely used for this purpose.

In conclusion, companies must first define what exactly they want to offer their customers and for what purpose. Furthermore, the decision on the experience they want to offer to their customers. Once the concerns about social media shopping no longer prevail and social media becomes a regular shopping channel, its potential can be suddenly expanded. A prime example of this is WeChat from China with its payment and shopping options, demonstrating to the rest of the world how to exploit the potential of social shopping. Moreover, influencers enable the establishment of trust in social media channels and could accelerate this process. It is important to select the right cooperation partners for potential collaboration. In most cases, micro-influencers are more effective.

Looking into the future, the topic of Social Commerce remains very exciting, as the purchasing power of young generations will continue to rise in the coming years. In this respect, the development of their usage behaviour towards social media will be exciting too.

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