Practical Ecommerce

Notable Views: Adgregate CEO Rebuts Criticisms of Retailing on Facebook

Editor’s Note: “Notable Views” is a new series where we ask leading experts to address critical, ecommerce-related topics. For this inaugural installment, we corresponded with Henry Wong, founder and CEO of Adgregate Markets, a provider of Facebook-enabled ecommerce platforms.

Social commerce is here. Every day, more commerce merchants launch Facebook stores. With over 500 million users, the prospect of a new social-oriented sales channel is exciting. It’s easy to see why merchants would want to try on a Facebook store for size.

But, the reality is ecommerce sales volume, and ecommerce referrals, from Facebook are very low. It is arguable — at this early stage — that it’s not worth the money to invest in an ecommerce presence on Facebook.

And often, those that promote the selling of retail goods on Facebook discount the back office implications that that entails. Without strong, integrated inventory, accounting, shipping and order management functions, selling on Facebook could be a mess. Currently, the Facebook-only stores that exist are primitive and lack basic merchandising features that modern merchants require and have grown accustomed to.

There is also the reality that a merchant who relies on Facebook to host a store or refer consumers to an ecommerce site is beholden to the rules, infrastructure and business policies of Facebook. It seems to be no different than relying on eBay, Amazon, Google Product Search or any other channel. That feels like step backwards, by about a decade, for the current state of ecommerce.

To address the criticisms of selling on Facebook, we’ve invited Henry Wong, founder and CEO of Adgregate Markets, a provider of an ecommerce platform and shopping cart that allows Facebook users to purchase retail goods without leaving that site. Adgregate Markets powers social commerce on Facebook for major brands including Gap, Old Navy, Banana Republic, and Sierra Trading Post. Adgregate was launched in Sept. 2008 after having been named a “TechCrunch 50 Finalist.”

Prior to Adgregate, Wong was a partner with Novus Ventures and Artemis Ventures, two venture capital firms. He also served on the board of directors for AdECN, Inc., an early-day exchange for online display advertising. Previously, he was founder of Zipidee.com, a digital goods marketplace, which was acquired by BSG Clearing, a payment solutions provider. Wong holds a J.D. and an M.B.A. from American University.

Should Merchants Invest Money for a Facebook Store?

Henry Wong

Henry Wong

“We’re in the first or second inning of a ballgame that’s going to play out over the next year or two — it’s that early. Very few stores have launched in Facebook and, more importantly, the stores that have launched are merely scratching the surface in terms of social features. The first phase of any retailer’s social commerce strategy has been to lay the foundation and build its storefront in Facebook. Once the build-out is complete, the next phase will involve marketing muscle to deliver on the promise of social commerce.

“According to eMarketer, 92 percent of chief marketing officers at leading retailer companies are already focusing their marketing efforts on Facebook. Let’s also not forget that other existing sales channels being compared against social commerce (search, eBay, banner advertising, email marketing, and affiliate marketing), have a 10-plus year head start in investment to deliver positive return on investment.

“Because the social commerce channel is still nascent, Adgregate expects to see rapid retailer adoption of Facebook commerce and top brands launching innovative store features, from group deals to gifting, beginning in 2011. We believe these investments currently being made by top internet retailers will seed the ecosystem and create a ‘must-have’ ripple effect for the entire ecommerce industry by the end of 2011. Here at Adgregate, we are already seeing more stores launched in the last quarter for top retail brands than all of Facebook commerce since its inception 1.5 years ago.

“While sales traction on Facebook is too early to gauge, it is well understood that word of mouth brand and product referrals are high and continue to increase. A recent report from Universal McCann [an advertising agency] indicated that Facebook is by far the most effective way to turn conversations into conversions. According to the report, 71 percent are more likely to buy after ‘Liking’ the brand, 68 percent feel more loyal to the brand, and 63 percent recommend others to join.

“Simply put, a ‘build it and they will come attitude’ will not (and should not) work here. Like all other successful online channels, effort must be expended to realize ROI. Smart marketers will be able to ‘connect the dots’ between Facebook’s explosive growth, current Fan behavior promoting and recommending brands/products and the ultimate understanding that social commerce needs to be fed like any other marketing channel in order to deliver material sales levels.

“Lastly, considering that opening a store in Facebook is relatively low cost, we’re not surprised that retailers, small and large, are choosing to invest in both Facebook and their existing sales channels. Facebook commerce complements – not substitutes – for a retailer’s online store efforts. So why not do both?”

What About Back-Office Complexities of Selling on Facebook?

“Facebook commerce only works if the platform can support product feeds and integrated order management and everything else that goes into scalable ecommerce operations. Top retailers will never work in any meaningful way with simple self-service social commerce platforms.

“Having said that, for smaller retailers it’s not as much of a headache as it may seem. There are ways to get involved with social commerce now, without a significant investment in integrating an entire storefront into Facebook. Several cost effective solutions available today allow you to import a standard product feed into Facebook, which also ties into basic social interaction functionality like ‘Likes’ and ‘Shares’ at the product level. When consumers are ready to click on ‘Buy,’ they are redirected back to your existing dot com store to complete the checkout process. By redirecting purchases to the dot com store, much of the ecommerce backend will not need to be replicated.

“Taking this first step will allow smaller retailers to experiment, all the while building the overall business case for when they determine to combine it with the rest of their backend systems.”

Do Facebook Stores Lack Sophistication?

“To date, template and non-customizable storefronts have grabbed the lion share of social commerce attention; primarily because of ‘free’ Facebook store promotions luring early adopters. Like everything else in life, however, you get what you pay for.

“It’s still early and Facebook stores are going to become more and more sophisticated. Frankly, there’s nothing on a dot com store which can’t ultimately be replicated in Facebook, at least from a technology perspective. We are working with clients today that are integrating video, product reviews and ratings, 360-degree product spins and zooms, etc., all ‘best of breed’ stuff. That being said, however, the end goal is not to copy the full-featured richness of traditional commerce sites, but rather to enable a lightweight ecommerce experience that is better suited for the Facebook environment and ultimately better for users. That means a greater emphasis on social features and tying into the social graph with perhaps a lighter feature set for merchandising and only promotion of top category products.”

Should Facebook Be the Gatekeeper?

“A merchant who relies on Facebook to host his or her store is beholden to the infrastructure and business policies of that platform. It is no different than relying on eBay or Amazon except for the potential 500 million users (and growing) who are using the most trafficked site on the Internet today — Facebook.

“Frankly, that’s a large enough user base that can’t be ignored, and worth a little regulation. While working within the Facebook platform certainly means you are beholden to any rules and policies imposed by Facebook, Adgregate thinks the related risks are small and certainly well worth the upside. Mark Zuckerberg, CEO of Facebook, has publicly endorsed social commerce as the ‘next big thing,’ and they [Facebook staff] are working to facilitate its growth and not hinder it.

“For a while at least, it seems Facebook is content with generating more users and increasing time spent on the network, thereby strengthening its overall core online advertising business.

“The more pertinent question for a retailer should be ‘Is it worth it?’. Considering the low-cost approach of opening a Facebook store, it’s worth doing both a Facebook store and a separate ecommerce site.”

Practical Ecommerce

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  1. shoply January 20, 2011 Reply

    Nice post.

    We at Shoply.com offer small businesses a free quick and easy way to sell online and on Facebook.

    The sheer magnitude of traffic and direct access to the social graph makes ignoring the juggernaut which is Facebook impossible

  2. WLLK January 20, 2011 Reply

    Excellent piece. While it is still early days for F-Commerce, the space certainly represents a big opportunity for retailers (and brands). You rightly hit on the importance of integrating a Facebook commerce site with current, proven e-commerce infrastructure. Simply putting a catalog up on Facebook is not nearly as effective as integrating with your trusted fraud control, shopping cart, checkout, etc, so real transactions can occur and post-purchase deals can be shared with the social graph. My company offers such a solution that is live and deployed today, but we also offer a mobile commerce solution, from the same, single integration. Please drop this link into a browser, to learn more: http://bit.ly/gy3qua

  3. Addoway January 20, 2011 Reply

    Great post. We believe that Facebook will continue to become a prominent place for eCommerce, but more importantly continue to be a place where you can build your business through word of mouth referrals through friends and friends of friends. As Facebook’s infrastructure continues to scale and become more flexible for eCommerce, more platforms would provide the ability to sell on Facebook. The true success of Facebook relies in how you use your connections to build your brand and increase trust in the transaction process. This is the true essence of what we are doing at Addoway

  4. Charles Nicholls January 21, 2011 Reply

    While the point of this article is to put the case for Facebook stores, setting up web stores to sell products on Facebook is not a priority of most ecommerce teams.

    SeeWhy polled some 476 eMarketers back in June last year, and we found that the majority of marketers (67%) view Facbook as a source of traffic, rather than as an additional channel at this point. A further 44 percent plan to use Facebook applications in place of microsites for launches and specific promotions. Only 26 percent planned to build fCommerce applications.

    You can find the research here http://seewhy.com/blog/2010/07/14/social-commerce-most-marketers-view-facebook-as-a-source-of-traffic/

    But for mainstream eCommerce it just doesn’t make a whole ton of sense right now to duplicate the ecommerce site, particularly when sales using the Facebook channel are miniscule.

    The best opportunities for social commerce on Facebook are undoubtedly where there is some natural social element to the purchase, so entertainment, travel, music, gaming etc. all fit the bill. These types of businesses could gain significantly from having an fCommerce site.

    The bigger short term opportunity for ecommerce is not to build a Facebook store, but put the effort instead into integrating Faceobook’s social features into their ecommerce site. In 2010 most ecommerce sites implemented Facebook Like; next on the priority list is Facebook Login (formerly Facebook Connect) which is gaining momentum very fast. Both Amazon and Yahoo are in the process of adding Facebook login, and a host of other social features to their sites.

    A recent study by Gigya suggested that over half of online retailers who responded to an August 2010 survey had either implemented social sign on (such as Facebook Login) or planned to add it in the near future. This research is here http://www.emarketer.com/Article.aspx?R=1008151

    In the short term, ecommerce teams have the most to gain by integrating Facebook Social Plugins to build their communities, reduce friction, and encourage social links and sharing.

  5. Ariel Wada (CommerceSocial) January 21, 2011 Reply

    Great article, thanks to Matt and Henry for their points and insight, as well as the comments I’ve read.

    Facebook or not?  Absolutely yes.

    I’d like to touch on 2 things; what social commerce is and whether merchants should invest (defining invest as time and/or money, which accounts for small and big business alike).

    Social sites have been and are still looked upon as a place to socialize, not shop.  It’s true, you can’t just plop a "social store" in a social site and expect sales to start happening organically, thinking social members will automatically begin to shop in their social environments.  We’ve been wired to view and treat these activities as separate.  Dropping a store in your Facebook Page, MySpace profile, Ning group, or any traditional social environment is NOT going to automatically bring in sales.  Social members are there to do all things "social", they are not prepared nor do they expect to shop just because a store is conveniently around.

    A powerful statistic brands and companies should take note of: "90% of consumers online trust recommendations from people they know; 70% trust opinions of unknown users." Econsultancy, July 2009 (courtesy of Bazaarvoice.com)

    We at CommerceSocial believe social commerce is about extending and leveraging a vast and available social sales force, allowing all people who are actively talking about brands and products to easily endorse them inside their daily social communications – text postings, messages, photos, videos, etc – allowing anyone who view those shared posts the ability to purchase them right at the point of exposure and in a very convenient manner.  The reason a social member would consider buying from a friend or peer on a social page in this manner is because it’s a natural step — no one can argue the fact we each endorse products each hour of every day, the element that’s missing is a convenient and non-intrusive way for social peers to purchase those powerful peer endorsements right at the point of mention.  Using CommerceSocial, all endorsements in every medium – text, videos, etc. – have built-in, secure checkout carts to allow instant purchase.

    Forcing social consumers to leave Newsfeeds, profile pages, or anywhere outside of where they are ingesting the endorsement is inconvenient (there will be a few exceptions to this rule, such as off-site marketing campaigns, etc).  The primary drivers for effective social commerce are through the software’s product share tools, allowing all fans and social members to endorse the products throughout Facebook and the entire Web, supported with a good ecommerce sales system (either traditional/staic storefront software or rich featured social commerce software that supports your business/system needs).  To encourage the sharing and propogation of products throughout social it would be wise to incorporate share incentives, such as merchant-controlled endorsement payout features, rewarding those who share through recognition, money, payout-to-charity routing ease, and other important features for social members.

    Integration? Yes, with many considerations, but not initially.  Merchants who are looking for back-end efficiencies would do well to first test the social commerce software of their choice.  If this is one of your requirements find out if they are back-end capable and if so then test them out – hopefully it’s an instant store setup (many are), so put up a FB Page social store with limited promotional items (not connected to your back-end) and test out the software and run a campaign or two to see how well their share and viral components feel to you AND your fans (include them in your analysis).  If your social commerce choice requires technical work to setup, then spend the time researching and talking to their existing clients – in short, do your homework.

    "If you build it they will come" – wrong.  If you work at it and route the energy (and money) from your earlier marketing efforts to social marketing then voila, you’ll start to see results.  There have been many social marketing "successes", and each has its own merit.  The true value of social commerce is through shares and endorsements – start your promos, get your fans involved, this is a must, pick out your key evangelists and reward them, they are the power of ten (better to have 10%/10 people than 100% of me), and their personal networks more than likely have similar personalities… get your endorse force to talk and share.

    CommerceSocial has all of the social stores, tools, features, instant setup, and $0 startup points mentioned above and includes deeper supply chain services, such as 3rd party order fulfillment partner integration and merchant product procurement (reorders), all from one central admin console.

    The commerce landscape is very different than it was just a few years ago, the market needs to produce better tools to support the emerging and still forming social commerce.

    Thanks again everyone – look forward to what we all create.

    Ariel Wada
    CEO & Founder
    commercesocial

    http://www.CommerceSocial.com
    apps.Facebook.com/CommerceSocial

  6. Scott Rabinowitz January 21, 2011 Reply

    This is s great discussion thread on the notion of social commerce and viability.

    I come from almost 15 years of managing digital media sales and my reason for becoming one of the ‘converted’, aka a believer in social commerce, is a practical one.

    If you have strong fan-based traffic streams on social network pages, versus just passive followers, a merchant of any size can more likely benefit from diret brand-to-fan selling on social media than thru other means.

    We have to redefine what a ‘large business’ is, in context of social media. A big box consumer electronics company known worldwide can still have finite web site conversion rates and somewhat passive social media fan traffic, unless incentivized with coupons and specials.

    In contrast, an established music entity may have 25,000 (or less)
    unique web site visits per day with less than 1% interacting with a web-based store on the site. That same music entity can also have 4 million fans in its social media traffic stream who look forward to postings and interaction and yes, recommended products to buy.

    A 1% commerce interaction in a facebook or overall social media store, even if only ‘tapped for commerce’ once per week or month instead of daily, by contrast, represents a massive opportunity and where the commerce gets injected into the traffic stream, not users being hoarded off to web stores when they want to make an impulse buy froom a social media thread.

    Fan traffic may indeed become more relevant than centralized branded web site traffic. Thus the ad guy gets behind technology. In time, you may not need to buy traffic that is ‘targeted’ as you may already have the most targeted traffic possible for your brand looking forward to your text, audio, photo, video and commerce posts in social media.

    Cheers,

    Scott