Social commerce : we’re all talking but is anyone buying?

Social commerce is undoubtedly taking off, as new sites pop up offering social commerce integration and now Facebook is taking it further by rolling out Credits across third party sites. We have been using social networks for a long time to source product reviews and allowing them to influence our buying decisions. But is the money actually following the chatter? It’s one thing to use social media for research, but should companies be investing in social commerce solutions to serve a growing need?

$1.93 billion investment

To provide some perspective, it’s worth looking at new social commerce platforms that are emerging and just how much investment is behind them. This gives an indication of the value that the market sees in social commerce and how serious the space is about developing. Smart Planet reported that at the start of the year up until May, there had been around $1.93 billion invested in the major social commerce solutions. Groupon topped the bill having received $950 million in investment. And now that investment is being put to the test, as they begin the IPO trail. Having received a secondary market valuation of nearly $16 billion, they are expected to begin trading at 40% below that level, being currently valued at between $10.1 billion to $11.3 billion. This compares conversely to LinkedIn, one of the first major social networks to enter the stock market, who traded above their secondary market valuation. This proves that social commerce is still a very young industry, with a strong case to prove.

This was explored further by the Gerson Lehrman group, who looked at the state of the tech bubble, comparing valuations of social media companies with their actual revenue. For Groupon they found that they were currently valued at 32.8x their revenue :

Is there a market need?

What’s worth remembering however is that social media itself is still a new enough industry, so we can expect a certain level of uncertainty when it comes to social commerce. What’s important is whether there is a current need or desire for social commerce solutions among users. When we released a report on social commerce earlier this year, we looked at mobile commerce, which represents a huge and still largely untapped area of social commerce. When we asked respondents whether they would like to purchase a product in-store via their mobile, an overwhelming 79% said they would :

This interest correlates with the Shop.org social commerce report, which found that 58% of their respondents follow companies to get discounts and deals, with the average consumer following around 8 retailers at one time.

Is the money following?

So we’ve seen that there is a clear interest in social commerce among consumers, and that there is a serious business behind this, as significant investments are being made in social commerce companies/solutions. But is the money following the interest? It’s one thing to follow a brand to receive discounts, but where is the end transaction happening? Is it still happening via the traditional e-commerce section of a website, or on the shop floor, or is it now happening through social networks themselves?

For this we can look to a few case studies. In March 2010 (light years ago in social commerce world) Procter & Gamble released figures for their newly launched Facebook store. They launched a social store on their Facebook Page, which at the time had around 200,000 fans. They sold out of specially priced packs of diapers, processing 1,000 transactions within an hour. These figures are certainly impressive, but it also represented a particularly good deal for the consumer (not so much for P&G), so this could be viewed as an unreliable example :

To look at it from a wider perspective, it seems results are still mixed. A study produced by Forrester found that the conversion rate for Facebook stores was equal to that of standard e-commerce stores, at between 2-4%, while also attracting traffic of between 1-10% of the total fanbase rate. For some, this figure might seem less than impressive, showing that social commerce may currently be at a state where it is suitable for large businesses but may not currently be such a good investment for companies with a smaller fanbase and limited marketing/development budget. Social commerce is certainly growing and showing encouraging signs, but there is still a way to go before it reaches its full potential.