After having a look earlier today at how Alibaba profits from allowing you to browse with them but buy from others I thought we could take a quick look at how easy it will be for Facebook to profit from social commerce or what they are now branding f-commerce.
Just like Facebook Taobao is growing at a phenomenal rate increasing doubling its traffic last year to more than 370 million. Now making it more than 5x bigger than eBay who, along with Craigslist, was the original “social” commerce platform launched back in 1995.
Facebook has a potential market in excess of 500 Million users. This means if it can translate all that traffic in to f-commerce customers it will become the biggest B2C commerce site in the world. The big question is just how many of those users will become f-commerce customers?
If take a look at Google’s Nexus One experience from around this time last year we discover that Google managed a 0.2% conversion rate from its attempt to turn its search engine traffic into Nexus One customers.
If we apply that conversion rate to Facebook then we can estimate that only 1.28 Million of their users will become f-commerce regulars.
But we don’t have to be so hypothetical in our calculations because online comparison shopping has been an integral part of the web portal strategy since the birth if the web (e.g. Yahoo! Shopping, Yahoo! Commerce, MSN Shopping (now called Bing Shopping), AOL Shopping and even good old CompuServe offered a shopping platform).
All we need to do is take a look at some of the previous attempts to get an appreciation of just how hard it will be for Facebook to make it big in “Social Shopping”. A good place to start is this slide show published a couple of years ago by Matthieu Dejardins.
Take a quick tour through the slide show and you see that, even with all that online traffic, these shopping comparison portals just don’t scale into anything like China’s TaoBao B2C portal.
“Yahoo! Shopping consistently is one of the most trafficked shopping engines, but merchants should know that while consumers might flock to Yahoo! Shopping, SingleFeed’s stats show that merchants don’t get the traffic and sales that you might expect from such a big name with such high traffic numbers.Comparison Shopping Engines
The simple reality is that although Yahoo! Shopping is a small group that makes a boatload of cash it hasn’t stopped Yahoo! outsourcing the whole operation this month to Pricegrabber.
This suggests that Facebook is entering into the world of the shopping portal just as Yahoo! is rethinking it long-term position in the space. Could be an opportunity for Facebook. Could also be a case of been there, done that, its time to move on for Yahoo!. But the reality is Google and Microsoft are also struggling to make this “world beater” scale.
Some have suggested that -as we have seen with TaoBao – the key differentiator for Facebook may be Face Credits (i.e. the ability to finance growth in the B2C exchange hub). However it needs to be understood that – unlike Facebook – TaoBao is operating in an environment where the Financial Services system is comparatively unsophisticated. Offering a secure and reliable Financial and Payment Service in China is a competitive edge. In the USA and Europe it is a prerequisite for doing business online.
As Elizabeth Knight pointed out a few months back when Australia’s largest shopping mall landlord, Westfield, revealed its master plan to become a cyber landlord.
“As a defensive play it is pretty poor… Indeed the whole concept of a portal or internet aggregator is one that was popular 10 years ago but these days is a bit 2000…. But this is a punt and one worth taking only because there is limited downside.”
The difference of course is Westfield has both a health property portfolio and a lucrative retail rent roll to fall back on if the online business fails to ignite the markets imagination. Facebook? Well I guess they’ll just be left with putting more ads on the menu.
So the question needs to be asked. If not Facebook… Who is in the best position to profit from the explosion in Social Commerce?
I would suggest that it is the mobile handset manufacturers. You only have to look at the run away successes of Apple’s iTunes and App Stores to wonder out loud: If you can do this with virtual goods why not real goods?
Tomi T Ahonen estimates that the number of active iPhone branded smartphones are in use today is 68 million.
That makes the iPhone’s mobile marketplace about the same size as eBay online marketplace.
Add to this figure the iPods and iPads and Tomi estimates the number of iOS units in use today at 127 Million. The question then is how many people have 2 or more of these devices. It is probably fair to suggest the figure is quite high.
If we round the figure down to a 100 Million we still have a fairly healthy global B2C marketplace but it is still a lot smaller than TaoBao’s estimated 370 million+ Chinese users.
So is there any mobile handset manufacturers with an installed users base that could compete with TaoBao today?
Well I estimate there is at least three. Tomi estimates Nokia’s active user base to be about 1.3 Billion. This suggests that Samsung and LG could also have an installed user base big enough to compete with TaoBao.
Nokia also have the payments platform (Think Nokia Money) to compete with TaoBao’s Alipay. The question is are the leading handset manufacturers thinking about owning the core components of the newly emerging mobile commerce value chain or are they happy to settle for just a very small part of it? (i.e. the Handset and the mobile bling)