Successful social commerce platforms will not compete with incumbent marketplaces

As social media platforms like Instagram and Pinterest finally expand into social commerce, much has been said of the looming threat these platforms present to the likes of Amazon and eBay. An examination of how these social platforms differ from the incumbent marketplaces suggests that social commerce is a bigger threat to traditional e-commerce platforms than it is to Amazon or eBay.

Comparing Instagram to Amazon

The user journey towards a successful transaction on Instagram is very different from Amazon. On Amazon, shoppers start with a need and Amazon is heavily optimised to fulfil this need. This is evident by a few key traits of the marketplace:

• Transactions usually begin with the intent to purchase and are facilitated by search—from a user experience perspective, Amazon is essentially a search engine for shopping.
• Amazon shows a single product listing for each unique product. If multiple sellers are selling the same product, Amazon will consolidate these listings into a single product page. While users can technically choose which seller they would like to purchase from, Amazon awards the default option (the buy box) to a single seller based on several factors, including price, delivery times, defect rates, refund rates, and more. This mechanism of prioritising identical products by price and delivery times, alongside their search engine which returns results prioritised by similar factors, essentially commoditises much of what is sold on the marketplace.
• Outside of optimising the factors prioritised by Amazon’s search engine and buy box, marketing on Amazon is enabled by traditional cost-per-click search engine advertising, allowing sellers to pay to have their products prioritised in search results.

Instagram is radically different:

• Transactions are typically reactive to posts and ads surfaced directly in the feed of the shopper. The shopper does not need to have the intent to purchase a specific product to be coaxed into a purchase. Shoppers follow brands they may want to purchase from someday and wait until a desirable product finds them.
• Products are primarily differentiated by the strength of their brand, with convenience factors like price, delivery times and defect rates having much less influence on sales conversions.
• On top of traditional advertising, brands pay for endorsements from influential users, adding to the power of the feed as a way to prompt reactive purchase decisions.

While these marketplaces may sell similar categories of products (i.e., you can purchase socks on both Instagram and Amazon), very different types of sellers and products thrive within each of these models. Put simply, while Instagram almost exclusively rewards sellers who have a strong brand presence, Amazon is the go-to place for the goods differentiated by everything but the brand. Amazon fulfils the needs of shoppers looking for the most practical way to fill a need, while Instagram is about engaging with brands that shoppers love.

How will social commerce challenge retail?

While unlikely to threaten established marketplaces, social commerce is not simply filling an unoccupied space in the retail ecosystem. Today, shoppers in the west engage with brands through e-commerce websites and retail stores. Over time, established brands will rely more heavily on making sales through social commerce platforms than they will their dedicated e-commerce websites.

More interesting than the impact on established brands, though, will be how social commerce changes the way new businesses launch their brands. In a world where the best way to find an audience is through social media, and social platforms can facilitate any transactions end-to-end, there is diminishing value in establishing a standalone online store.

4 April, 2020