The Social Commerce Opportunity

January 2020

Social media has evolved to become a space outside of the confinement of communication, content sharing and information consumption. It’s grown into a medium that fully serves business needs: from advertising to marketing to online sales.

New features and functionalities that allow to complete online purchases within the ecosystem of a social media platform are paramount in the development of these new social marketplaces and in the definition of social commerce.

Social commerce must be viewed in conjunction with omni-channel retail strategies. Online shoppers are increasing their use of channels when looking for and buying products online. Social channels can be used as a complement to other channels to provide seamless and innovative consumer journey experiences.

Some enabling factors are identified in the development of social commerce:

  • The growth of mobile browsing and mobile payments:
    • The rise of mobile shopping and smartphone ownership is a contributing factor to social commerce. Roughly half of online purchases are now completed on mobile and smartphone ownership has increased by 10% over the past 3 years. This indicates that mobile phones have become the medium of choice in the online consumer journey.
  • The ‘anytime/anywhere’ accessibility of social channels through mobile devices and wearables:
    •  Although social media channels are still far from their potential when it comes to closing the loop in the consumer journey, they are an important part of the product discovery phase.
    • In fact, 3 in 10 shoppers mention researching products online as a main reason for the use of social media channels.
  • The influencer wave:
    • Influencer marketing can be a great way for brands to reach consumers as nearly 1 in 5 internet users say they use social media to follow their favorite celebrities.
    • 14% of digital consumers find out about new brands through celebrity endorsement.
    • Instagram in particular hosted the biggest share of influencers’ campaigns in 2018.
  • The emergence of mobile-first and digitally forward-looking markets:
    • Markets like APAC who adopted the use of technology at a later stage, better incorporated the use of mobile technologies early on, making social media platforms heavily rooted in people’s daily lives and part of their online ecosystem.
    • Consumer journeys have been shaped by the early adoption of mobile technologies in these markets as illustrated through the journey representation below:

Deloitte, 2019. 2019 Retail Outlook, Transition Ahead.


APAC 

Messaging apps that have emerged in this region are now deeply rooted in the daily lives of online users. Specifically, the success of WeChat and Alibaba’s ecosystem have introduced all the relevant tools to create a seamless online shopping journey for the user.

1 in 2 mobile users in China have either used Alipay or WeChat Pay to complete a transaction for an item online on their phone. These services allow us to complete multiple activities through smart phones like paying for restaurant bills, taxi rides, online or offline shopping and are therefore entrenched in people’s daily lives.

The fact these payments systems are owned by social media platforms in China is not random and has led to the proliferation of social commerce. WeChat offers the chance to create dedicated online stores for businesses that can be followed / shopped on by its members without ever abandoning the platform.

This is something that is not quite yet available in Western markets, although established players like Instagram are investing in technology enhancements to incorporate shopping journeys within one ecosystem.

INSTAGRAM & OTHER SOCIAL PLAYERS

People spend on average 3.3 hours/day on their smartphones and 2.4 hours on social media platforms. 78% of smartphone users rely on Facebook as a source of inspiration to discover new products. Roughly 60% of them leverage Instagram and Pinterest for discovering new products.

Instagram launched ‘Checkout’ in March 2019 for its US market to leverage the 130m instagram monthly taps aimed at finding out more about product posts. The objective being to create a seamless shopping experience without having to abandon the platform and rather transforming it into an online store. This functionality is only still available in the US and likely a tool to benefit specific brands:

  • Established digital-native brands with a lot of social traffic
  • Ecommerce newbies and early-stage online brands
  • Brands with a limited product range where the product visibility on social media would be key, but also manageable through product posts

Pinterest also introduced a dedicated visual search tool called Lens in September 2019 to surface shoppable Pins and allow users to be redirected to specific checkout pages on branded sites. Capitalizing on this innovation, a ‘Shop the Look’ Ad proposition was released for merchants to be able to tag multiple items through a single image. This visual search innovation is able to identify more than 2.5 billion objects across home and fashion Pins, supporting merchants’ visibility to make sure their products are surfaced.

Pinterest is looking to leverage the strong impact of visual aids in the online consumer journey as in fact visual search has turned into a determinant factor when shopping online:

  • When shopping online for apparel or furniture, over 85% of online consumers put more importance on visual information than text.
  • 55% of consumers say that visual search is essential in developing their taste and style.
  • 49% of Pinners say that they develop a better relationship with brands they love through visual search.
  • 61% of consumers say that visual search elevates their experience when browsing in shops.

Snapchat also gave select top-tier influencers a “shop” button in 2019, through which influencers like Kylie Jenner and Kim Kardashian West were able to sell products from their respective brands and quite successfully so.

TikTok doesn’t have in-app checkout yet, but the fast-growing short-format video app has already started to test features that let influencers link directly to external online shopping websites.

Depop, the London-based tech startup that operates an app to allow sellers to list their products for sale on social media feeds, already raised another $62M in 2019 to expand its presence in the US and invest into new tech. On average, Depop users collectively follow and message each other 85 million times each month, giving rise to a substantial commerce opportunity. This rapid uptake and usage of the app has generated 13 million users, a revenue growth of 100% YoY a gross merchandise value of more than $500 million since inception.  Starting off as a way to declutter one’s closet, it’s become a more serious business proposition for some, with top sellers known to clear on average $100,000 annually.

THE OPPORTUNITY AHEAD

The line between ecommerce and social media is becoming increasingly thinner as social media platforms are investing in new technology to make the online consumer journey as seamless as possible on their platforms.

The amount of time people spend on these platforms, especially Gen-Z, make them an uncontested growing channel in ecommerce and one of the upcoming trends for the years ahead. With the emergence of omni-channel and the need to reach online customers at every touch point of their journey, mobile devices and applications require new marketing models and the importance of ‘social commerce’ becomes evident for forward-thinking ecommerce brands.
Much success for social commerce has been driven by a shift in preference of Gen-Z and Millennials towards short-form video and highly visual content. 91% of consumers prefer interactive or visual content, such as video, over conventional text. This trend is complemented by new technology around mobile applications and video streaming services: from progressive web applications (PWA) to 5G.

Online consumers perform multiple searches before finally engaging with a brand’s website. Social commerce solves this problem by directly connecting social media audiences to brands.

Investments in technology innovation such as Instagram Checkout, Pinterest shoppable Pins, Tiktok direct links from videos to online retailers are all proof of continuous investments to provide a seamless and engaging online shopping experience for social media users. Facebook development of a new cryptocurrency may not actually be random in the willingness to provide a full ecommerce ecosystem, inclusive of payment methods.

Despite social commerce being still emergent in Western markets and consumers being skeptical about security on these platforms, the growth of mobile penetration and the adoption of social media by newer generations are all factors that cannot be overlooked. Technology investments towards social commerce and the success observed in newer economies like APAC are additional confirmation that the trend cannot be ignored.