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Summary:

Last week, investors poured money into ShopIgniter and Milyoni, companies that build Facebook storefronts for merchants and retailers. Many are skeptical about that opportunity, but with thousands of merchants building Facebook stores, it’s worth examining the challenges and what could make those stores effective shopping vehicles.

shoppingcarts

Last week, investors poured money into ShopIgniter ($8 million) and Milyoni ($3 million), two companies that build Facebook storefronts for merchants and retailers. I’m not the only analyst who’s skeptical about that opportunity. Literally thousands of merchants are building Facebook stores, and they’ll have to overcome some serious challenges to make them effective shopping vehicles.

Over 150 big brands have built Facebook stores, meaning apps that can handle transactions rather than just function as marketing brochures or catalogs. Facebook store-builder Payvment claims it has 60,000 stores running in its network of Facebook apps. ShopIgniter, Milyoni, and Payvment compete with a dozen or more other startups that offer white-label e-commerce platforms for Facebook, including UsablenetMoonToastFluid and 8thBridge, which raised $10 million in March. Other companies, such as ShopTab and SortPrice, help retailers integrate Facebook pages to online stores . The space is getting a little crowded.

While a Booz & Co. survey of social network users who shop online implied that 27 percent of them would be interested in buying within a social network, 73 percent wouldn’t. Based on interviews with online retailers, Forrester doesn’t think social networks are very effective at promotion, let alone generating actual sales. What’s more, online shopping is a directed, search-driven activity, and the mall approach of aggregating stores didn’t work for big portals like Yahoo and AOL, even with their powerful promotion capabilities.

Based on his analysis of the psychology of shopping, social psychologist Paul Marsden thinks Facebook stores will be good for impulse buying as well as more-considered purchases that depend on word of mouth, especially for first-time buys in high-risk categories. That makes sense to me for certain product categories where personal experience is highly valued, such as expensive vacation packages and high-end baby carriages for new mothers. I’m less convinced it will outweigh structured comparison searching for financial services or consumer electronics, where exhaustive inventories, “technical” info, price comparison and expert advice should rule. Impulse purchases often require instant gratification, which would seem to point in the direction of digital goods like movies, music and games.

But these tactics could help retailers make their Facebook stores more effective, despite the challenges:

  • In-stream promotion. Facebook lacks a big front-page ad format that could drive new DVD releases or Mother’s Day flower purchases. The closest equivalent is promoting products in the news feed. Sales and group offers might cut through the clutter.
  • Social commerce integration. Facebook says its own Offers will focus on group purchases rather than discounts. Integrating proven social commerce elements like daily deals, flash sales and group buying for fans with the store will be critical.
  • Ties to brick-and-mortar loyalty programs. Retailers should allow points redemption in their Facebook stores and even count Facebook store visits toward check-in deal points.

For more of my thoughts on the challenges facing Facebook stores, read my Weekly Update at GigaOM Pro (subscription required).

Image courtesy of: flickr user Auswandern Malaysia

  1. David, thanks for following our space and for mentioning my company Moontoast. We help our clients sell anything, anywhere, including their Facebook pages both as Tab stores and within the Newsfeeds of their fans (where the entire commerce experience lives within the Newsfeed). Our shareable store technology supports Flash sales and Group Buy programs – so we address your items 1 and 2 above, but we haven’t yet leveraged a points redemption engine (but I believe it would be extremely easy for our clients to use our store data to reward their customers for loyalty shopping or check ins).

    I’m starting to hear and read more analysts who know that, **when done correctly**, social commerce can have a significant impact on the profit of an online retailer because it can be such a low cost of significant revenue. Part of my team’s mission is to educate our prospects on why a Newsfeed store is so important but, once they understand, prospective clients are generally thrilled to see that creating a promotional store to their opt-in fan base is about as easy as creating and executing an email campaign to their opt-in house list.

    Again, thank you for following and writing about our space. As we move through summer and back to school promotions start to appear again, I hope that Moontoast provides you with some great and winning (I believe I can still use that word without violating a Charlie Sheen trademark?) examples of both Facebook commerce and broader social commerce programs to help provide you with more to write about as we head towards Q4 holiday shopping.

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    1. Hi Jeff
      I am trying to build a similar concept in India. Would like to get in touch with you to understand how we can collaborate on this. If you want you can email me at biyanip at gmail

      Thanks
      Pravesh

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  2. Hi David, an interesting article. Unfortunately commentators who write negatively about this space routinely miss two fundamental pieces of research / analysis

    1. They never talk to businesses that actually operate in the space and have the data. They rely on research and theory! VendorShop powers thousands of store worldwide and we have an abundance of data to enlighten the commentary.

    2. They forget that this is just a re-run of e-commerce arguements from 10 or 15 years ago! Remember all the commentators and research that said no-one would buy from a web store!

    Jeff eludes to a critical point about the difference between stores that are successful and those that aren’t … shopping on facebook is new, so most merchants are still getting to grips with how to be successful. We also work with our merchants to give them the knowledge and the tools to make their store go viral and sales along with it.

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