Weekly Update

Social commerce remains a licensing play

One theme attached to Facebook’s IPO was the company’s need for revenue diversification. Advertising and virtual goods pay Facebook’s bills, but delivering on the promise of social commerce – connecting the dots between content, curation, communications and commerce – would be golden. That’s something Facebook has failed to do so far. Meanwhile, a startup like FindTheBest is tapping an established social commerce revenue stream while Pinterest raised $100 million on e-commerce hopes.

Three main categories of services drive social commerce: 1) reviews and recommendations, 2) group buying and daily deals and 3) shopping communities. Facebook’s strategy is to use its platform to enable developers to weave all three together. But, while Likes are ubiquitous and Facebook is adding shopping-friendly “verbs” to its Open Graph, its own deals and coupons Offers product is off to a sluggish start and retailers and merchants have seen little success for their Facebook storefronts.

Beyond impulse purchases

Online commerce is largely directed shopping, playing off the web’s strength in search and price transparency. But social commerce – especially when it’s delivered within the confines of a social network – seems better suited to casual impulse purchases. Two areas where social technologies could add fuel for e-commerce are:

Potential players

FindTheBest began life as a consumer site, but increasingly positions its vertical comparison engines and aggregated and curated reviews as “content” for publishers. The company does revenue-sharing deals – from advertising, affiliate fees and lead generation – rather than pay-upfront licensing. That’s an intriguing model, if a little far removed from where the transaction occurs, and FindTheBest has signed 30 deals with publisher sites this quarter.

In contrast, even though the lead funder behind Pinterest’s latest round was the Japanese e-commerce holding company Rakuten, the transaction connection still seems a little whimsical. Content sites and some merchants show compelling anecdotal evidence that Pinterest can drive traffic, but they’re sketchy on conversion data. It would be wise for Pinterest to tap into this phenomenon by charging for marketing pages or collecting affiliate fees before it leaves too much money on the table.

Pinterest might turn out to be better at delivering licensable technologies than e-commerce transactions. In fact, that may be Facebook’s role as well. Right now, social commerce feels like a technology platform play rather than a retail business. According to our GigaOM Pro 1Q12 U.S. consumer survey, only 7 percent of social network users regularly shop on social networks. That’s a condition likely to continue for 24 to 36 months at least.

Question of the week

When will social commerce actually drive significant transactions?