Is Facebook an Ecommerce Powerhouse?

The simple answer right now is no.  Commerce just is not a focus for the company at the moment. I’m taking Mark Zuckerburg for his word, looking at data the company has released, and reading a couple tea leaves:

1. From Q4 2012 Results (Seeking Alpha Transcript):

This past quarter, payments and other revenue also included around $5 million from sources outside of games, primarily user promoted posts and to a lesser extent from our new Gifts product. – Mark Zuckerburg

Aside from ads, I do want to temper near-term expectations a little bit on revenue lines coming from other areas, like Gifts or Graph Search. I think these can be big opportunities for us long-term, but for the foreseeable future, the most important thing for us is to continue building out great consumer experiences around these products. We’re going to invest in these, but for the next year at least, our work around ads will have by far the biggest impact on our business. – Mark Zuckerburg

Second question on Gifts, I think that I really can just reiterate what Mark said earlier, which is that the focus for right now is trying to figure out what the right product is. We think Gifts if done well can be a very natural and positive part of the Facebook experience. So, for example, when you’re wishing someone a Happy Birthday, the ability to send a gift along with that, and just figuring out how the product needs to work, what the interfaces are, what the selection of products is, how the payment process works? All of that stuff is what we’re going to have to optimize to make the product grow as you’re asking, and we’re going to try to do that and that will be something that we work on in 2013. – David Ebersman, CFO in response to a question from Jordan Rohan of Stifel, Nicolaus & CO.

In other words, don’t expect much ecommerce activity anytime soon.

2. From Q1 2013 Results (Seeking Alpha Transcript)

So I said the whole line grew by 15%. Games represented 12% growth. So the increment in between the 12% and the 15% came primarily from user promoted posts, which is a product we launched last year to a lesser degree also from our gifts product. – David Ebersman – CFO, in response to a question from Daniel Ernst of Hudson Square Research

Again, not much incremental growth due to ecommerce.

3. Few ecommerce veterans.

Facebook just doesn’t have ecommerce expertise. There are glimmers of experience with mid-level workers like Jared Morgenstern, Yub.com Founder or Deborah Liu, an eBay/PayPal veteran in the mix. Dan Rose was a long time Amazonian, but he doesn’t seem focused exclusively on ecommerce for Facebook. There are plenty of other former Amazon employees at Facebook, but again, most seem to be working on non-commerce related projects. Then there’s the Karma team, acquired through the FB acquisition. The Karma team seems to have enabled Facebook to launch Facebook Gifts. Great. But the founders of Karma were previously the founders of TapJoy. That makes them mobile/advertising experts, not necessarily commerce/retail experts.

4. Facebook users on average spent only $0.03 on Facebook Gifts in Q4.

OK, this is not the real number. In fact, it’s based on such bad data that you might want to skip this point, but if Facebook isn’t releasing data about Facebook Gifts, I have to try to get at it some through other means. So here goes: A former Karma employee, Jen You, whose profile on LinkedIn says she is currently Strategic Partnerships & Merchandising Manager (Facebook Commerce/Gifts) has the following in her profile regarding Facebook Gifts: Scaled product to 160+ million users in 7 months…” That 160+ million number is a bad starting point for a lot of reasons, but mainly because 1) we don’t know what time period Jen is referring to and 2) Facebook Gifts is now in wide release. But let’s ignore those two facts for a second. Basically, I don’t want to use Facebook’s entire user base in a calculation about Facebook Gifts because I don’t think everyone got access to it or even noticed it during Q4 2012, or more specifically, during the holiday shopping season. Therefore, Jen’s 160M number seems a bit better. From point 1 above, Facebook says it generated $5 million from Facebook Gifts in Q4. With 160M users, this means that the Facebook gifts generated $0.03 per user. Probably not the number anyone involved with commerce at Facebook is particularly proud of right now.

NOTE: As I said above, $0.03/user is not a number you should trust or quote, but it’s a starting point to consider.

4. Once type of Facebook commerce (F-commerce) was DOA, a different type lives on.

Type 1 (DOA): When I ran SingleFeed, we recognized that merchants were eager to launch a Facebook store or sell their products through Facebook, so we launched a tool to allow a merchant to display its inventory on a Facebook page and then have the consumer click through to a website to complete the transaction. Other companies like Payvment argued that the transaction had to take place on Facebook and therefore added a payments platform to the mix. Payvment was really good at talking about big adoption numbers: 150K+ merchants with millions of products, but if you dug into the numbers, you knew merchants were not generating real revenue through the platform. Payvement was then acquired by Intuit and shut down the Facebook selling service, sending it’s Facebook selling horde to a competitor. If Payvment merchants were actually getting customers to transact through the platform, why would Intuit shut down the service? As Chris Dixon said in early 2012, “F-commrece failed”. not surprising. Facebook is like Starbucks where everyone hangs out but no one ever buys anything.”

Type 2 (lives on): While adoption by the Internet Retailer 100 is anemic, Facebook Connect is still used by some innovative retailers to enable smart social commerce functionality. Think Ticketmaster. Early on (they’ve since developed further Facebook integrations) the company said it was “generating an extra $5 in ticket sales for every “I’m going” message generated from the site and posted on Facebook.” Allowing users to log into an ecommerce site through Facebook will become more and more pervasive as companies figure out how to take advantage of Facebook’s data in interesting ways.

5. Just because I Like a product, that doesn’t mean my friends will buy the product.

Facebook might be driving traffic to retailers, but those consumers are not converting. When was the last time you clicked through from your friend’s Like and purchased something? I’ve seen data on this, but I can’t share it at the moment (working on it).

6. Facebook’s commerce page has not been updated in over a month.

While Facebook + Commerce has lots of Likes and some discussion, the last post was April 3rd. And the one before that was from February. Facebook + Commerce is just not a focus.

7. Not hiring

Facebook only has one job open on the Gifts team. There might be some retail related jobs available in other departments, but that just shows that Facebook is not attacking retail/ecommerce head on.

Conclusion

Facebook is NOT an ecommerce powerhouse.
Could it be? Yes!

How? I’ll write another post digging into this, but some things to consider:

-The company is focusing on smarter advertising capabilities (think better targeting based off of a treasure trove of internal and external data), which will benefit all companies, retailers included. So pay attention to all those ads you see.

-There are a lot of experiments being run on and off of Facebook by retailers. The Michael Kors story is worth noting:

Michael Kors has used Facebook to launch a line of new sneakers. Many of the sneakers sold out online and in new stores, and they achieved a 60 point increase in awareness of the new sneakers among the 36 million people that the campaign reached on Facebook. That’s the equivalent of 5.8 million new people in the brand’s target audience who are now aware of the new line of shoes.