Saturday, February 18, 2012

How Facebook Can Improve Upon It's "F" Grade in F-Commerce

A lot of attention is being given to the failure of so-called "F-Commerce." Several brands, including JCPenney, Gap and Nordstrom, have launched and already shuttered Facebook stores after seeing disappointing sales on the Facebook platform.

Retailers launched these Facebook stores with high hopes because, in the words of a Facebook exec, “This is where people are hanging out.” Yes, people hang out on Facebook--Americans spend 100,000 years on the social network every month--but do people want to shop there? Some say no--my former Forrester peer, Sucharita Mulpuru, noted, “It was like trying to sell stuff to people while they’re hanging out with their friends at the bar.” 

I think that is too easy an answer; after all, replace "bar" with "mall" and that statement ceases to make any sense. Malls exist nowadays not merely to give consumers a place to buy products but to provide a physical space for us to get together, be social and shop together. Why shouldn't Facebook be a virtual space for the same sorts of activities that combine social and commerce?

The blame for the failure of the first wave of F-Commerce lies with both the retailers and Facebook. Retailers and the social network seemed to have drawn a straight and direct line between "people spend time here" and "people will buy here." They were wrong--as Sucharita points out, there are venues that are conducive to shopping and others that are not, at least not yet. 

Take the web, for example. There was a time we did not buy things online, even though ecommerce functionality was readily available. A decade ago, the population of web users was exploding and brands were eager to reach this online market directly, yet few consumers were willing to complete transactions via the Internet. Despite the ecommerce hype before and immediately after the dot-com bubble crash, barely 1% of retail sales in US were made online in 2002

Then something changed--the Web went from being a place where people were suspicious of entering their credit card numbers to a place where today most of us store our credit card numbers on e-retailing sites like Amazon. Consumer attitudes changed, and so did online sales. In the last decade, the percent of total US retail that occurs online has grown almost fourfold, enough to change the face of retailing and put some retailing powerhouses out of business.

The Web has become a venue for commerce, so why not Facebook? That change will come, but first both retailers and Facebook must work harder to evolve the channel and overcome consumer doubt.

Facebook can become central to the growth of social commerce, but only if it works much harder to earn consumer trust. It does not have to look far for the model--Facebook can steal from the roadmap used by ecommerce sites over the past fifteen years:

  • Make Facebook more secure: The first order of business is simply to make Facebook more secure. Just three months ago, Facebook made headlines when a widespread spam attack blanketed the social network with inappropriate images. Occurrences like this make it more difficult for Facebook (or retailers on Facebook) to earn trust on the platform.
  • Work security and trust into the Facebook narrative: Ask the average consumer why they trust Amazon, and they may speak about the multiple levels of authentication, the icon that tells them a page is secure, the Amazon Bill of Rights and Amazon's easy return policy. Now ask people why they should trust commerce on Facebook... (insert cricket noise here). The social network must do more to ensure it is apparent Facebook is living up to Mark Zuckerberg's promise to "protect you and your information better than any other company in the world."
  • Put the user first: Facebook needs to do more to put the needs of users first. For example, when it implemented Sponsored Stories, Facebook did not build into the system a method for alerting consumers or asking permission to turn their posts into ads. Some feel this violates users' privacy, but even if this process works within Facebook's terms and conditions, it reveals a preference to make the social network easier for advertisers and not more trustworthy for users.
  • Do more to fight spam and phishing: Can you imagine entering your credit card number into a Web storefront riddled with spam? Neither can I, which is why Facebook has to become far more adept at fighting spam. As for phishing, it is far too easy for a scam artist to steal code and design elements from a retailers' site, launch a look-alike fan page and begin to collect passwords and other personally identifiable information. Until Facebook is less caveat emptor, consumers will carpe diem in other commerce channels.
  • Live up to promises with fewer unpleasant surprises: The social network has improved on the unpleasant surprises it springs on its users with unanticipated updates to policies and settings, but waves of such experiences have not encouraged consumer trust. Moreover, the new flood of "frictionless sharing" applications have created more unpleasant surprises--people were disappointed to learn that friends were alerted when they merely read an article on Yahoo! or listened to a tune on Spotify. Frictionless sharing can be a vital part of the social fabric, but only if Facebook informs consumers, leaves them in control and avoids surprises. The fact people still do not know what to expect from Facebook and its app developers is a problem that undermines trust.
The problem with F-Commerce is not Facebook's alone. The Facebook storefronts that were shuttered recently lacked innovation. Much like brochureware sites that attempted to take the paradigm of print and paste it into a browser in the early days of the Web, the F-Commerce storefronts were nothing more than typical ecommerce operations pasted into a Facebook tab. Wade Gerten, CEO of a social commerce developer, said it best: “It was basically just another place to shop for all the stuff already available on the retailer websites.”

The failed F-Commerce shops all treated social commerce as if we shopped alone in abandoned malls--they brought the commerce but not the social. Where was cobrowsing? Asking friends for opinions? Sharing finds? Aggregating friends' and strangers' ratings and reviews? Chatting about products in real time? Coordinating shopping lists and purchases? A "like" button next to a product is more of an invitation to advertise and not an invitation to share enthusiasm, tastes and special shopping finds. Just look at Pinterest to see how consumers can be engaged in sharing products in a way that feels authentic and not spammy.

Recreating 2005-style ecommerce functionality on 2012 Facebook does not make shopping social. I am confident shopping online will get more social and Facebook will play a role in social commerce, but not until Facebook earns a great deal more trust and retailers demonstrate considerably more creativity around online social commerce. 


Anonymous said...

Thanks for the great analysis, Augie. I keep forgetting that Facebook is designed for advertisers & merchants, not users. (He said as he clicked on his news feed for the hundredth time to get it to sort properly.)

It'll be interesting to see the post-IPO Facebook grow up and put on its business clothes.

Augie Ray said...

Nords, I'm not sure I'd go so far as to say Facebook is designed for advertisers and merchants. I think the adoption rate by users speaks for itself--kids are decreasing their use of email because of Facebook, Twitter and texting. To me, that means they designed a great user-friendly communication medium.

The question is, now that Facebook has a very firm base of addicted users, what comes next? Do they work harder at monetizing the platform than they do at earning trust? While that will help in the short run, that's the wrong long-term play. Some feel the new IPO may bring intense pressure to increase revenue rapidly, and there is some sign of this (such as additional ads on the right side of screens and new ads appearing beside pictures.)

On the other hand, I think there's reason to believe Facebook could also tell Wall Street to take a hike and take a decidedly slower approach. When you see how much control Mark Zuckerberg retains after the IPO, it demonstrates to me that he wishes to remain true to his vision for the social network.

So, it will be interesting to see the battle that develops for the heart and soul of Facebook. One only has to look at MySpace for a cautionary tale of worrying too much about short term ROI. MySpace got huge, stopped innovating, and started watching the money roll in... until Facebook came along and ate its lunch.

My prediction is that Facebook will walk the fine line between user-centricity and supporting revenue and profitability in a smart way. But it will take great leadership to keep a rapidly growing and hungry firm aligned on the mission!

Ari Herzog said...

And the correlation between declining Facebook commerce and Facebook brand pages? Is there something there, too? Anyone can like a page; it takes a fraction of a second. Once that occurs, though, what's next? Usually nothing. Usually that person rarely re-visits the page and its updates, limited to once a day if that, are never seen.

Perhaps the resurgence of this F-Commerce will appear with a different way of understanding the power of the update and the importance of frequency. If more users who like a page see its updates, then maybe the call to action of clicking a link in an update to buy a purse will occur more?

Augie Ray said...

Now you're really speaking my language, Ari. Brands fail to realize that getting a disinterested party to "friend" them does NOTHING--low EdgeRank means no communications never escape from the brand wall (which few visit) to the users' newsfeeds.

I don't believe there is a limit of one post per brand per day, is there? At USAA, we post four times a day, and we're quite pleased (but hope to improve upon) the number of "people reached." Our Edge Rank is, we believe, higher than other financial institutions. (One rule of thumb we use is to divide the number "talking about this" by the number who "like this.")

Anonymous said...

You make a good cases that a bunch of stuff needs to be fixed before Facebook can be a commerce destination.

You don't make an effective case that once this stuff is fixed, Facebook will actually be a natural place to do commerce.

Augie Ray said...

Thanks Josh. I appreciate the comment and the challenge.

I'm not sure you're asking for something that is possible. Proving now that Facebook will be destination for commerce would be like proving the Internet would be a destination for commerce in 2000 as and other high-profile retail startups were crashing to earth. You don't look for the signs so much as evaluate age-old human behavior, business models and the trends in behaviors and technology.

Old behavior: Shopping is a social activity, particularly for women. (Facebook is a social channel.)

Old behavior: The opinions of friends and family (and strangers) are trusted sources of information in purchase behaviors.

Trend: Facebook is still growing and commands 100,000 hours of Americans time a month.

Trend: People are growing more comfortable sharing in the social channel.

Trend: New sharing economy models are growing--everything from car sharing to P2P lending (which is growing 100 to 200% per year on LendingClub and Prosper.)

Motivation: Retailers recognize want to be where consumers are (see Facebook trend above). They’ve already shown an interest in commerce on Facebook.

Motivation: Facebook wants to build a more diverse revenue model. Facebook has credits. (Facebook is likely to want a piece of the commerce pie.)

Everyone can draw their own conclusions, but for me it’s hard to escape that a social channel were people spend time and both retailers and Facebook want to make money will evolve into a commerce channel.