With Facebook unable to charge users for using the site, the social network now has an increased focus on advertising and converting its users into brand’s customers. Richard Britton, managing director, CloudSense, explains why this is good news for online retailers.
Now that the dust has settled after Facebook’s IPO, we can look past the hype which surrounded the company’s launch on the Nasdaq. Against a backdrop of so much frenzied speculation, it was almost inevitable that the company’s launch on the Nasdaq would fail to meet expectations. The value of Facebook’s shares fell sharply following the IPO, from an opening price of $38 to a low of $25.52.
Analysts and commentators speculated that the cause of this drop in value was a lack of confidence in Facebook’s strategy, particularly around its seeming inability to monetise its user base. Facebook’s real value rests with its 900 million users worldwide, but since there is no charge to use the platform Facebook relies largely on advertising to generate income. In 2011, 85 percent of Facebook’s revenue was generated through advertising. This strategy was called into question by some commentators, especially when General Motors publically doubted the efficacy of Facebook ads when it cancelled a planned multi-million dollar campaign on the site.
Even more worrying was Facebook’s admission that it had no way to monetise users who chose to access the site via a mobile device. This group makes up over 50 percent of Facebook’s user base. But because Facebook can not serve ads to mobile users it is missing out on huge chunks of potential revenue.
Good news for retailers
With Facebook unable to charge users for using the site, it is clear that an increased focus on advertising and an improved strategy are the way forward for the site. The good news for retailers is that this will mean more effective advertising, and more opportunities for brands to convert Facebook users into customers. To make Facebook more profitable, first the site has to prove to brands that it’s worth their investment.
The good news for retailers is that Facebook is planning some big changes which will make the site a much more attractive prospect to brands. But advertisers want to see their investment reflected in sales, so Facebook will need to show its worth on both fronts. Unsurprisingly, Facebook has recently announced plans which will enable it to do just that.
What next for Facebook?
Facebook Exchange is a new system which will allow brands to bid in real-time to show their ads to interested users. Facebook’s technology will enable it to track users’ web activity outside the site, and feed this back to companies who can then use Facebook to advertise related products which will interest that consumer based on their browsing. This system would make advertising much more personal and targeted, and therefore more successful and profitable for both Facebook and brands. The ability to show ads which are definitely of interest to a consumer increases the chance of user interacting with the ad, bringing them a step closer to the all important purchase.
Another planned Facebook innovation uncovered recently is a new “want” button. The site is developing this feature which would allow users to create a virtual wish list on Facebook, and “wants” are likely to be viewable by users’ friends to increase visibility of products and give them a word-of-mouth boost among groups of friends. The other important element is that a want button would give Facebook another valuable stack of data around its users’ planned purchases which it could then exploit for advertising revenue, as well as allowing brands a simple method to integrate more fully with Facebook.
The want button is yet to be announced by Facebook and was discovered by a developer who examined the latest code for planned updates. But one thing that isn’t a secret is Facebook’s creation of an app infrastructure, which it claims will allow brands to integrate more deeply with the Facebook ecosystem. The goal for Facebook here is revenue, and the most effective way for Facebook to unlock revenue is by doing the same for brands and taking a percentage of their sales.
F-commerce
For this reason, Facebook is determined to make F-commerce work despite that fact that it has not fully realised its potential to date. Brands will be interested in F-commerce when they can see that it removes barriers to purchase because, the easier it is for a customer to buy a product, the more likely it is that they will complete the transaction. Each extra step makes a conversion less likely, so as Facebook steps up its advertising proposition to brands then the goal must be for consumers to be able to make purchases without leaving the site. A quick, easy and secure purchasing process has to be the goal so that brands and Facebook can gain maximum value from their symbiotic relationship.
F-commerce joins the high street, mobile apps and online sites to purchase goods as another channel to purchase goods. With mobile consumers spending more time on Facebook compared to any other website, there is a clear advantage for those businesses that can successfully integrate social commerce into business processes.
Sceptics
But some commentators argue that Facebook is inherently unsuited to commerce because of the nature of its users’ relationship with the platform. In simple terms, their view is that users don’t go to Facebook to buy goods and services. Purchasing is usually the result of an engaged decision-making process, quite unlike the casual browsing exhibited by most Facebook users. As a result, some claim Facebook advertising is doomed to be ineffective.
The reality is that in order to make F-commerce effective, brands must change the way in which they speak to users. Some even claim that General Motors failed with Facebook advertising because it wasn’t using the right methods or types of content. We can expect to see increasing use of techniques such as gamification in the near future as brands learn how to match ad strategies more closely to the platform. Providing the very content which draws users to Facebook, such as games, will increase engagement and bring consumers closer to conversions.
One firm which has become an expert in connecting brands with consumers via social media is Buddy Media, recently bought by Salesforce.com for around $800m. The two companies are highly complementary, and the purchase price gives a good indication of the perceived potential for social media as an advertising platform.
Multi-channel
However, for businesses to take advantage of any level of Facebook’s new ad offering and truly incorporate it into the multi-channel experience, most will need to remove the silos between business systems to deliver a more granular view of the customer. An integrated system needs to capture everything from sales lead to fulfillment, and highlight customers’ preferred channels of engagement from previous interactions, as well as any feedback they’ve provided and their purchasing history. This enables businesses to better understand their customers by providing a single customer view, and this in itself enables brands to better target customers via Facebook.
Despite its modest beginnings, analysts have predicted that F-commerce will succeed in a big way. Mike Fauscette of technology analyst house IDC suggested that in the next three to five years, between 10 and 15 percent of consumer spending in developed countries could be via sites such as Facebook. The multi-channel customer base exists and is expanding, so businesses need to ensure that their processes can capture multi-channel customers and their data in order to engage these customers in the long term.
Facebook + retail = future
Now that Facebook has shareholders, and plenty of them, the company will face new and intense pressure to grow its revenue. As such, since its IPO Facebook has an added incentive for F-commerce to succeed. This is good news for brands and marketers who can exploit a new and expanding channel to grow their sales, but in order to truly capitalise on the multi-channel opportunity they must ensure that their back office systems are optimised to cope. Once implemented, the right back office solutions will smooth the customer purchasing experience and offer firms invaluable data and a single customer view across multiple channels. The list of benefits is compelling, and retailers should future-proof their back office systems today so that they don’t miss out on this multi-channel opportunity.
By Richard Britton
Managing director
CloudSense
http://www.cloudsense.com/
