August 9th, 2011 by Elan Sherbill
Today we’re bringing you a new series in Building Keystones called “Choose Your Keystone.” We will present opposing views on relevant e-commerce topics with the goal of prompting intelligent discussion and debate. These posts will help you critically analyze different sides of a topic, and decide which practice is best for your business.
This week’s topic: should digital product sellers make significant investments in social commerce right now?
Craig’s View: Embrace social commerce now
As technology has evolved, so has communication in the marketplace. From the early days of email and instant messaging to the world of social media, new ways for individuals and businesses to interact are constantly emerging.
The next stage in this evolution of interaction is “social commerce”. Defined as the use of social media to assist in the buying and selling of products and services, social commerce presents new opportunities for digital vendors to increase their e-commerce revenues.
With millions already using sites like Twitter, Facebook and Linkedin, these social media giants continue to display astronomical growth. Facebook continues to post big user gains in developing nations such as Brazil and India. We’ve also witnessed an expansion of the number of services offered by these sites. More services means more time spent on the sites and more opportunities for e-tailers to market their products to customers. Worldwide social commerce revenues are expected to skyrocket in the next five years, with an estimated 93.4 percent annual growth rate.
Digital products may be the most natural fit for companies selling via social commerce. Social media users are more comfortable with the concept of purchasing a digital product online, paying with a web-friendly payment method, and receiving their product in the form of a digital download or web service. With the ability to promote, share and discuss your products and services, social media customers can serve as new marketing channels.
It is important to keep in mind that your competitors are probably already using social media to promote their brands and communicate with customers. While some companies think of social media strictly from a marketing perspective, more and more businesses are using social channels to drive direct sales with Facebook stores or by announcing new products and promotions through LinkedIn and Twitter.
The costs to enter the social commerce environment are relatively low, and while it’s important to avoid a half-hearted approach to this new channel, nearly any business can find the personnel and resources to run a successful social commerce campaign.
Keystone: Nearly any digital seller can benefit from investments in social commerce. Failure to act on this opportunity will leave your business at great risk of losing customers to more social-savvy competition.
Elan’s View: Take a wait-and-see approach
Online vendors should take a “wait and see” approach before making heavy investments in social commerce. Social commerce makes up only a tiny fraction of global e-commerce revenue and the long term viability of social media as a vehicle to drive direct sales is still in doubt.
While user counts are impressive, the actual revenue generated through social commerce is still relatively low. “Nearly 60 percent of retailers agree that the returns on social marketing efforts are unclear,” according to Forrester’s eBusiness Professional, Sucharita Malpuru. Perhaps even more shocking, “only 7 percent of retailers say it’s an effective customer acquisition source.” It’s clear that many businesses are doubtful about social commerce as a legitimate sales and marketing channel.
Another reason to be skeptical of social commerce is the increase of aggressive discounting and special promotions. If your deal isn’t aggressive enough, you can lose customers in a heartbeat. This has created an almost perverse incentive for online sellers to drastically discount their product, sometimes to the point where they can barely make a profit. There is now strong evidence suggesting that the primary reason customers choose to “friend” a brand is to gain access to exclusive deals and offers.
Another major weakness in the social commerce model is the high level of risk that retailers take when they invest in social media activities. Social Commerce risk manifests itself in two ways:
- Damage to your brand image – If you make mistakes as a company it can be magnified exponentially with social media. For example, Redner Group, a PR firm specializing in video games, tweeted a controversial statement that prompted their client 2KGames to fire the agency.
- Lack of control of the social commerce channel – Nearly every part of the social media experience is closely regulated, from the way content is displayed, to the ways customers can conduct transactions on the site. By investing in social commerce and building out campaigns and strategies to take advantage of the social graph, you take the risk that the “rules of the game” could be changed at any time.
Keystone: Digital sellers should look at social commerce with a healthy level of scrutiny. The business value of this new sales channel has yet to be proven, and vendors are wise to withhold heavy investment until the business gains from social commerce are clear and substantial.