Can Facebook compete with Amazon?

Containment measures and barrier moves related to the coronavirus have boosted online commerce since the beginning of the year. In the United States alone, the country hardest hit by Covid-19, consumer spending on the Internet is projected to reach nearly $710 billion this year (+18%), while spending in brick-and-mortar stores is expected to grow 14% will drop to $4.2 trillion, according to research firm eMarketer. Enough to whet the voracious appetites of Facebook, which has been eyeing the sector for years, until now the domain of Amazon.

The largest social network has gone on the attack. His approach: become essential for small and medium-sized businesses that want to have a virtual showcase to exist on the internet, without spending a fortune. This is why Mark Zuckerberg’s group offers them a host of new tools, which should be as easy to use as the social network.

Copy proven designs from the competition

Among these tools, “Shops”, a new feature launched on Facebook and Instagram in May. It allows companies to create a small online store – between 6 to 30 products -, fully customizable with their brand elements. As usual, the group drew its concepts from the competition. “Shops” is inspired, among other things, by what platforms like Shopify offer, which have experienced a jump in activity during the coronavirus crisis. The Canadian startup, which makes it easy for small businesses to create online stores, has its revenue doubled to $714.3 million in the second trimester. So much so that the valuation is now approaching nearly $113 billion, more than eBay and Target combined.

Facebook is inspired down to the last detail by this proven concept. Like Shopify, “Shops” uses augmented reality to allow customers to virtually try on clothes or makeup. “A lot of small businesses are struggling. With stores closing [en raison des mesures sanitaires]more companies want to have an online presence”, the group justified in a blog post in May. And to continue:

“Our goal is to make shopping seamless and empower everyone from a small business owner to a global brand to use our apps to connect with customers.”

Ultimately, “Shops” could be deployed on Messenger and WhatsApp, instant messaging applications of the Facebook group.

Developing in-app payments on Facebook

Most of the features of this tool are free for businesses. As usual, thanks to the attention of internet users, the group wants to be rewarded by offering them ultra-personalized advertisements. But Facebook also wants to go further, collecting 5% commission on all sales through “Shops,” according to the Wall Street Journal, where Amazon takes a variable commission depending on the type of product being sold.

“Collecting commissions per transaction is a very good choice for an e-commerce business model,” said Cyril Vart, partner and executive vice president of research firm Fabernovel. “If a giant like Facebook starts fighting to get a few cents or a few dollars per transaction, it can quickly add up to millions of dollars in revenue on its scale.”

The idea, therefore, is to let internet users make a purchase from A to Z – from product identification to advertising to payment – without having to leave their ecosystem. It is in this logic that in August the social networking giant created its division “Facebook Financial”, dedicated to the deployment of its payment and financial services. For example, since May, the social network has been testing a “checkout” (pay) button, which already exists on Instagram, that allows you to pay for your purchases without being redirected to the merchant’s site.

Play the local partner card

In addition to “Shops,” Facebook has forged a host of partnerships since May to allow businesses to create virtual gift cards for their customers or have their products — such as meals — delivered directly from Instagram. Partnerships that make it possible to offer additional services, without having to bear the often staggering logistics costs. In comparison, Amazon can take care of the storage, packaging and delivery of the products from its third-party sellers. This value proposition has earned it colossal investments since its inception in 1995 (warehouses, logistics centers, vehicle fleets, etc.), so much so that the ogre of e-commerce only made its first profit in 2005.

So for Facebook this is an opportunity to increase its sales, without massive investments. Addressing this booming industry is: “a strategic move, regardless of whether Facebook, or even Google, can occupy an important or marginal place in online commerce”, believes Cyril Vart, of Fabernovel. For years these giants have “based on their core business – advertising – and their primary value proposition to their users. But they are constantly looking to improve their ARPU (Average Revenue Per User). This therefore requires diversifying their revenue sources.”

By targeting small and medium-sized businesses, the social network aims to play the local card and act as a local partner for businesses’ digital transformation — often accusing Amazon of indirectly replacing local stores. Facebook’s obvious asset: the mountain of aggregated personal data, allowing for a mix of ultra-global and ultra-local. This valuable information gives it a very detailed knowledge of the tastes of its more than 2.4 billion users around the world and can therefore display advertisements according to their areas of interest for a local business.