Will E-Commerce Help Facebook's Ad Sales?
NEW YORK (AdAge.com) -- There's been a lot of talk about whether social media can drive sales, but one thing is clear: Sales are starting to happen in social media -- specifically, with Facebook.
The question is: Does the proprietor make any money off such sales? So far, the answer is no. "Once a number of marketers are doing commerce on their own, you have to wonder how Facebook is going to get a piece of it," said David Berkowitz, 360i's director of emerging media.
To that end, late last week Facebook announced it will now collect 30% on purchases of virtual goods made with Facebook Credits, according to its developer blog. While the in-app credits program is still in closed beta, it already includes developers like Playfish and Zynga -- two of the biggest players in the estimated $5 billion global virtual-goods market. With the fee, it looks like Facebook is taking Apple's lead: Apple takes a 30% cut of paid applications in the App Store, a fee levied to the developer, not the user. The announcement did not mention revenue collected on apps outside the credits system -- like Pampers' and 1-800-Flowers' commerce apps -- though the virtual goods economy is comparatively much more developed. It also illustrates Facebook's interest in getting a cut of revenue collected in its house.
Regardless, being a place where goods are sold could actually help Facebook's primary revenue strategy, advertising, as ads on the site will be closer to a potential purchase -- moving it from being seen not just as a marketing tool but as a sales tool. It may also help prove how closely social media can be tied sales, something just about every marketer is wondering.
Facebook has given developers and agencies free reign to develop commerce apps. The Pampers' Facebook sales app used Ohio-based digital agency Resource Interactive's Off the Wall e-commerce technology, which retailer The Limited used to sell scarves during the holidays.
Digital-shopping company Fluid recently launched a Flash-based Facebook sales app for Nine West, which is only open to the accessories retailer's fans. Users can browse items from the Jones Apparel brand's spring collection, add items to a shopping cart and check out on the retailer's own commerce site with 15% off. This followed an e-shop for another Jones' brand, Rachel Roy, which sold out a limited quantity of jewelry in the first six hours on Facebook in a similar execution earlier in February.
And Minneapolis-based tech startup Alvenda has created an e-commerce platform within Facebook for 1-800-Flowers. It also built a friend-to-friend sales app in December for Avon's beauty and accessories brand, Mark.
Annemarie Frank, Mark's director of digital and strategic alliances, said Mark makes money on its fan page through sales, but it didn't work with Facebook to implement the sales widget. And while Mark has run ad programs in the past to drive its Facebook fans, it isn't spending with the social-networking site today.
Facebook became profitable in 2009 and reaps the majority of its revenue from advertising. An executive with knowledge of the matter said Facebook is focused on buoying the business via advertising. To that end, Facebook announced a partnership with eBay's PayPal in February to pipe the payment platform into the site's ad and developer tools. Because PayPal conducts transactions in 24 currencies, Facebook will be able to collect revenue from small, international advertisers. Of Facebook's nearly half-billion users, 70% live outside the U.S.
"We want to give the people who use Facebook, as well as advertisers and developers, a fast and trusted way to pay across our service," said Dan Levy, Facebook's director of payment operations in a statement. PayPal transacted $71 billion worldwide in 2009.
One shopping cart
With Facebook integrating an online pay system for its users, PayPal's open development platform could tie together purchase behavior across the site. Third-party developer Payvment recently used PayPal's API to build an app anyone can use to set up a retail store on a Facebook page. If the app takes off and consumers are buying on multiple pages across Facebook, Payvment allows all purchases to aggregate in one shopping cart for one check out.
A fraction of Facebook's revenue does come from the sale of virtual goods -- icons of objects such as Champagne bottles and hugging penguins that Facebook users buy to post on friends' walls. Facebook has started to add real gifts and brands to that virtual-goods economy, which has been largely tied to gaming. Last year, Facebook starting selling music files, charitable donations and licensed icons from sports organizations such as the NBA and college teams. For advertisers, Facebook launched branded virtual-good ad units, which are gaining increasingly more interest from brands such as Skittles and P&G.
Facebook also opened shop for physical goods last year, when it launched Real Gifts, a startup funded through its venture-capital arm to sell real things through the gift store right alongside the virtual ones. Right now, the real goods for sale are primarily generic gifts -- Fandango movie tickets and the Slanket blanket are the only branded items on display, though Dave Sanguinetti, Real Gifts cofounder-CEO says there's been "significant interest from big brands" and we can expect top-tier brands on sale soon. As for its business model, Real Gifts buys goods at wholesale prices and sells them at retail.