With an infusion of capital, Facebook stands to become a serious challenger to Amazon, eBay, and more.
Finally. It happened. The moment everyone's been waiting for. On February 1, Facebook filed for its initial public offering. The level of excitement around the event has been mixed, but opportunities for brands shouldn't be overlooked. The Facebook IPO promises to give the leading social interaction platform on the Internet the leading e-commerce platform on the Internet. Companies like startup 8thBridge are already proving the effectiveness of direct e-commerce from within the Facebook platform. With over 800 million registered users and an estimated 28 percent share of the U.S. display advertising market, the platform could easily become the default filter for brand engagement on the Internet.
One of the biggest issues with connecting to modern consumers in meaningful ways? The avalanche of information they receive on any given day. However, tech pundits (most notably Clay Shirky) have maintained that the problem is not information overload, but "filter failure." By using Facebook's "Like" functionality to provide trusted endorsements from consumers' own close friends, brands are able to cut through the noise of Internet advertising and attract a more engaged audience than traditional banner ads offer. The pervasiveness of online banner advertising has desensitized consumers, and played a not-so-insignificant role in the decline of click-through rates over the years.
By contrast, "Like" is the physical manifestation of the most powerful advertising tool ever created - a word of mouth referral from a known source. With a more compelling interface on their brand pages and integrated e-commerce, Facebook could make social commerce experiences more engaging by capturing motivated consumers who have already condensed the normal progression from awareness to consideration through recommendations from their social graph.
Facebook's IPO promises to provide an infusion of capital that will allow the company to become a serious challenger to established e-commerce brands. A robust e-commerce platform added to Facebook's social platform and rich repository of consumer data would make the social network the biggest potential threat to both eBay and Amazon's e-commerce platforms. Facebook's growth in referral traffic to both sites in 2010 dwarfed traffic of search juggernaut Google. With the addition of e-commerce-enabled product pages and shopping APIs linked to merchandisers' fulfillment systems, Facebook could instantly establish itself as a dominant force in e-commerce. OK, maybe it's not "simple" per se, but that's the opportunity for social commerce that could exist with the right level of investment in the Facebook platform.
The IPO and e-commerce integration could also have an unforeseen opportunity for Facebook: establishing Facebook Credits - a virtual currency used for micro-transactions of virtual items and purchasing apps and games - as the biggest loyalty rewards program in the world. By owning such integral relationships with brands and compiling such massively rich sets of consumer data - where they live, where they went to school, how many kids they have, when they went on vacation three years ago, and essentially everything other than the reason they defriended whatsherface - Facebook Credits is a potential gold mine for the company as a disruptive force in the multibillion dollar loyalty rewards market.
Facebook Credits and "Likes" tied to purchases would allow users to consolidate their loyalty and rewards programs into one centralized, easy-to-use online dashboard. Consumers who receive Facebook email updates and check the mobile app on a regular basis would be a willing audience for a single location to receive rebates and redemption opportunities from the brands they "Like" (and even love). The benefit for brands advertising and selling through the FB-commerce platform would be significant - reduced investments in managing loyalty programs while increasing opportunities to enhance brand adoption and loyalty through a virtuous cycle of brand engagement, purchase, and customer relationship management.
The implications for targeted brand messaging as part of a carefully crafted brand experience become apparent. With such intimate personal details about registered members, opportunities abound for brands on Facebook to define real value for consumers based on their real needs. Of course, this should have been the case all along. Brands that are already creating experiences with simple, clear appeals that maximize the potential of Facebook's user interface and site architecture are ahead of the game.
For companies still questioning whether social media is in fact the paradigm shift that will change the way we engage with brands, a remark from Facebook CEO Mark Zuckerberg's speech at last year's f8 conference should serve as a sign of things to come: "Our development is guided by the idea that every year, the amount that people want to add, share and express is increasing. We can look into the future and we can see what might exist - and it's going to be really, really good."
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McNeal Maddox is the strategy director at Siegel+Gale, based in Los Angeles. His first experience with brand development came in junior high, when, not content to remain mere consumers of comic books, he and his brother formed their own comic book company. The brand name, logo, and signature style they created were so strong that one of their books is a permanent part of the Lynn R. Hansen Underground Comics Collection of Washington State University Library's special collections archive - and they even sold a few.
Since joining Siegel+Gale, McNeal has worked for several clients including Microsoft, Dow AgroSciences, McAfee, Genworth Financial, Yahoo, United Talent Agency, Activision, and PayPal. McNeal previously served as a project manager at FoxSports.com, where he managed the design, development, and implementation of customized promotional campaigns for major advertisers. He also worked as a web developer at ING Advisors Network.
McNeal graduated from Carnegie Mellon University with a BFA in graphic design, and received his MBA from the University of Southern California.
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This Magic Quadrant examines leading digital commerce platforms that enable organizations to build digital commerce sites. These commerce platforms facilitate purchasing transactions over the Web, and support the creation and continuing development of an online relationship with a consumer.
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