Over the next year or two, social commerce will disrupt e-commerce and social media, effectively turning our social interactions into commercial transactions. So how will this happen and where is the disruption taking place?
A Check-In Economy
You’re walking down the street staring at your phone and it’s telling you what deals are nearby. Perhaps not the best of visions but it’s the ecosystem that currently exists around check-in services like Foursquare and Facebook Places. The features are great, but staring at your phone could result into you running into something or even something running into you. It’s not elegant. The result has been an experience based on check-ins that take place when the consumer arrives at a venue.
Foursquare and Facebook both provide platforms that enable businesses to present deals or offers to visitors, in addition to rewarding visitors for repeat business. It’s an interesting business model and so far it appears to be having decent success. However, as deals disappear and users get tired of checking in, one has to wonder if this is truly the holy grail of social media marketing. If you want to know my opinion: it’s not. Check-ins are an early phase (reviews on Yelp were probably first) in a long shift which will completely disrupt commerce as we know it.
Will normal commerce continue to exist once social commerce takes hold? Definitely! However, a large portion of commerce will become much more integrated with our existing communication.
The Main Players
The goal for any business is to get more customers and more transactions (check-outs) and any new form of commerce will have to accomplish two things: It will need to empower the consumer and help transactions become frictionless. So if we examine all existing solutions through this lens, we should be able to determine how disruptive they truly are. Let’s take a look at a few.
Yelp
Yelp is one of the earliest innovators in the social commerce space. The site has empowered consumers through the amplification of their voices. Suddenly any consumer could instantly have a large (and targeted) audience of potential customers for the business they’re reviewing. Getting bad service? Try threatening the hostess or waiter with a bad Yelp review and see what they do. On a scale of one to ten, Yelp deserves a rating of ten when it comes to empowering the consumer.
As for transaction friction, Yelp has simply integrated with Open Table in order to make reservations easier. That’s about all the site has right now as far as I know, so I’d have to rate them a three on the empowerment scale.
Groupon & LivingSocial
The other major disruptors to online commerce lately have been Groupon and LivingSocial. So far though there’s very little that’s social about these services aside from them making it possible for users to share deals with others. That capability alone has helped grow these two companies to their current values in the billions. The two companies have empowered consumers through the power of numbers.
Consumers get a discounted price for a product or service, and the business gets a massive flood of new customers. While this strategy is rapidly becoming blemished with consumer and business complaints, it has proven to be extremely profitable. Shoppers also love getting a deal so it’s a win-win most of the time. As such, we’d rank these companies relatively high, like a seven, on the empowerment scale, due to the value provided.
However, the transaction isn’t exactly frictionless. After you make a purchase, you often need to go through a scheduling process, depending on the business. Given that the Groupon and LivingSocial effect can be as overwhelming as the Oprah effect, many businesses find it hard to respond to all the demand. While this model will become more integrated overtime, there hasn’t been a removal of friction for the most part, so we’ll score both companies a one on the frictionless scale.
Facebook Places And Foursquare
Facebook and Foursquare are both interesting in their approach to location and empowering the consumer. With Facebook, users could already complain to their friends. Foursquare, however, required the re-creation of a user’s social graph in order to accomplish the same thing. Ultimately, the business value of Facebook Places and Foursquare are a bit more abstract, giving businesses the ability to reward consumers for various behaviors within a given venue.
The existing rewards programs are reminiscent of traditional coupons, making them valuable for a segment of the population. While I’ve heard people extoll the values of creating a Place on Facebook or managing a venue on Foursquare, the return on investment has yet to prove itself.
For Facebook, the value presented by tracking user check-ins is improved advertising, and Deals appears to be more of an afterthought for the company, although that could change in the future. For Foursquare, the value surrounds rewarding consumers for frequenting a business.
Ultimately, I don’t find either of these products to be extremely empowering for the shopper. The main reason is that once the consumer checks in, they aren’t as likely to change their decision to shop there. Contrast that with Yelp, where a bad review can result in a lost customer. As such, I’m ranking Facebook Places and Foursquare a three on the empowerment scale and a one on the frictionless transaction scale.
While I think both products will evolve over time, this space is still extremely nascent.
The Future
The convergence of local, mobile, and social (or “SoLoMo” as John Doerr calls it) is about to generate a tidal wave of change and we stand on the cusp of it. While I could wax poetic about the future of this space, I’ll simply say that the overall shopping experience will become much more social for a large percentage of transactions. If you think about all the purchases that involve social experiences (movies, concerts, travel, etc), these spaces are only beginning to get disrupted.
While the experiences are social, right now the transactions are not. So far the only social shopping experiences which exist today either provide basic integration with Facebook, sidebar chat with friends during the shopping experience, or other basic features. Over the next one to two years, we will see a wave of innovation in the social commerce space and it won’t be like the forms of interactions we have on the web; they will be completely different. While it’s easy to call the Groupons of the world overvalued, this is a trillion dollar market that is just beginning to unfold.
The biggest names in the tech industry seem to have collectively decided it's time to make the billions. Sure Facebook, YouTube, and Twitter have sold some ads and Foursquare brokered some promotional deals. But with the second wave of IPOs on the horizon and investors' eyeballs getting as round as the tech bubble, the time is nigh for tech demigods to show that they can make money off all those users they've spent years accumulating. And hopefully not alienate them in the process. Today, Mark Zuckerberg inched closer to that dream of a trillion dollars by offering streaming movies — and tanking Netflix's stock. Meanwhile, YouTube closed a deal on a production company presumably to make its very own content. Intel cast a wide net to examine tech companies' latest money-making ventures. Then we looked into our CrystalBall app to see what they might try next.
Facebook
Moneymaker: Warner Bros. just became the first Hollywood studio to stream movies directly on the social network. Facebook has been making a big move toward e-commerce lately, and the fact that you have to use Facebook Credits to buy movies and TV shows could be the tipping point to get users to hand their credit card info over to Mark Zuckerberg. Plus, studios looking for a way to stop Netflix's growth might not make Facebook suffer the same 28-day waiting period for new content.
Downside: At 30 credits (or $3) for a 48-hour rental for The Dark Knight, it will cost you. Plus, you have to "like" the movie or the director to get the privilege. Do you really want hundreds of your Facebook friends to see you "liked" and watched Valentine's Day on Valentine's Day?
What's next: Why should you use a credit card to buy Facebook Credits when you can use Zuckerbills (coming to a U.S. Treasury in 2020)?
Twitter
Moneymaker: In order to make money off its free iPhone app, this weekend Twitter introduced a number of new features, including Quickbar, a "forced trending topics bar" that includes promoted tweets — negating the idea of a service that quickly shows you what's actually trending.
Downside: Pundit John Gruber quickly dubbed the feature "Dickbar" after Twitter CEO Dick Costolo, but Gruber issued the unfortunate nickname on Twitter and it was widely retweeted. Advantage Costolo.
What's next: Can we pay someone to monitor our Twitter feed for us? It's getting overwhelming. Either that or design personalized lists of the best people to follow based on what's important to us, like updates on Libya and breaking bear-cub news.
Foursquare
Moneymaker: At SXSW this week, Foursquare is set to announce a partnership with American Express that will link users' credit cards with their Foursquare accounts. The incentive to consumers? Deals like "spend $5, save $5" at participating merchants. Although Foursquare said its motivation is to increase membership and loyalty and that it won't charge Amex for the privilege, it's hard to believe that will stay the case if it catches on.
Downside: We don't have an Amex card. And (confession) although we use the app for recommendations, we've never actually checked in anywhere. Sorry, Dennis and Naveen! But if they add other credit cards, we would.
What's next: How about a service that warns you beforehand if you're about to friend one of those compulsive people who check in with handfuls of people at name-dropping locales?
YouTube
Moneymaker: YouTube just closed a deal to buy Internet video company Next New Networks, the producers behind Auto-Tune the News, for less than $50 million. Although rumor had it that Google was trying to get into the video-production business, Business Insider reports that the move is actually designed to help existing YouTube partners make "more and better content." Which then leads to more users and, subsequently, more expensive ads.
Downside: Isn't YouTube's strength either grainy weird viral videos or pirated television, movie, and music content? The second could definitely use better quality, but does it even matter for the former?
What's next: How about veering into Hulu territory?
Skype
Moneymaker: Just regular old advertising on the Windows version of its paid video communications service.
Downside: Although Skype says it won't show ads during the video conferencing yet, this could devolve into a Minority Report-style advertising assault.
What's next: Would it be possible to embed microphone/receiver in our brain so we don't have to use the special headset? Just curious.
Update: TechCrunch makes an important clarification. Facebook hasn't announced its own streaming movie service. Rather the movie offering comes from Warner Brothers app that uses Facebook Credits' payment system. But if it proves successful and other studios follow suit, Zuckberg can still count on more personal credit card info coming his way. Someone better go tell Netflix's shareholders.
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