This Spotlight on Social Commerce series is brought to you by Bazaarvoice, bringing the power of social commerce to the world’s best brands. Once a month, this blog will focus on the tactics, best practices and trends on the intersection of social media and commerce.
We’ve spent the past six months here at SmartBlog on Social Media looking at different ways companies are using Facebook as a social commerce tool. Right now you can break down Facebook commerce efforts into three major schools:
- Companies that blend social recommendations into their e-commerce applications.
- Companies that allow users to browse on Facebook, but then push shoppers over to their e-commerce platform when the time comes to make an actual purchase.
- Companies that allow users to browse and then place an order using their credit card without ever leaving Facebook.
Companies are getting more comfortable with Facebook as an integrated shopping platform. At this stage, shopping on Facebook is nearly identical to shopping via a company’s online store. From a customer’s perspective, that might seem be the logical endgame. But Facebook is looking to take it one step further by getting merchants to let users buy products using Facebook Credits instead of dollars or euros or any other real-world currency.
It’s not a new idea. Substitute currencies have been around for hundreds of years — some businesses used to pay their employees entirely in company scrip. These currencies tend to thrive under one of three conditions:
- When real money is scare — see 19th century coal-mining towns.
- When customers feel they’re getting a better deal by using the faux-money — see amusement parks that will sell you a soda for $2 — or just one HappyLand Fun Buck.
- When a retailer completely controls a distribution mechanism– see Microsoft Xbox points for purchases made through Xbox Live.
Facebook is in a position to create an environment where one, two or maybe even all three of those conditions apply.
Right now credits are primarily used for digital goods such as games and streaming movies, areas where they control the distribution (see condition 3). These goods are often popular with children and teenagers, whose parents might not trust them with the family credit card just yet, but might be willing to give them an allowance in Facebook Credits (see condition 1). Warner Bros’ opening lineup of streaming Facebook movies reflects this a little bit, with its focus on films from the teen-friendly Batman and Harry Potter franchises.
You’ll know that Facebook is getting serious about Credits when they either start giving customers a better rate for purchasing a product in Credits (condition 2) or if they move to make non-Credit transactions difficult or impossible to complete (call it condition 1 prime).
Why would retailers put up with something like this? Isn’t Facebook taking a 30% cut of transactions made in credits?
First, most companies that sell their products online are used to sharing some of each sale. If you want to sell something through Amazon, Etsy, iTunes, CafePress or any other 3rd party retail platform, you’re going to pay a commission fee. The exact rate can be a little tough to figure out from the outside – but it’s always there. Even folks selling their products direct from their own website have to contend with credit card fees and bandwidth costs. No one really expects online selling to be totally free.
That said, Facebook’s rate is much, much higher than what you’re going to pay at any other online retailer of physical goods. The network’s 30% take is right up there with what Apple charges for applications sold through the company’s App Store. But in both cases Facebook and Apple control the distribution for those goods to some degree. When we start talking about selling physical goods that Facebook can’t easily control, you should expect to see that rate come down at least a little.
Second, Facebook Credits provide many of the same benefits offered by gift cards. They don’t feel like real money. In part that’s because of the exchange rate. Credits retail for $.10 each — though the rate improves if you buy them in bulk. That adjustable rate discourages consumers from doing the math and figuring out what they’re actually spending, contributing to feeling that Credits aren’t really money and as such can be spent more freely.
Have you ever bought anything with a gift card and spent exactly the card’s value? People tend to spend more than the card’s balance, so that they don’t “waste” the value of the card. But in a controlled economy, you can’t just pay the difference in cash. You have to buy more Credits. And as anyone who has ever bought something via Xbox can tell you, buying your way out is next to impossible.
What you’ve got there is a free-spending environment where customers are constantly showing off their purchases to their friends — e-commerce nirvana. Once Facebook gets serious about offering a competitive rate for purchases involving physical goods, online shopping will never be the same.
Are you as optimistic about the prospects for Facebook Credits as I am? Or are you convinced Facebook will try to play hardball and ruin a good thing for everyone? Let me know in the comments!
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Good write up and excellent explanation. It's kind of difficult to see this kind of thing not working, especially if Facebook devises a great way implement social interaction into the purchases you've made (not just having them come up in the newsfeed). Facebook has an in right now and it's very likely that their credits idea will work (post a birthday comment on someone's wall and send them credits as a gift?) I just hope they can come up with a great way, not just show-offy way, of adding social value to the purchases made via facebook currency.
I like your analysis of the 3 conditions necessary for alternative currencies to thrive.
One additional application of Facebook Credits for brands and marketers is as an incentive. Check out http://www.shoebuy.com/credits. They are offering 50 free Facebook Credits with any purchase. Or, using smaller amounts to drive actions. See http://www.facebook.com/ShopAtHome?sk=app_7146470… where ShopAtHome is offering 15 Facebook Credits to download their coupon toolbar.
Full disclosure. My company, Ifeelgoods, powers both of these Facebook Credits incentive examples.
Scott Silverman
Co-Founder & VP, Marketing, Ifeelgoods
It will be very interesting to see how Facebook pitches this to small business merchants who are still trying to figure out their social media strategies. It makes sense for Facebook to dedicate some resources to showcasing all the commercial benefits of getting on board, including the building of brand awareness, integrating this with a company's existing promotional strategies, and even how to increase conversions to their Facebook store. Early adoption still seems more likely for companies with digital goods, but the entire retail space needs to pay attention.
On one hand (as a consumer) I think it is good because it let's you buy a single set of credits and use them however you want. On the other hand, as a developer with a game, it makes it harder for me to maintain my repeat players… they'd spend in Facebook credits and earn in my credits. Right now, they just buy when they gamble away their credits.
Plus it would kill my earnings from breakage… the players who buy once and then never come back again. That's most of the revenue I get. 10% of players actually spend anything at all, 1% of that spend twice.
Scary proposition. This could also kill Facebook. You're talking about turning a social network into a storefront. This could discourage your average Facebook user from going to Facebook as frequently because people don't like to constantly be sold anything. Facebook is "safe," non-aggressive, social network. Problem – If FB users can buy and spend credits freely then companies and individuals will naturally be more focused on creating and pushing their store front rather then pushing social interaction. The article gives a great breakdown on Facebook ability to push its credit system, but it doesn't explain at all ho this new busines model completely transforms Facebook's core business. This is a very risky proposition. No matter what the statistics show about consumer purchasing behavior via Facebook. There is a big difference between interacting with a customer and convincing them to visit your e-commerce site as apposed to interacting with a customer at the point of sale. Many people will be far less likely to interact on Facebook if they think they are going to be sold something every time they "like" something/somebody. Three Cents!
Fantastic article, and one that I believe in as well.
One aspect that wasn't explored as deeply is the continuum from commerce within Facebook, to commerce online (but outside of Facebook), to commerce in the real world. It doesn't take a rocket scientist to see where Facebook is heading. I also doubt that the 30% will stick, especially for out-of-Facebook transactions.
Interestingly, I wrote a viewpoint article not long ago on the same topic, at http://www.randallcraig.com/facebook-take-over-th….
The line of like for the sake of liking and like in favour of getting something in return is blurring.
Just look at the rise of Facebook Ads. It rivals Adwords and in many ways is superior, however Facebook are in this for the money. And the social aspect will always be there. It's the business pages that may suffer, but then it's up to the business pages to set themselves apart, and not be spammy. Those that do spam will perish quickly.
My recent post Welcome to our new iPhone repair website
> Even folks selling their products direct from their own website have to contend with credit card fees and bandwidth costs.
There's a big difference between losing 3% (credit card) and losing 30% (FB credits).
> No one really expects online selling to be totally free.
There's a difference between free and gouging.
Great article, especially about the mention of alternative currencies and scrip. Facebook might be the way most are introduced tot he concepts of an alternate currency, but now I'm even more convinced that we'll be seeing much more about Bitcoin digital currency going forward.
How to get facebook credits???????