Last week, investors poured money into ShopIgniter ($ 8 million) and Milyoni ($ 3 million), two companies that build Facebook storefronts for merchants and retailers. I’m not the only analyst who’s skeptical about that opportunity. Literally thousands of merchants are building Facebook stores, and they’ll have to overcome some serious challenges to make them effective shopping vehicles.
Over 150 big brands have built Facebook stores, meaning apps that can handle transactions rather than just function as marketing brochures or catalogs. Facebook store-builder Payvment claims it has 60,000 stores running in its network of Facebook apps. ShopIgniter, Milyoni, and Payvment compete with a dozen or more other startups that offer white-label e-commerce platforms for Facebook, including Usablenet, MoonToast, Fluid and 8thBridge, which raised $ 10 million in March. Other companies, such as ShopTab and SortPrice, help retailers integrate Facebook pages to online stores . The space is getting a little crowded.
While a Booz & Co. survey of social network users who shop online implied that 27 percent of them would be interested in buying within a social network, 73 percent wouldn’t. Based on interviews with online retailers, Forrester doesn’t think social networks are very effective at promotion, let alone generating actual sales. What’s more, online shopping is a directed, search-driven activity, and the mall approach of aggregating stores didn’t work for big portals like Yahoo and AOL, even with their powerful promotion capabilities.
Based on his analysis of the psychology of shopping, social psychologist Paul Marsden thinks Facebook stores will be good for impulse buying as well as more-considered purchases that depend on word of mouth, especially for first-time buys in high-risk categories. That makes sense to me for certain product categories where personal experience is highly valued, such as expensive vacation packages and high-end baby carriages for new mothers. I’m less convinced it will outweigh structured comparison searching for financial services or consumer electronics, where exhaustive inventories, “technical” info, price comparison and expert advice should rule. Impulse purchases often require instant gratification, which would seem to point in the direction of digital goods like movies, music and games.
But these tactics could help retailers make their Facebook stores more effective, despite the challenges:
- In-stream promotion. Facebook lacks a big front-page ad format that could drive new DVD releases or Mother’s Day flower purchases. The closest equivalent is promoting products in the news feed. Sales and group offers might cut through the clutter.
- Social commerce integration. Facebook says its own Offers will focus on group purchases rather than discounts. Integrating proven social commerce elements like daily deals, flash sales and group buying for fans with the store will be critical.
- Ties to brick-and-mortar loyalty programs. Retailers should allow points redemption in their Facebook stores and even count Facebook store visits toward check-in deal points.
For more of my thoughts on the challenges facing Facebook stores, read my Weekly Update at GigaOM Pro (subscription required).
Image courtesy of: flickr user Auswandern Malaysia
Related content from GigaOM Pro (subscription req’d):
- Breaking Down Facebook’s Entertainment Strategy
- How to Make Facebook Stores Pay Off
- The Near-Term Evolution of Social Commerce