Facebook, the social media giant that’s preparing for the biggest IPO since Google (NASDAQ:GOOG) needs to prove that it’s able to monetize its massive user base. This time last year, one of the most promising ways to do that seemed to be to develop its potential as an e-commerce platform.
After all, the reasoning went, there were half a billion users (a number that has since grown to 845 million) willing to share their opinion, ‘Like’ a retailer, and follow ads or deals posted from Facebook back to a retailer’s website. An April 2011 article in Forbes identified out a series of factors that pointed to Facebook’s apparent arrival as an e-commerce platform, including the fact that during 2010 referral traffic from Facebook to Amazon.com (NASDAQ:AMZN) grew 328% even as traffic from Google had dropped by 2%. Meanwhile, Facebook traffic to eBay (NASDAQ:EBAY) increased by 81%.
8thBridge is a company that works with retailers and services to enable Facebook stores. At the time the Forbes article published, 8thBridge Facebook retail clients included 1-800-Flowers.com (NASDAQ:FLWS), Delta Airlines (NYSE:DAL) and Brooks Brothers—and the company was predicting Facebook’s retail sales would hit $100 million for 2011.
The F-commerce reckoning
The spring of 2011 saw a number of prominent retailers agreeing, with GameStop (NYSE:GME), J.C. Penney (NYSE:JCP), and Express Inc. (NYSE:EXPR) all embracing Facebook e-commerce by offering most of their products for sale through a virtual store on the social media website. Some consultants were predicting social media storefronts would be selling $30 billion worth of products by 2015, with Facebook driving the majority of this business. There was talk in some circles that Facebook might even have the legs to threaten Amazon‘s (NASDAQ:AMZN) domination as an online retailer. This expected explosion in Facebook driven e-commerce even spawned its own term: F-commerce.
Fast forward less than a year and Business Week is reporting that F-commerce appears to be a failed experiment. Retailers GameStop, J.C. Penney, Gap Inc. (NYSE:GPS), and Nordstrom (NYSE:JWN) have all shuttered their Facebook stores.
What happened? As it turns out, Facebook is a place where people hang out online with their friends. They may peruse ads and take advantage of deals, but they don’t log onto Facebook to go shopping. When retailers already have their own retail websites, there’s little incentive for customers to shop on Facebook instead. For the retailers, building and maintaining the second online storefront on Facebook meant additional costs with no apparent gain in customers. As Forrester Research analyst Sucharita Mulpru points out in a Bloomberg interview, “it was like trying to sell stuff to people while they’re hanging out with their friends at the bar.”
For retailers, the lesson seems to be that social media sites, including Facebook, remain valuable advertising and promotional tools. But Facebook is not at the stage of being a virtual mall. As its IPO approaches and potential investors wonder how Mark Zuckerberg plans to monetize his customers to help justify a potential $100 billion valuation, strike F-commerce off the revenue list. At least for now.
As of this writing, Brad Moon did not own a position in any of the stocks named here.