Facebook (FB) is wading a little deeper into e-commerce waters as of this week, adding the ability to make a purchase right from the site rather than sending a would-be shopper to another, outside site … a leap that rarely happened, particularly on mobile devices.
It remains to be seen to what extent, if any, this will boost revenue and therefore provide bullish support for FB stock. But, even if it only adds marginally more revenue, it costs practically nothing to plant the seeds for the Facebook retail venture.
To that end, owners of FB stock are understandably curious — could this be the game-changer for the company, opening up the revenue spigot in a way it has yet to be opened?
More Than Just a “Buy Now” Button
Facebook is no stranger to retailing. It got into more direct selling last year when it added a “Shop Now” option to posts and messages an e-commerce retailer leaves in their news feed. The experiment has been an encouraging success too, but it could be even better, Facebook feels.
While effective, the ad-placement scheme is still a bit clunky in that it ultimately takes consumers off Facebook and onto landing/shopping pages set up by a retailer.
And, as it turns out, not all would-be buyers want to visit another site; mobile users were particularly disinterested in using valuable bandwidth and taking the time to open another window on their mobile devices.
Indeed, e-commerce research and news source eMarketer notes that less than 2% of e-commerce is done on mobile devices despite the fact that more than half of the world’s internet traffic is now routed through smartphones and tablets.
Now they won’t have to leave the favored social networking site to shop or recommend an item. Facebook has devised a way to let users shop — and buy — straight from a Facebook page rather than on another party’s site. This capability may be the proverbial missing link between Facebook users and advertisers.
And make no mistake … this is all about mobile. The new advertising tools aren’t found on pages viewed via a computer yet, and Facebook’s Head of Product Marketing for Commerce Emma Rodgers plainly said, “We’re looking to give people an easier way to find products that will be interesting to them on mobile, make shopping easier and help businesses drive sales.”
Winners and Losers
The move cuts rather deep into the turf of Amazon.com (AMZN
), which could lose business if the Facebook retail initiative takes hold. Indeed, it leaves Amazon in the dust in the mobile space, where Amazon.com particularly struggles.
While the “Shop Now” feature leaves Facebook as the middleman — charging a small fee for connecting buyers and sellers — rather than making Facebook the actual retailer, Facebook now has the ability to direct e-commerce dollars to retailers other than Amazon.
Amazon could arguably tap Facebook as a place to post its own ads, but it hasn’t yet. It does, however, have its own company page for publicity and branding purposes … but it doesn’t drive direct sales.
That’s in contrast to Amazon competitor Wal-Mart (WMT), which not only has its own Facebook page, but uses Facebook as a venue to promote items both online and in its stores. To date, however, the computer-viewed Wal-Mart page’s “Buy Now” redirects browser to www.walmart.com. So does Wal-Mart’s mobile-viewed page.
That may change soon now that the retailer has a better option in the works.
Realistically, this is a win-win relationship between Facebook and its advertisers. E-commerce outfits are now more apt to drive a sale, and as such, Facebook can charge higher ad prices.
Bottom Line for FB Stock
It would be easy for owners of FB stock to dismiss the small tweak Facebook is making as just another effort in a long string of many such enhancements the social networking giant has rolled out over the years. But this one does stand out in light of disparate numbers.
As was noted, only 2% of all e-commerce is transacted on mobile devices, yet just one quarter ago mobile advertising revenue made up 76% ($2.9 billion) of Facebook’s total revenue.
That’s lot of revenue for allegedly less-than-great ads. Just think what could happen if the typical click-through rate of 0.58% for apps on mobile devices is cranked up to only 1% as ads become easier to look at simply because they’re right in the middle of the Facebook news feed. It’s still a small number, but would nearly double mobile ads’ current value to advertisers.
So, yes, this is one of the bigger leaps, and it bodes well for FB stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
