What’s Facebook’s Social Commerce Business Outlook?

by Trefis Team
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Although close to 70% of Facebook’s (NASDAQ:FB) value can be attributed to its advertising business, and a small portion (a little under 10%) comes from social commerce. While social commerce involves the purchase of goods and services online, it differs from regular e-commerce because of the involvement of social networking, social interactions and user inputs.

Social commerce is still a very nascent business for Facebook and accounted for just about $40 million in revenues in 2012. However, we expect the growth in the industry to pick up with Facebook becoming one of the leading social commerce platforms in the future.

See our complete analysis for Facebook

Where Is The Social Commerce Market Headed?

While e-commerce sales through social networking sites are still quite low, the overall market is expected to grow from $5 billion in 2011 to around $30 billion in 2015. We expect this number to continue to grow beyond 2015 as well. For the last few years, Facebook has become the preferred platform for brands and retailers to promote their products by getting users to “Like” the brand page and share it with their friends.

Going by this trend, buying a product on a social network would be the next logical step in the value chain for the retailers. However, moving towards social shopping will be a gradual process as users increasingly get comfortable with purchasing products based on their friends’ recommendations. This would effectively be a translation of real-world dynamics into the virtual world where socializing with friends goes hand-in-hand with shopping.

How Will Facebook Improve Its Share Of This Market?

Facebook is known for its targeted advertising wherein it provides the right combination of behavioral, social and economic information about the target demographics to increase the efficacy of advertisements. While fans of a particular brand/retailer might have already “liked” the page, the next step for the retailers would be to induce potential consumers to conduct an impulse buy of their products. This may be possible with retailers directly putting up deals on their Facebook pages, which may include discounts for early buyers. It must be noted that this is different from the “daily deals” business since Facebook will incur no expense to run the deals. It will merely act as a platform for social purchase. The above example is one of the many methods through which social commerce is expected to take off on Facebook.

The mobile payment market is expected to grow to around $245 billion by 2014. With around 680 million MAUs (monthly active users) on Facebook’s mobile platform by the end of December 2012, the social network is well-poised to bring its payment platform to mobile devices such as smartphones and tablets.

Our price estimate for Facebook stands at $25, implying a discount of about 5% to the market price.

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