The decentralization of e-commerce

Native e-commerce features on social networks decentralize e-commerce, opening the door to vast opportunities for merchants.

The decentralization of e-commerce

Over the past 40 years, the internet moved through three waves of evolution. The first evolution made it searchable, thanks to Yahoo, Altavista, Google & co. The second evolution made it entrepreneurial, thanks to Amazon and eBay. The third evolution made it social, thanks to Facebook, Twitter, Linkedin, & co. Now, we have another wave coming. The next evolution decentralizes e-commerce.

The evolution of the internet

When e-commerce on the internet started in the mid-90s, marketplaces like Amazon and eBay aggregated and commoditized supply and channeled demand. Now, companies like Shopify or Stripe provide businesses and creators platforms to build independent e-commerce businesses. Ad marketplaces start to integrate e-commerce features natively and, in the process, decentralize e-commerce.

Social platforms adopt native e-commerce

Every social network has either launched or is working on a native shopping function.

Snapchat

Snapchat announced shopping destinations on the app in Jun 2019 (source). It was the first social network to allow merchants to sell on the app directly. The camera company has since worked on AR shopping to raise the buying experience to the next level.

Pinterest

Pinterest announced native e-commerce features in April 2020, shortly after the pandemic outbreak:

With so many at home, these days searches for shopping inspiration and supporting small businesses are on the rise. In the last two weeks, searches for “help small businesses” on Pinterest are up 3x compared to the prior two weeks, while searches for “home office setup” are up by 70% as people look for ideas to furnish their new work-from-home spaces. Searches for gifts for others are also up. In the past two weeks, there’s been a 4x increase in searches for “employee gifts” and searches for “care package ideas” have doubled.

In the post, Pinterest introduced buying from boards, search, pins, and style guides.

Notice one substantial similarity between Pinterest and Google:

97% of top searches on Pinterest are unbranded, meaning people come to Pinterest to shop for generic terms and not specific brands, leveling the playing field for businesses of all sizes to be discovered.

Non-brand searches truly democratize e-commerce! When someone comes to Google and searches for a brand, they pretty much know what they want. But if they search for a non-brand keyword, there is an opportunity for many businesses to compete.

Every social network has its own strengths. You go to Youtube for videos, Facebook for family and friends, Instagram for images, WhatsApp for texting, Twitter for news, TikTok for entertainment, and Pinterest for inspiration.

Facebook

In May 2020, Facebook announced a centered storefront that allows merchants and creators to leverage Facebook (the app), Messenger, Instagram, and Whatsapp to engage with customers. Mark Zuckerberg’s announcement video is very much worth watching (special guest: Tobi Lütke, founder and CEO of Shopify).

Facebook Shops is a mobile-first shopping experience where businesses can easily create an online store on Facebook and Instagram for free. Shops let you choose which of your items you want to feature, merchandise with product collections and tell your brand story with customizable fonts and colors. In Facebook Shops, you’ll be able to connect with customers through WhatsApp, Messenger or Instagram Direct to answer questions, offer support and more.

Zuckerberg also spoke about live shopping coming to Instagram “very soon.” He says, “over 800m people engage in live video days on FB and IG. A lot of that includes product tutorials and launches.”

A lot of merchant tools have since found their way into Instagram:

Shops: A customizable storefront that lets people shop directly on business profiles.
Shopping Tags: Tags that feature products from your catalog that can direct customers to purchase those products from your website or in app.
Shop in Explore: A tab in Explore that lets people browse tagged shoppable content from brands and creators.
Collections: A set of products that businesses can curate for their shop to help customers find the products they love.
Product Detail Page: A product focused page that showcases relevant information of an item, such as pricing and product descriptions. These details are pulled from your product catalog.
Ads with Product Tags: Businesses can create new ads with product tags or boost existing shopping posts in Ads Manager and the Instagram app, to increase the reach of their shoppable content. These ads drive conversions, link clicks and post engagement.

A survey of over 8,800 people across nine markets (source) highlights the importance of Conversational Commerce:

  • 87% of the smartphone population worldwide is on messengers
  • 45% of shoppers message businesses to get specific information, 31% want personalized advice
  • 40% said that they started shopping with a conversation
  • Live chat has a 73% satisfaction rate (source)

In December 2020, Whatsapp announced (announcement) Carts, a native shopping cart for merchant profiles:

WhatsApp is fast becoming a store counter to discuss products and coordinate sales. Catalogs have allowed people to quickly see what’s available and helped businesses organize their chats around particular items. With more and more shopping happening through chats, we want to make buying and selling even easier.

Youtube

In January 2021, Youtube announced they were testing in-video shopping for live streams (source).

We’re testing a new way for people to easily discover and purchase products featured in YouTube videos. Creators in this pilot can add certain products to their videos. Viewers can then see a list of featured products by clicking the shopping bag icon on the bottom left corner of the video. From there, viewers can explore each product’s page to see more information, related videos, and purchase options for that product. We are currently piloting this feature with a limited number of creators. It is visible to users in the US on iOS, Android, and desktop.

We haven’t seen much of this to date. However, Youtube already provides the so-called “merch shelf,” a feature for selling channel merchandise. The company also acquired Indian social shopping app Simsim (source), a further indicator of more commerce features to come.

Tik Tok

In May 2021, Tik Tok (source) announced to work on native e-commerce features:

The popular video app is hoping to replicate abroad the success of its Chinese-only cousin Douyin, which racked up $26 billion of e-commerce transactions in just its first year of operation. TikTok has begun working with merchants in markets including the U.K. on ways they can sell products directly to millions of users within the app, people familiar with the matter say.

The critical point about native e-commerce is to keep users in the app.

TikTok, for its part, had already begun testing the waters in online shopping through promotional tie-ups with Walmart Inc. and Canadian e-commerce firm Shopify Inc. Businesses typically tag their products in TikTok’s social content, with links directing buyers to their own sites, but users still technically stay in the TikTok app. Facebook and Instagram let merchants either set up their in-app storefronts or channel users to third-party services.

The storefront moves into the background; the “buy now” button comes into the foreground. The advantage social networks have is communication and discovery.

Now TikTok aims to lock users inside its ecosystem to a greater degree. Brands like Hype will run dedicated stores on the video platform, taking orders from and interacting directly with shoppers. While the Chinese company won’t handle sales or merchandise itself, it hopes to sell more ads to merchants, boost traffic and take a cut of business.

Twitter

In July 2021, Twitter (source) announced a pilot that sounds very much like Carts on Whatsapp:

Twitter is piloting a new feature that allows businesses to add a shopping section to the top of their profiles, the company has announced. The Shop Module launches in the US today and offers a carousel of products for visitors to browse. Tapping a product will link to a listing with the option of making a purchase without ever leaving Twitter. The pilot is currently limited to iOS devices for people who use the service in English, Twitter says.

Mind you, Twitter is has been pushing monetization features lately: tipping, premium tweets, subscriptions.

Why now?

Covid is the biggest economic shock we felt in our lifetime. (Mark Zuckerberg)

Big trends and big problems have one thing in common. They rarely have a single cause. The same applies to the decentralization of e-commerce.

Of course, the Covid pandemic is the most significant driving force (Zuckerberg: “37% of small businesses have stopped operating”). It kicked e-commerce ten years into the future and opened a whole new world of opportunities for companies like Facebook but also Shopify, Stripe, & co.

In the Zuckerberg video I linked above, he also mentions the importance of small businesses for advertising platforms: “serving small businesses is our business.” When big spenders pulled their money from advertising on Facebook in July last year (source), you would have expected revenue drops. Instead, revenue, profits, and stock price grew. This development is another indicator that social networks have a customer power curve: a few giants and many low spenders (SMBs). The longtail seems to be much fatter than the shorthead, supporting the point that SMBs are essential for ad marketplaces.

Another reason is the creator economy. Zuckerberg in Q2 earnings call on e-commerce and the metaverse:

​​But overall -- and I think that there's -- as we embark on this next chapter, ads are going to continue being an important part of the strategy across the social media parts of what we do, and it will probably be a meaningful part of the metaverse, too. I think commerce is going to be increasingly important, which is why we're -- one of the reasons why we're focused on this across our current apps and the current economy. But I think digital goods and creators are just going to be huge, right, in terms of people expressing themselves through their avatars, through digital clothing, through digital goods, the apps that they have, that they bring with them from place to place. A lot of the metaverse experience is going to be around being able to teleport from one experience to another.

The last reason I see is increasing concern over privacy issues with ad targeting. The 2016 election marked the start of the age of mistrust and polarization. On top of that, Apple and Google move the web from cookie to browser tracking, making online advertising fuzzier. E-commerce doesn’t deal with these problems.

What that means for advertising

What is happening across the social media world is best summarized by Mark Zuckerberg, the state’s favorite enemy #1, in the most recent Q2, 2021 earnings call:

But I think overall, the strategy is really to work our way down the funnel from discovery and all the things that we’re already world-class at with ads to making it so that those ads increasingly point to Shops across our different services. In order to do that, each layer of the funnel that we’re working on, we want to be world class on its own, which means that basically, there’s this whole long tail of functionality that businesses have come to expect on the web and from other tools, and we need to make sure that that’s available for Shops and business messaging and all the tools, whether we do that through partnerships with other e-commerce companies or building it up ourselves. So it’s — we’re seeing meaningful improvements every quarter in this in terms of how effective these are. There are already a pretty meaningful number of merchants and people who are using Shops, and we expect this to compound over the coming years.

For a long time, advertising on marketplaces and publishers financed a large chunk of the internet. Then, we saw more companies selling directly: SaaS on the B2B side, direct-to-consumer on the B2C side. However, advertising is still the most robust acquisition channel for most companies.

Now, social networks are moving down the value chain. They are essentially ad-marketplaces, but ads are just a means to an end. Native e-commerce features allowing merchants and creators to build businesses on their platform and sell directly, which disrupts the ad space at the same time.

Centralized vs. decentralized e-commerce

Ads will probably not go away completely, but storefronts on social networks might allow many businesses to build communities and use organic growth strategies more efficiently. Instead of using ads to reach potential buyers, merchants can leverage live streaming, content, stories, podcasts, and live audio.

Decentralized e-commerce opens up a new Organic Growth channel, which might be more affordable. As a result, CPCs and SEO competition might soften. CAC across the board might decline.

I think that more direct commerce on social networks and fewer ads make the internet better.