2011 Reasons Why Social Commerce Is The Next Big Thing
In an interview with VentureWire’s VC Dispatch, Steve Case, the co-founder of AOL recently shared his thoughts regarding social commerce.
These days Steve spends most of his time making investments through Revolution LLC. The firm is focused on investing in consumer companies where there’s some disruptive angle, some new technology or business model to get consumers more choice, more control. LivingSocial fits squarely into this category and so it’s no wonder that they are a Revolution portfolio company.
He believes that LivingSocial have ‘cracked the code to this new approach to social commerce’. They’ve grown from 30 to 600 people in a year and are on track to have 2,000 staff in a years time.
What is most interesting is Steve’s take on where social commerce is at: “It’s the bottom of the first inning in the whole sector.”
Referring to his time at AOL over a decade ago he notes that the “world wasn’t quite ready” for social commerce, “but now it is.”
I totally agree with his prognosis. In 1998 I formulated a model for group buying and spread the word via an electronic brochure built using the first version of Flash. It generated a lot of interest, but the market wasn’t yet ready for such an approach. By comparison, I believe that we have arrived at an inflection point – a time when all the various bits and pieces necessary for social commerce to take off have come together. And it’s for the same reason I am getting heavily involved in the social commerce arena in 2011.
Steve continues, “Groupon and LivingSocial both show this great idea that strikes the right balance between empowering consumers with offers in local communities and giving merchants a much more predictable way to attract new customers, while at the same time providing a great business model for those companies themselves.”
Agreeing with Steve Case, Doug Nielsen, one of the co-founders of Xuba, an Omaha-based social commerce startup notes, “The rapid success of companies like Groupon and Gilt demonstrate how consumers are excited to try new ways of shopping for products and services. But we believe that we are just in the very early stages of social commerce innovation and a number of revolutionary improvements will play out over the next few years.”
In a similar vein, Shervin Pishevar, an active Silicon Valley angel best known for founding Social Gaming Network, has written a post on Quora (which is itself experiencing explosive growth) titled, Social Commerce is the NEXT BIG THING. In it he states that along with Social Search and Social Mobile, Social Commerce is one of his 3 big investment buckets.
He is quoted in the February 2011 edition of Wired UK’s cover story on Social Commerce: “I call it people rank, as opposed to [Google's] PageRank. Just as PageRank gives more weight to a page with more authority, we can now identify the most in?uential people in a space. Traditional marketing? It’s dead. It’s real-time social marketing and commerce that really matter now. There will be multibillion companies in the social commerce space. We’re where we were with social gaming two or three years ago…It’s about ego, sharing your status and accomplishments, a quest for positive validation.”
Social Commerce Today has summarized the key points in this article – and for your convenience I’ve set them out below:
Commerce Gets Social: How Your Networks Are Driving What You Buy
- Social Commerce, building “a social layer on top of online commerce”, “turning products into conversations”, is attracting big funding, big buzz and generating big revenue.
- Flash Sale sites such as Vente-Privée use a social layer to promote the sharing of time-limited online deals (and drive member-get-member referrals)
- Group-Buy sites such as Groupon and Keynoir use a social layer to to promote the sharing of time-limited local deals
- Social Shopping sites such as Polyvore, Kaboodle and Lockerz use a social layer to promote the sharing of products discovered online – thus encouraging ‘social discovery’
- Social Shopping apps such as Stickybits and ShopKick use a social layer to promote the sharing of store visits, using scanning technology to encourage store discovery and selection
- Purchase-Sharing sites such as Blippy and Swipely use a social layer to promote the sharing of products purchased – thus encouraging social product discovery and selection
- Personal Shopper sites such as GoTryItOn use a social layer to promote smart shopping decisions by allowing shoppers to get a second opinion on what to buy
- “E-commerce is Over. Long Live Social Commerce”: Retail has entered a new phase, where product discovery and purchase decisions are informed by the collective and distributed social intelligence of peoples’ social graphs.
- Facebook is leading the social commerce charge with a) social plugins that add a social layer to retail sites (so people can share likes and purchases with friends, and get personalised recommendations) and b) Facebook Deals that add a social layer to bricks and mortar stores (allowing people to share store visits – and get deals)
- Social Commerce enhances the retail experience for shoppers – helping them realize the ‘value-expression’ function of shopping (what psychologists call ‘impression-management’ – aka bragging rights, ego-tripping) whilst also helping shoppers make smarter shopping decisions using their social intelligence (personalized recommendations for product discovery, product choice)
- Social Commerce enhances the retail business for retailers by turning electronic word of mouth into sales – a share on Facebook generates $2.52 for ticketing site Eventbrite, and $20,000 in additional drinks revenue were generated for London restaurant Preto following a Groupon group-buy promotion
- “Big brands want to cash in on your Facebook Friends”: Volkswagen has added a social layer to its online car configurator allowing people to share personal car configurations and get feedback from their social graph. Of the 450K people using the configurator in November 2010, nearly 1/4 modified their design based on feedback
- Word of mouth and imitation have always influenced purchase decisions, but social commerce adds scale and transforms this social influence into sales – leaving a trackable (measurable) digital trace: Social commerce makes word of mouth measurable
- Social commerce makes use of human psychology – the psychology of sunk costs; consumers change from sceptics to advocates once they own a product (part impression-management – we want to be seen as smart shoppers (which is why the average review is 4+ stars out of 5, and part “Post-decision dissonance management“))
- 90% of purchases are subject to some sort of social in?uence – that’s the size of the social commerce market
Social Commerce Factoids
- $13m – backing for purchase-sharing site Blippy including Twitter’s Evan Williams and Sequoia Capital
- $2.52 and 11 visits – what a Facebook share generates for ticketing site Eventbrite
- $250m – funding for sFund for social applications/services from KPCB, Amazon, Facebook and Zynga
- 1m+ sites that have integrated Facebook’s social layer on their websites
- 17m – members of social commerce site Lockerz
- 98m – “haul video” views for 17-year-old juicystar07 YouTube
- 60m+ “haul video” views for 23-year-old DulceCandy87 from LA
- 35 – countries that Groupon operates in – with 2 years of launch
- £20,000 – extra revenue from drinks earned by London restaurateur Dean Knight of Preto, following a Groupon deal (£20 of food for £8 – 3,006 vouchers sold)
- 90% – proportion of purchases subject to social influence (Econsultancy)
- 23% – market share of US display ad impressions on Facebook (vs. 2.7% for Google)
- 1.75m – UK Facebook users referred to top 200 ecommerce sites in October 2010
Social Commerce Smart Quotes
On the potential for social commerce:
- Mark Zuckerberg (Facebook founder) “If I had to guess, social commerce is the next area to really blow up”
- Andrew Mason (Groupon founder) “The size of the [social commerce] market is the size of every empty restaurant table”
- Bing Gordon (KPCB investment (sFund)) “The potential for social commerce today is “in?nite”… Every ecommerce site will have to adapt”
- Christian Hernandez (Facebook) “There was an Econsultancy survey that said that 90 per cent of purchases have some sort of social in?uence – your friend recommended it, or you saw it on somebody. Until now there’s been no way of getting that ‘girls in the mall’ effect on a large scale. That’s the opportunity: it’s huge and untapped. And we have the benefit of both scale and identity”
- Danny Rimer (Index Ventures) “It’s this notion that a transaction is more communication than the be-all and end-all. We believe that when you go to checkout, the end of that activity is sharing what you’ve purchased with friends. Everything is going to have to integrate a social layer in commerce. No question.”
On the rationale for social commerce
- Andrew Mason (Groupon founder) “Middle-class people sit around trying to think of how to spend money. One of the most powerful ways to figure that out is looking at what you friends are buying, people you trust”
- Christian Hernandez (Facebook) “Social recommendations can help you discover things that some algorithm won’t”
- Danny Rimer (Index Ventures) “When we buy something, we become its greatest champion. That is what social [commerce] can do. It really is transaction as communication. The internet lends itself to promoting and building validation, con?rming that what you’ve bought is great. It’s one of the irrational, unexplainable but inherent bits of human behaviour.”
- Shervin Pishevar (Social Gaming Network founder, investor) “It’s about ego, sharing your status and accomplishments, a quest for positive validation”
On social commerce business opportunities
- Reid Hoffman (LinkedIn founder) People will converse about your brand independently of you. You can’t stop the negative comments. But what you can do is maximise the likelihood of a distributed set of very good conversations. That has to be your strategy.
- Christian Hernandez (Facebook) “I’m most excited about Deals – so when you check into a physical Gap, it gives away 10,000 pairs of jeans. Imagine you run a Gap promotion on Facebook, and track who walked into the store and cashed it in for a pair of jeans. It’s the advertiser’s holy grail: how does my brand money lead to foot traf?c? It means you can ?gure out the return on your advertising. And users get to discover deals – your friend checks in and cashes in a deal, it gets shared. So if I learn that Tommy Hil?ger is doing an interesting deal nearby, I might just go and check it out myself. It ampli?es the coupon model to 500 million people. There’s discovery, sharing, bragging about what you’ve bought, and redemption at the storefront”.
- Reid Hoffman (LinkedIn founder) With millions of people in the role of publisher, the challenge for marketers is how you tastemake…Rather than buy [ads in] one TV show, it’s better to be in the fabric of the conversations. It makes more sense to participate in, say, girls displaying their purchase”
- Reid Hoffman (LinkedIn founder) “You don’t say, ‘Wow, I bought this really cool toaster,” he says. “But it’s really relevant with music, movies, books – they are part of our identity, and they’re repetitive purchases. We buy maybe three books a month, at least one album a month, see three movies. That’s key. Look for purchases that can be part of people’s everyday lives”
- Michael Lazero (Buddy Media founder) “Facebook is now ‘This place where 50 per cent or more of our customers live online, where a quarter of all US ad impressions are – if we don’t go there I’ll be ?red.’ So all of a sudden, brands are publishers who sell directly through social channels – bookstores, travel companies. And we’re just at the beginning.”
- Shervin Pishevar (Social Gaming Network founder) “I call it people rank, as opposed to [Google's] PageRank. Just as PageRank gives more weight to a page with more authority, we can now identify the most in?uential people in a space. Traditional marketing? It’s dead. It’s real-time social marketing and commerce that really matter now. There will be multibillion companies in the social commerce space. We’re where we were with social gaming two or three years ago.”
- Sinan Aral (Stern School of Business, chief scientist, SocialAmp) “The companies that will succeed with social shopping are the ones that have science under the hood.”
- Danny Rimer (Index Ventures) “We picked up a trend on YouTube called v-hauling. We saw these 18- to 25-year-old girls going online with their most recent shopping bag from Topshop and Target, explaining to the camera why these were awesome goods. And some of them had followers in the hundreds of thousands.”
- Danny Rimer (Index Ventures) “[Privacy], It’s a generational thing: the new generation want to scream from the mountain-tops what they’ve bought and share the value with the largest audience they can get.”