Insights & Analyses

eCommerce Growth Forces Facebook to Revisit ‘Shops’

Last week, Facebook CEO Mark Zuckerburg announced a recommitment to the company’s eCommerce product, rebranded “Shops.” It’s been reported that the new platform is Zuckerberg’s priority focus. “Zuckerberg said he’s been meeting with the company’s small-business commerce team every day during the pandemic.” The recent spike in eCommerce traffic due to COVID-19, with long-term implications for more transactions to stay digital, has caused Facebook to reconsider the potential value of this product line. 

Facebook is positioning the product as a lifeline for small and medium-sized businesses to upload and distribute their product catalogs through the Facebook platform. SMBs are an area of the economy that has been hit the hardest during COVID-19, and are also the largest demographic of online Facebook retailers. In short, targeting SMBs is a very attractive and very effective product marketing strategy. Additionally, the company has announced plans to integrate its messaging services, including Messenger and WhatsApp, for retailers to gain full access to Facebook’s 3 billion users.

The market has rewarded the Shops announcement, with Facebook’s stock price jumping 62 percent between from March 16th to May 22nd; however, for Facebook to have long-term success as a trusted eCommerce market player, they will need to address reputational concerns the company’s incurred since 2018, including data breaches, Cambridge Analytica, and antitrust matters.

COVID-19, eCommerce & Adoption Acceleration

With 95 percent of Americans affected by stay-at-home orders, March was the first month in human history where consumers bought more groceries online than in brick and mortar stores. By mid-April, U.S. retailers’ online year-over-year revenue has risen 68 percent. A major limitation to online commerce is the infrastructure — distribution, fulfillment, reimbursements — required for large scale procurement. This high barrier to entry has increased the negative burden afflicted on small and medium sized businesses who rely heavily on foot traffic.

Facebook is well-positioned to support the plight faced by small and medium sized businesses. In the 2019 F8 developer conference, Facebook solidified its intentions to pivot away from large scale, big spender, brands to small and medium sized businesses with the pledge to train 1 million small business owners and individuals on digital skills by 2020. Additionally, during F8, Facebook also launched a new suite of ad tools to support their training program, including video editing, appointment schedulers, and ad optimization. In the face of COVID, Facebook launched a $100 million grant program to support small businesses impacted by the global pandemic.

Facebook is now in the position to further their relationship with SMEs with the launch and Shops, and solidify themselves as the preferred partner over other ecommerce platforms such as Amazon, eBay, and Etsy.

Unlike the ads businesses, ecommerce is the facilitation of transferring physical goods between two parties through a digital medium. The physical component of the transaction places increased onus on the platform to build robust Trust & Safety processes for users to feel comfortable conducting business. In Facebook’s case, they will have to overcome several years of negative publicity that undercuts their reputation as a trusted brand, starting with Cambridge Analytica. 

Not-So-Distant Data Blemishes

As most of our audience is familiar with, in 2016 Facebook’s relationship with the Cambridge Analytica data breach became a national headline. Facebook has since distanced itself from the company, taking the stance that Cambridge Analytica improperly accessed this private data and used it to target political ads on the network. But of course, it still sparked eye-opening revelations for the public on the ways Facebook and other big tech corporations were utilizing consumers’ personal data. 

For Shops to succeed and make a meaningful impact for SMBs in our digital-first world, Facebook ought to build digital identity into the platform’s core to increase their data and privacy standards. While it’s been a while since Facebook’s data privacy issues were headlining, all’s not forgotten. Without a data privacy structure in place, it will be a challenge for Facebook to build a long-lasting trusted customer relationship. 

Shaking off Antitrust

Another external threat for Facebook’s eCommerce success is in being the subject of multiple antitrust investigations over recent years – and will continue to find itself under scrutiny if the company fails to redirect course.

If Facebook is broken up due to antitrust laws, the access that users will have through Shops, such as WhatsApp and Instagram, would be wiped out overnight. As some of the most substantial pillars of value for users, keeping these offerings integrated is necessary. If Facebook can’t make the changes required to prove that it can be a bastion of trust and preserve the privacy of its users, their business becomes an even bigger target for antitrust investigations than their Silicon Valley counterparts like Google, Apple or Amazon.

A Path Forward for Trust & Safety

The economic impact of the COVID-19 crisis is devastating, even more so for SMEs. The work that Facebook is doing to support these business owners is commendable, and hopefully prosperous for both parties. 

However, for Shops to be successful in both adoption and utilization, they ought to re-examine their digital identity strategy and how it underpins strong Trust & Safety practices. In our view, this company needs to establish liability, recompense, and other mechanisms of establishing trust between Facebook being the mid-way between consumers and vendors. This would act as the baseline to build a trusting relationship with businesses that are quickly working to develop a newfound digital lifeline, as well as consumers in need of a seamless, accessible, eCommerce experience.