Please ensure Javascript is enabled for purposes of website accessibility

Facebook's Instagram Takes a Major Step Toward E-Commerce

By Evan Niu, CFA - Updated Apr 14, 2019 at 12:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The popular photo- and video-sharing service is adding the ability to complete purchases right on the platform.

Facebook's (FB -5.12%) popular Instagram service has been slowly adding various e-commerce features over the past couple of years. The subsidiary started integrating third-party e-commerce platforms back in 2017, added shopping to the popular Stories format that has been spreading across social media like wildfire, and is reportedly working on a stand-alone "IG Shopping" app.

"The format is so visually appealing and people are telling stories with pictures so we see both anecdotally and in the data that [Instagram] is a great place for people to become aware of a product in the first place," COO Sheryl Sandberg said last summer. "And we see a lot of small businesses really able to do things on the platform."

Check out the latest earnings call transcript for Facebook.

Three smartphones showing examples of Instagram Checkout

Checking out in Instagram. Image source: Instagram.

Making it easier to check out

In perhaps its most meaningful e-commerce move yet, Instagram today announced that it was introducing a checkout feature that allows users to immediately and securely purchase a product that they see on the service. Previously, shopping links directed users to the merchant's site to complete purchases, creating extra friction in the process. Instagram will store payment credentials, and will only share necessary transaction data like shipping address and contact information with merchants.

Instagram had previously introduced product tags in the Feed, allowing accounts to identify specific items that may be for sale. Instagram says that 130 million Instagrammers tap these product tags every month, a key signal that expresses interest in making a purchase.

Initially, the checkout feature is only available to a couple dozen partner brands participating in a limited closed beta trial in the U.S. But once the capability is inevitably expanded, Instagram says that businesses will be able to integrate checkout directly or continue to partner with aforementioned third-party e-commerce platforms to facilitate transactions.

Taking a cut

Of course, as Instagram starts to take a more prominent role in the transactions, it justifies taking a cut of the action.

"We will introduce a selling fee to help to fund programs and products that help make checkout possible, as well as offset transaction-related expenses," an Instagram spokesperson told TechCrunch. When pressed, the spokeperson declined to elaborate on how much the fee would be. It's worth noting that in CEO Mark Zuckerberg's lengthy post earlier this month outlining Facebook's "privacy-focused" future, he specifically pointed to commerce and payments as important ways the platform can connect businesses and users.

Additionally, Facebook could potentially use all of the e-commerce tools it is developing to eventually turn Marketplace into an e-commerce platform. Currently, the Marketplace section of its core platform is little more than a classifieds section -- comparable to Craigslist -- where users post items for sale and Facebook plays no role in the actual transaction. Marketplace is presently monetized with ads. The use cases are different, as Marketplace is mostly for finding secondhand items locally, but there is an opportunity to build out Marketplace's functionality as well.

Slowly but surely, Instagram is becoming a legitimate e-commerce platform.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$192.24 (-5.12%) $-10.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.