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Stock Market Wrap-Up: The Big Winner From Facebook's Newest Feature

By Dan Caplinger – Updated May 19, 2020 at 4:45PM

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What looks like potential competition is actually collaboration.

Stocks gave back some ground on Tuesday, easing lower after a huge rally on Monday. Initial enthusiasm about a possible vaccine for COVID-19 got tempered by more realistic expectations about timing and efficacy, and after holding up during the morning and early afternoon, the market sold off late in the day. The Dow Jones Industrial Average (^DJI -1.71%), S&P 500 (^GSPC -1.51%), and Nasdaq Composite (^IXIC -1.51%) fell between 0.5% and 1.5%.

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Data source: Yahoo! Finance.

More businesses than ever are racing to build an online presence, dealing with the challenges of trying to operate with coronavirus-forced store closures. Tech giant Facebook (META -0.54%) became the latest company to make a bigger push into enabling e-commerce, launching a service it hopes will make it easier than ever for small businesses to move online. That might seem like bad news for other companies providing those services, but Facebook is using a collaborative approach that actually opens the door to further gains for online business services provider Shopify (SHOP 0.64%).

What Facebook's trying to accomplish

Facebook acknowledges the struggles that small businesses are going through right now, and that's the justification for its releasing its new Facebook Shops product. Facebook Shops lets users set up an online store that customers can access either through the Facebook and Instagram social media platforms. Shops will be free for customers, letting businesses customize their e-commerce presence and pick the products that they want to feature.

Facebook logo of white letters on blue background.

Image source: Facebook.

Facebook Shops tries to make maximum use of the social media giant's ecosystem. The company suggests providing customer service through messaging via WhatsApp, Messenger, or Instagram Direct. Chat-based purchasing is expected in the near future. In addition, those looking for a given business will be able to find it using search functions on Facebook's platforms, as well as through stories, ads, profiles, and other pages.

A new market for Shopify

If that sounds familiar, it's because it mimics a lot of what Shopify already provides. Shopify's entire mission is to help businesses of all sizes get onto the internet, and its suite of services makes it a whole lot easier for anyone from mom-and-pop store owners to mid-sized enterprises get the e-commerce exposure they need.

However, the good news for Shopify is that it won't have to go head-to-head against Facebook. Instead, the social media giant is explicitly working more closely with Shopify and some other partners. The idea is that Shopify already provides much of the support that small businesses need, and Facebook wants to make those services available to its own users to make Facebook Shops look more attractive.

There's been a lot of concern in the disruptive technology arena lately that giants like Facebook would come in and try to steal the thunder of smaller up-and-coming players like Shopify. At least with Shops, though, investors can see that there's an alternative that involves companies working more closely together to offer customers the best of both worlds. That could prove to be a business model that's hard to beat -- and it could give Shopify new business it would never otherwise have gotten. That's a good part of why both Facebook and Shopify shares were higher today, and it could continue to help both tech companies well into the future.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Shopify. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$135.68 (-0.54%) $0.73
Shopify Inc. Stock Quote
Shopify Inc.
$26.94 (0.64%) $0.17
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,585.62 (-1.51%) $-54.85
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$10,575.62 (-1.51%) $-161.89

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

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