Please ensure Javascript is enabled for purposes of website accessibility

Why Facebook Has a Better Shot at E-Commerce This Time

By Donna Fuscaldo – Jun 1, 2020 at 11:13AM

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

Online shopping is seeing a surge amid the pandemic, presenting Facebook with a big opportunity if it can succeed in a market that has long been out of its reach.

"Been there, done that unsuccessfully." That's what some investors may be thinking about Facebook's (META 2.16%) new e-commerce push. The tech stock has made online shopping missteps in the past, and it still has trust issues even if its user base continues to grow. But with online shopping increasing amid the COVID-19 pandemic, and with a potential shopping base of more than 2.5 billion monthly active users, Facebook has a real shot at succeeding this time around.

Tiny packages sitting on a laptop with online shopping on the screen.


The pandemic is changing the way we shop, potentially forever 

Shopping online was already a big story prior to the pandemic, but with stores shuttered and stay-at-home orders still in place in some cities, consumers have been turning to e-commerce to get their goods. At the same time, small businesses, many of which remain closed, have to find alternative ways to get products in front of customers -- thus the increase in online shopping. 

Those trends alone don't ensure that Facebook will be a winner. It has to offer an easy and hassle-free way to shop in order for it to take off with the masses. If we've learned anything from the pandemic, it's that loyalty can only go so far -- consumers want service. With delivery delays hurting Amazon's ability to get products to customers in under two days during the pandemic, shoppers turned to alternatives. That's helped drive sales at retailers that offered same day pickup and delivery. 

So how does the tech stock plan to make its offering superior to one-click shopping pioneered by Amazon? By not requiring small businesses and consumers to jump through hoops to buy and sell across its rather sticky platforms. 

Facebook Shops, which are free for small businesses to create, live on their existing Facebook and Instagram accounts. That means small businesses won't have to learn a new application or create a new page to get up and running. 

On the consumer side, users will either be able to purchase directly from Facebook and Instagram, or they'll be taken to the business's website to complete the transaction. Thanks to artificial intelligence and machine learning, Facebook will soon be able to automatically tag items users may like and place them in their feeds. That could encourage impulse shopping, particularly if it only takes a couple of clicks. 

coming soon will be the ability to tag and purchase items from users' feeds. To make the process easy for small businesses, Facebook is partnering with Shopify, Bigcommerce, and other third-party providers to power Facebook Shops. 

Facebook has the base 

In addition to making shopping easy, Facebook needs a large base of merchants for its efforts to take off in a meaningful way. The more e-commerce sales it does, the more advertisers will flock to Facebook and Instagram.

Facebook makes money off of ads as well as transaction fees when users purchase on its platform. It plans on adding Facebook Shops to Messenger and WhatsApp in the near future. 

The social media giant is no Amazon when it comes to online shopping, but it does have more than 2.5 billion monthly active users that could turn into potential shoppers. It also plans to promote merchants' products with dedicated shopping tabs and eventually enable real-time shopping events. That provides small businesses with a new opportunity to reach existing and potential customers without much effort. 

It's not a slam dunk 

In order for Facebook to be successful and realize even a fraction of the tens of billions of dollars Wall Street thinks may await the company , it will have to win consumers' trust, especially if it's storing payment information. That could be a hard sell given its history with data leaks and privacy breaches.

It also has regulators and now the White House breathing down its neck. Any negative publicity could erode trust even further. Facebook has been trying to win back trust by blocking misinformation during the pandemic and supporting struggling small businesses. It's also proven it can still grow even with a battered and bruised reputation. 

This isn't Facebook's first rodeo. It tried several times before with shopping on its platforms but it failed to take off. The company tried launching Facebook stores with big brands back in 2009; it fizzled. An online gift shop dubbed Facebook Gifts was unsuccessful. And it has also tested a Buy button directly in ads that show up in Newsfeeds. None of the shopping features resonated with users, in part because consumers haven't been too willing to store sensitive data on its platforms.

The timing is different now, thanks to the pandemic. If Facebook can deliver an easy-to-use experience and protect customers' sensitive information, the social media giant has a good chance of becoming a real player in the post-COVID-19 e-commerce marketplace. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. 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. Donna Fuscaldo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Facebook, and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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, Inc. Stock Quote, Inc.
$115.88 (2.55%) $2.88
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$138.61 (2.16%) $2.93
Shopify Inc. Stock Quote
Shopify Inc.
$37.80 (1.64%) $0.61

*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 analyst team.

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 10/04/2022.

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.