Instagram is adding shopping capabilities to its four-month-old Reels product. The TikTok clone is the latest feature from the Facebook (META 1.89%) subsidiary to add the ability to learn more about products featured in posts and buy them right in the app.
Shopping is also an area of interest for TikTok, and it's partnering with Shopify to add more capabilities to its own platform. But Facebook's growing focus on commerce across its family of apps allowed it to beat TikTok to the punch.
The idea of finding shopping inspiration in short 15-second videos isn't new. TikTok's Chinese counterpart, Douyin, is already loaded with e-commerce features, and it's growing rapidly. ByteDance, TikTok and Douyin's parent company, expects 150 billion yuan (about $23 billion) in gross merchandise volume to flow through Douyin this year.
That's why Walmart wanted to buy a minority stake in TikTok when it looked like the U.S. government would force a sale. The Shopify partnership aims to replicate Douyin's success, but it still has a long way to go. For now, it merely provides Shopify merchants more advanced advertising capabilities on TikTok.
Facebook, meanwhile, has continued to build on its Instagram Checkout feature introduced last year. It opened Facebook Shops to all businesses on its platform earlier this year, effectively expanding Checkout capabilities. Shops encourages businesses to upload their product catalog and inventory data for a smooth checkout process in the app. That existing infrastructure allowed Instagram to move quickly in adding shopping to Reels.
Building a business, not just a product
With shopping, Reels becomes more than just another product within Instagram or the broader Facebook family.
One of the factors for pushing shopping early in the life of Reels is to get more creators on board. The ability to shop through Reels increases the value of each impression, so building a following on the platform could lead to more lucrative sponsored content deals for creators. TikTok has a marketplace for businesses to connect with popular creators, and Instagram could follow suit.
Incentivizing creators to use Reels is important. If there's no content, nobody comes to watch. TikTok has the advantage as one of the early pioneers of the short-video format. Snap announced a massive $1 million per day monetary incentive for creators when it launched Spotlight, its TikTok clone. And other social media companies are looking to attract creators to their own iteration of the format. Giving creators a reason to choose Reels over the competition is extremely important.
Additionally, shopping can increase the value of advertisements placed between user-generated content in Reels. For one, the addition of shopping capabilities and integration with Checkout can make ads more effective. Second, if users are already shopping through user-generated content, they may be more likely to click on ads.
Down the road, there's also potential for Facebook to take a cut of each sale for processing payments. The company says it plans to start taking a cut of Facebook Shop sales next year.
Adding more monetization and advertising opportunities across the Facebook family of apps is a key factor in the social giant's continued growth. E-commerce is one of the biggest advertising verticals on Facebook already. What's more, it has reached ad load saturation in its core feed products on Facebook and Instagram. Facebook also expects e-commerce to become the main way it monetizes its WhatsApp user base.
Beating TikTok to integrate shopping into Reels should enable Facebook to establish a differentiating factor for creators and advertisers. Investors should look for updates on Reels creation, monetization, and engagement from management during the FAANG stock's quarterly updates.