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A Buy Button? Is Facebook, Inc. Aiming to Compete With Amazon?

By Daniel Sparks – Jul 29, 2014 at 12:00PM

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Facebook is letting users shop and pay for items within their news feed. What is the company up to?

Facebook (NASDAQ: FB) is testing a buy button for advertisers. If you've seen it in your feed, you're lucky; currently it has been rolled out to only a limited number of medium-sized U.S. businesses. Limited reach or not, however, it is the first major move Facebook has made toward e-commerce. Does Facebook plan to cross paths with

Here's how the latest Facebook button may appear in your feed.

Facebook is testing a buy button. Image source: Facebook.

Quick to silence any potential headlines that could have read, "Facebook is sharing your credit card information with advertisers," the company said it is taking privacy seriously with its buy button: 

We've built this feature with privacy in mind, and have taken steps to help make the payment experience safe and secure. None of the credit or debit card information people share with Facebook when completing a transaction will be shared with other advertisers, and people can select whether or not they'd like to save payment information for future purchases.

With the privacy issue out of the way, the next big question is this ...

Is it a new strategy?
E-commerce is a big market. Naturally, investors would want to know whether a buy button signals that Facebook may be considering a strategy to compete with the great e-commerce giant that is Amazon. So it wasn't surprising when the subject surfaced during the social network's earnings call last week.

JPMorgan Chase analyst Douglas Anmuth brought up the subject.

"There's been talk, Anmuth explained, "about testing a buy button. ... I was hoping you could talk about how important you think commerce is to Facebook going forward and then perhaps also payments as well."

Facebook CEO Mark Zuckerberg (right) in his conference room.

But Facebook is still an advertising business, Facebook CEO Mark Zuckerberg and COO Sheryl Sandberg explained.

"No one's buying from us," Sandberg emphasized. "We're just streamlining the process of buying from our clients. I think commerce is really important and is a growing important part of our business, as all marketer segments are growing, but I don't think people should confuse that with Facebook selling things directly."

On the flipside, Facebook may be teasing investors with a preview of a larger emphasis on e-commerce in the future as a middleman. Sandberg explained that a shift is, indeed, happening:

The more people buy online, the more people buy things they discover through their mobile phones, the more people discover things from a News Feed and go on to purchase, the more important we are in driving e-commerce, and I think we are increasingly important. That doesn't mean we're going to or have to sell products.

Interestingly, though, Zuckerberg went on to explain that he doesn't see Facebook getting into the payments space, but rather continuing to view others in the space as partners.

Twitter, too
Twitter (NYSE: TWTR) sees the opportunity as the middleman in e-commerce, too. The company announced earlier this month that it acquired CardSpring, a payments infrastructure company. And, unlike Facebook, Twitter blatantly said it is working on "the future of commerce on Twitter." The acquisition, Twitter said, would help the social network bring "in-the-moment commerce experiences to our users."

And, for Twitter, there's more to come: "We'll have more information on our commerce direction in the future."

Fancy -- a shopping app -- was even spotted with a buy button on Twitter. Considering the wild price point listed, it was surely an accident that the ad was leaked.

While Facebook and Twitter will almost certainly never sell things directly, as Zuckerberg emphasized during the Q2 call, they may try to increasingly promote in-platform purchases.

The move by Facebook and Twitter to offer in-platform purchases shouldn't be thought of as entering the business of selling things that Amazon is in. And while such a move would definitely open up a new market to the social companies, it would also be way out of their fields of expertise -- so it's probably a good thing they will never try to be Amazon. And who wants to try to compete with Amazon, anyway?

What the move does do, however, is add another layer to social advertising that television marketing can't imitate (or at least not  very effectively). It is a powerful new ad product that promotes, as Twitter said, an "in-the-moment commerce" opportunity.

Advertising and commerce all in one fell swoop! Sure, it's not a move to face off with Amazon, but it is certainly a game-changer in the digital ad business.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter and owns shares of Facebook and JPMorgan Chase. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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