In many ways, Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB) are like two peas in a social pod. Both companies have embarked upon feature convergence over the years, and that trend isn't going anywhere anytime soon. Of course, "feature convergence" is just a nice way of saying that the two companies like to copy each other from time to time.
Following Facebook's testing of a "buy" button within ads that started in July, Twitter is following suit with its own experiment in mobile commerce.
How it works
The smaller social network is building a new functionality into its service, allowing users to buy products directly within tweets. Users would just need to confirm the details of a purchase after tapping the "buy" button. Twitter would handle all payment information and ensures that all data is encrypted and stored securely.
The company won't share credit card information with the seller unless the user authorizes it, and it would keep the information on file for future purchases. Twitter has partnered with various smaller marketplace operators like Fancy and Gumroad, among others, and plans to add more in the near future. It appears some of these offers would also be exclusive to Twitter.
A tale of two conference calls
On the last conference call, CEO Dick Costolo teased that the company was indeed experimenting with a "buy" button, calling it one of numerous "kinds of explorations" that Twitter is working on to improve monetization and user experience.
Facebook provided more clarity on its own conference call when asked about its own "buy" button. To be clear, this isn't about Facebook or Twitter selling products directly, but rather a way to facilitate ad partners and open up new opportunities for them while taking a cut.
1 way that Twitter is different
While Twitter's monthly active user (MAU) base is but a fifth of Facebook's, Twitter believes that its total audience when including nonregistered visitors is two to three times as large as its MAU figures would suggest. Twitter is putting a lot of effort into improving the experience for these "logged-out unique visitors," according to Costolo.
Ideally, the company can convince these users to create an account and login, in which case their data becomes more valuable. Naturally, a user would need to create an account in order to submit payment information and take advantage of the "buy" button, so the push into commerce could also potentially help grow Twitter's MAU base to the extent that its "buy" button gains traction. None of this really applies to Facebook, since Facebook has never had a strong public presence and requires users to login from the get-go.
Twitter ads are already more effective
As both Twitter and Facebook begin rolling out commerce initiatives, it may be useful to look at each network's ad effectiveness to gauge what kind of opportunities these "buy" buttons represent.
Over the years, numerous reports have been released that suggest that Twitter fetches dramatically higher click-through rates than its larger rival, which could have important implications to mobile commerce. Resolution Media said in April that while advertisers tend to spend more on Facebook, Twitter ads perform dramatically better. A recent Omnicom report estimated that Twitter's click-through rates are 8 times higher on Twitter compared to Facebook.
If similar trends play out with the "buy" button, Twitter could enjoy more commerce activity than Facebook.
Social commerce is here to stay
While these recent moves are technically still experimental, commerce is a relatively unexplored frontier of social networks that's ripe with opportunities. The notion of social commerce remains relatively underdeveloped in the U.S., whereas in regions like China social commerce is already soaring.
There, social media companies have aggressively integrated e-commerce functions in a way that U.S.-based companies are just now starting to do. There are some demographic differences. Chinese social media users tend to be older with more disposable income relative to U.S. users. Additionally, Chinese social media users are prolific content creators, while U.S. users focus more on content consumption.
Still, social commerce is an incredible opportunity for Twitter and Facebook, and both companies know it.
Evan Niu, CFA owns shares of Apple and Facebook. Evan Niu, CFA has the following options: short January 2015 $60 puts on Facebook and long January 2015 $35 puts on Facebook. The Motley Fool recommends Apple, Facebook, and Twitter. The Motley Fool owns shares of Apple, Facebook, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.