Over the summer, both Facebook (META -4.13%) and Twitter (TWTR) introduced "buy buttons," which allow advertisers to transact commerce on the social networks directly. Users have expressed concerns about their privacy on social networks before -- after all, they're in the business of collecting data -- so many will likely hesitate to cough up their credit card information to Facebook or Twitter just to save a couple minutes.
Indeed, a recent poll from Harris and DigitasLBi shows that 38% of users want to know their purchase would not be shared before they click a "buy" button on Facebook or Twitter, and 42% want to ensure their credit card information is secure. Those numbers are surprisingly higher among millennials.
But with about 40% of users already expressing concerns over their privacy regarding these social networks' buy buttons, are they doomed for failure?
Twitter's "Buy now" button. Source: Twitter
The other side of the coin
Privacy is definitely the biggest thing holding back Twitter and Facebook's buy buttons. Still, the majority of respondents indicated no concern over the social networks sharing their purchase history. What's more, 23% of respondents said they would NOT be deterred from making a purchase on social media sites even if they knew brands would get access to their purchase history.
That means Facebook can explicitly tell its users that it's going to share their purchase data when they sign up to buy things through the website and 300 million people would still be willing to go through with it. Twenty-three percent of Twitter's 271 active users is 63 million, but that number could be much more if the buy button convinces more people to actually create an account.
To put those numbers in perspective, eBay's (EBAY 0.88%) PayPal has 152 million active users. Amazon (AMZN -2.56%), by far the largest online retailer, has 240 million active monthly users. eBay saw $76.5 billion worth of merchandise sold on its marketplace in 2013 with 128 million active users. Amazon sold an estimated $67.9 billion worth of merchandise last year.
Of course, Facebook and Twitter probably can't expect to reach similar numbers, even if they get hundreds of millions of users to sign up. One-third of respondents said they would be more likely to buy something on a social network if it cost less than $25, so it seems people are much more interested in making smaller purchases via their Newsfeeds.
They don't have to sell a lot though
The good news for Facebook and Twitter is that they don't really need to sell a lot of goods. It's not up to them to sell the items, anyway, that's up to the businesses that elect to use Facebook and Twitter's buy buttons. Facebook and Twitter's job is to help them be as successful as possible.
Source: Facebook
That means they can use purchase data and all their other ad-targeting data to help brands design ads that convert. For that service, Facebook and Twitter can charge a premium for ads that include a buy button. It wouldn't even have to charge a transaction fee -- it would be baked into the ad price.
At the same time, it could be profitable for them to extend the buy button to posts that brands don't promote. This feature would still provide Facebook and Twitter with valuable data that it can share with advertisers to improve their targeting -- resulting in higher ad prices.
The end game, at least for Facebook, seems to be to collect as many credit cards as it can. The company is planning to enable payment features in its Messenger app, and if it builds a strong collection of credit cards, it could extend a payment platform to retail websites.
Don't pay attention to the majority
A site like Facebook, with 1.3 billion users, doesn't need to convert a large portion of its audience to have a successful service. Look at Facebook Messenger. Less than 20% of Facebook users have downloaded the stand-alone app, but the service still has over 200 million active users as of the first quarter. That was before the company started forcing users to download the app to use Messenger on mobile.
Twitter claims to have between 550 million and 800 million unique visitors every month. If 20% of visitors signed up to buy things through their Timelines, Twitter could quickly rival PayPal in terms of user base. Total payments volume might lag the competition for both social networks, but that's not as important for companies that derives the vast majority of their revenue from advertising. The data they can collect from purchases is much more important.
