Facebook's (NASDAQ:FB) hugely disruptive potential is by no means a new topic of discussion.
In its relatively brief existence, Facebook has already grown a 10-figure annual advertising business atop its core social networking platform. It has also moved aggressively into other budding areas of technology, including virtual reality and messaging apps. And in yet another signal of its long-term potential, Facebook is taking aim at both Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Amazon.com (NASDAQ:AMZN).
Facebook eyes e-commerce
Last summer, Facebook began small-scale testing of its Buy button. The Buy button enables merchants to attract and process e-commerce transactions by Facebook users entirely within the confines of a News Feed advertisement. In the past, Facebook's role in the online transaction value chain was largely as the medium that connected sellers and buyers via advertisements on the website.
The Buy button offers a subtle but crucial difference that in theory could create significant new monetization opportunities for the world's largest social network. The Buy button has increasingly appeared in the public News Feed over the last several weeks. And while Facebook appears to be taking a methodical approach to deploying the service, the Buy button represents a clear threat to two of tech's most powerful companies, albeit in very different ways.
The Buy button and Google
The Buy button certainly could impact Google's business, although by what degree remains far from certain.
One chief competitive advantage online advertising enjoys over mediums such as print or television is its substantial measurability. Historically, Google's search ads have proven to be powerful tools in enabling companies to reach high-quality leads, since a user searching for a term tends to buy whatever it is he or she is seeking -- an "intent" factor, so to speak.
However, Facebook's troves of user data also give advertisers a powerful resource in targeting their ideal audience. At the end of the day, the ultimate determinant of whether Facebook's Buy button will help the company steal online advertising dollars from Google will be its relative efficacy. And while it's easy to envision exactly how the Buy button could drive increased conversion for advertisers, we'll need more data regarding the system's commercial power before any hard conclusions can be made here. Stay tuned on this one.
Between Google and Amazon, I see the Buy button as a clearly greater threat to Amazon. Over the years, Facebook has halfheartedly dabbled in e-commerce through efforts such as selling virtual credits for use on gaming platforms like Zynga. However, the Buy button, taken at its most grandiose potential, could create an entirely new channel to well over 1 billion highly engaged users, and a potentially attractive alternative to Amazon.
Now, the Buy button would differ substantively in some important ways from Amazon. Amazon tends to win on a potent mix of selection, price, and convenience. Its world-class fulfillment network can have a given item on a user's doorstep in less than 60 minutes in some cases, and its vast array of pricing algorithms helps ensure it offers among the lowest prices on most goods.
Facebook also almost assuredly won't invest the massive sums required to ferry items from point A to point B with the mechanical precision of Amazon. This suggests there likely will always be an inherent value difference between Facebook's possible e-commerce opportunity set and Amazon's. However, given size and scale, Amazon investors should watch the Buy button's rollout with rapt attention.
But will it work?
With its massive stores of user data, Facebook could offer consumers around the world hyper-targeted or highly relevant items for purchase. That's a big deal, especially for Amazon.
One major issue that will determine the large-scale feasibility of the Buy button is the degree to which consumers will be open to the idea of shopping where they socialize (online, that is). Some of the preliminary anecdotal evidence hasn't been great.
Last year, Amazon and Twitter partnered to create the #AmazonCart service, which enabled Twitter users to buy a good through Twitter and have the order transacted and fulfilled by Amazon. There's been hardly any mention of the service since it launched, so the idea could be a flop.
It could be that purchasing physical goods via tweet is simply too bizarre a concept to reach mass-market scale, or it could be that people simply aren't interested in shopping via social network. My guess is that it's the former, but Facebook's Buy button will put that theory to the test in a big way. While this storyline is just getting started, investors in Facebook, Google, and Amazon will all want to watch its evolution closely in the months ahead.
Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Amazon.com, Facebook, Google (A shares), Google (C shares), 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.