It was about this time last year when Facebook (NASDAQ: FB) began testing its version of both a desktop and mobile "buy" button that gave users of its site the ability to purchase products and services from its ad partners directly. Social media wannabe Twitter (NYSE:TWTR), among a host of others, also dipped their toes in the direct purchase waters.
When it comes to introducing new features -- be it user-related or ad formats like video -- Facebook takes the time to ensure it gets things right before rolling the new functionality out to the masses. So naturally, the testing phase of Facebook's buy button was conducted with a few, select small and medium sized businesses, or SMBs. But that's about ready to change thanks to a deal with Shopify that opens the door to direct purchases from Facebook's news feed. And according to some new research from Business Insider, the timing couldn't be better.
Just the facts
Last year, as per Business Insider, the U.S. e-commerce market grew a sound 16% for the top 500 retailers in the country. However, the growth in e-commerce in 2014 pales in comparison to the jump retailers garnered from social media-related sales and referrals, which climbed 26%, and it appears that trend will continue in the foreseeable future.
Even though social media makes up a small portion of overall online-driven sales traffic, it still generated over $3 billion in revenues for those same 500 retailers last year. The number of referrals in the first quarter of 2015 more than doubled compared to the year-ago quarter, and much of that growth is thanks to Facebook "friends."
As it stands, Facebook already accounts for half of all the referrals retailers enjoyed last year, and even more importantly 64% of total social-driven revenues. And keep in mind, those lofty figures were before Facebook made the e-commerce process relatively seamless by offering prospective customers of its ads a buy button.
This could be really big
Another benefit of Facebook introducing a buy button on ads is that it should positively impact its already impressive user engagement statistics. Last quarter, a whopping 936 million of Facebook's 1.44 billion monthly average users, or MAUs, accessed the site daily. The beauty of a Facebook buy button on more ads is that users can complete a purchase of an advertising partner's product or service without ever leaving the site. Facebook's advertising partners see a nice return on their investment, and then users can get back to "facebooking."
With so much potential to drive sales, it shouldn't be long before retailers finally grasp how much traffic social media can drive, which could make the $3.3 billion in revenues the top 500 retailers garnered last year a drop in what could be a very large bucket. And Facebook should continue to take the lion's share of the fast-growing market.
Though Twitter's paltry piece of the social media-driven retail sales pie wasn't the reason CEO Dick Costolo finally threw in the towel and resigned, it certainly didn't help. To put Twitter's poor socially driven retail performance into context, Pinterest, despite having just a sliver of the MAUs Twitter has, generates more retail sales.
And let's not forget
Investors and industry pundits alike have been clamoring for Facebook to take the wraps off its Instagram property and really begin monetizing its 300 million plus MAUs since it made the $1 billion deal a little over three years ago. Now that Facebook is finally ready to institute ads across Instagram -- presumably with a buy button to follow -- its social media-driven ad and referral leadership position could really take off.
WhatsApp, Facebook Messenger, and even its Oculus Rift virtual reality headset scheduled to be introduced to the masses early next year are all cited as future drivers of revenue, and rightfully so. But in the interim, not only do Facebook shareholders have the newly monetized Instagram to look forward to, there's also the multi-billion dollar social media-driven retail sales market, and that's still in its infancy. A Facebook buy button and its already dominant leadership position gives it yet another avenue for growth.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of 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.