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Facebook vs. Amazon: Does a "Buy" Button Make the Social-Media Site a Rival to the Retailer?

By Daniel B. Kline – Jun 15, 2015 at 2:00PM

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It's about to become easier for over a billion people to buy something with a couple of clicks through the social network.

Facebook (META 1.98%) has always been a platform for retailers to get the word out, interact with customers, and even indirectly make sales. 

What it never had been was a direct sales engine -- a place where customers could go and easily purchase a book, a new pair of shoes, or any other hard goods.

That may soon change, however, as the company is expanding its testing of a "buy" button, which would allow for direct sales through the site. This service would perhaps allow the social-media network, which has had huge success getting its user base to directly download apps from its advertisers, to facilitate the sale of physical goods.

If it works, the buy button makes Facebook a direct competitor to online sales leader (AMZN -1.08%).

What is Facebook doing?
The social network is in the early stages of testing the buy button under an emerging initiative it calls "Facebook for Business." On the Web page for that service, the company detailed how the direct-sales initiative will work:

With this feature, people on desktop or mobile can click the "Buy" call-to-action button on ads and Page posts to purchase a product directly from a business, without leaving Facebook.
This isn't an entirely new initiative. Facebook began testing it last July, but the company is expanding the program to retailers who sell their wares on Shopify. Approved vendors on the retail platform simply post as they normally would, choosing to add the buy button. Doing that costs nothing extra, but if the company wants its post to be broadly seen, it will need to pay Facebook to enhance the post.
It's still a test, but a statement from Facebook to TechCrunch suggests that a broad rollout will happen once the company understands its users needs better.
"The test will help us understand how the feature can drive sales for a wider variety of merchants," the company said.
It's an elegant sales solution that uses the existing Shopify back end. It's still invite-only, but the program is growing, which should have Amazon wary.

The buy button is integrated into Facebook posts. Source: Shopify.

How big could this be?
At first it will be just a fringe play, but Facebook had 936 million daily active users in March 2015, according to an earnings release. That number jumps to 1.44 billion when you consider people who are monthly active users.
That's a huge potential audience, and the social-media site knows an awful lot about its customers. It can see, for example, that I just liked my local yoga studio and assume that means I might be open to buying various yoga paraphernalia. Extrapolate that across all the other ways Facebook learns about your personal likes and current interests, and it's obvious the company could serve very targeted sales opportunities.
The roadblock -- and it's a big one -- is that registering for Facebook doesn't require a credit card. That inherently adds a step (at least for your first purchase) that could send customers running to Amazon. It's not an insurmountable roadblock -- especially if the company makes paying through PayPal or even Apple (AAPL 0.19%) Pay possible.
Is this a threat to Amazon?
Pretty much any digital sale that doesn't go through Amazon was one the company could have made. The expansion of the Facebook buy button could make it easy for impulse buys or even big, planned purchases to happen away from Amazon.
The other danger is how the social-media giant plans to expand the program. Rolling it out wide to all retailers would increase the threat to Amazon.
There's a long play here, were Facebook to use the credit-card info it captures (customers can opt to not let the company save it) to launch a more formal third-party marketplace. That, however, is not what's happening -- at least yet -- so Amazon has reasons to be wary, but nothing truly to fear.

Daniel Kline owns shares of Facebook. He is wary of buying anything online outside of Amazon. The Motley Fool recommends and Facebook. The Motley Fool owns shares of and Facebook. 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.

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