Amazon.com (NASDAQ:AMZN) has been the e-commerce leader ever since the birth of the Internet. On its path to $100 billion in revenue, the company has bested early pretenders like Webvan, survived the dot-com bubble, dominated challengers like eBay, and now threatens brick-and-mortar giants like Wal-Mart.
In the e-commerce realm, Amazon is so bulletproof that its sales are greater than the next 12 competitors combined. Now, however, the company is being challenged by a surprising, deep-pocketed newcomer in the space: Facebook (NASDAQ:FB).
The social networking giant is testing a platform that would make it a virtual shopping mall, allowing companies to use their Facebook pages to sell products to users. It's a no-brainer for businesses that are already using the portal to connect with over 1 billion people around the world, and for Facebook the new service seems equally beneficial.
After all, these are the same companies that are paying to advertise on the site, making up Facebook's primary source of revenue, so opening up the site to e-commerce should only drive increased advertising. Facebook has no plans to take a cut of sales for itself, but that could be an option in the future if the program is successful.
CEO Mark Zuckerberg had hinted at such a platform earlier in the year, announcing at the F8 Conference that through Messenger, users would be able to chat with businesses, track packages, and transfer money to friends. All those capabilities add up to the shops program, as Facebook is calling it.
This sounds familiar
This isn't the first time Facebook has toyed with the idea of selling goods. Around 2011, Facebook opened up a similar shopping mall to brands like Gamestop, The Gap, and Nordstrom, all of whom joined in on a retail experiment that fell apart the following year as those companies were disappointed by the results. One executive likened it to trying to sell things to people while they were hanging out at a bar, while others said it was simply easier for shoppers to visit the company's own websites.
That will likely remain Facebook's biggest challenge as the program relaunches, but some things have changed in the intervening period, specifically the proliferation of smartphones, which could make the Facebook shops more useful. After all, navigating from page to page on a phone is more difficult than on a computer and if a user can make a purchase simply by hitting a "buy" button rather than going to a separate website, they probably will. Facebook also happens to dominate mobile usage, making up as much as a third of all time spent on mobile devices according to research firm Cowen & Co., meaning the social network has the eyeballs that sellers want.
A win for e-commerce
Facebook's ambitions may be large, but the shops program is starting out small, recruiting a number of brands in the "low double digits" to test the platform. While it's conceivable that Facebook, with its enormous reach, could one day pose a threat to Amazon, it doesn't seem like that day has come yet.
Facebook's move shouldn't come as a surprise. Google, Twitter, and Pinterest are all trying to do the same thing, leveraging their position in search and social media into an e-commerce business. Google has said before that it considers Amazon its biggest threat as product search is one of the most valuable kinds of ads it sells, and Amazon is grabbing more of that share.
What the move by Facebook and others also signals is the growing importance of e-commerce, which threatens traditional retailers rather than Amazon. It's also evidence that sales through the online channel should keep taking share from physical retail, keeping up its growth rate of around 15% a year.
The opportunity is there for Facebook, and retailers are interested. Social commerce, as this type of selling is known, is on the rise, climbing 26% last year, and Facebook has the relationships to make every other company envious. All that remains is for the users to buy in.