There's little doubt where social-media sites such as Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) derive their revenue from: advertising. In Facebook's case, a whopping 95% of its record-breaking $4 billion in sales last quarter came from ads, with the balance coming from its payments and other fees unit, which includes its upstart gaming apps.
Twitter is similar to Facebook as it relates to revenue mix, with 90% of its $502 million in sales last quarter ad-related. But there's a problem, albeit minor at this point, with the success Facebook's marketing partners have enjoyed in terms of its industry-leading response rates.
Consumers haven't been using social-media sites in general, and Facebook in particular, to purchase items. Instead, a prospective buyer of a marketed product or service will generally leave Facebook and complete the purchase directly from an advertiser's site. To help address this "problem," Facebook and Twitter are incorporating buy buttons to allow consumers to purchase directly. But according to new research, it doesn't appear U.S. shoppers are ready to use the Facebooks of the world as their holiday shopping portals.
Thanks, but no thanks
As Facebook has grown, industry pundits have long predicted that social commerce -- buying directly from a social-media site in response to an ad -- was on the cusp of skyrocketing, and it's easy to see why.
As of last quarter, Facebook boasted just shy of 1.5 billion monthly active users, or MAUs, equal to nearly half the connected people on the planet. More impressively, 968 million access Facebook every day. With nearly 1 billion "friends" on Facebook daily, it seems logical that a good number of those prospective consumers would become comfortable purchasing directly, rather than exiting the site.
According to research firm Market Track, however, the notion that social commerce is a natural next step for incredibly popular sites such as Facebook won't become a reality anytime soon.
In August of this year, over a thousand U.S. Internet users were asked if they planned to purchase directly from social-media sites such as Facebook and Twitter this holiday season. Despite expectations from industry insiders, turns out very few are ready to forgo either a marketer's website or bricks-and-mortar store this year. A mere 9% of the survey respondents said they intended to buy directly from Facebook or any other social-media site, including Instagram.
All is not lost
Naturally, Facebook CEO Mark Zuckerberg is well-aware that making the shopping experience an easier one for Facebook users offers plenty of upsides, which explains the rollout of buy buttons on select ads this past summer. Not only does purchasing directly from Facebook keep users engaged with the site; presumably there could be some fee income generated from its marketing partners that benefit from direct sales.
Facebook is hardly alone in trying to jump-start social commerce, as evidenced by Twitter's announcement that it's done with the testing phase and is offering its own buy buttons to ads en masse. Facebook's primary digital advertising competitor, Google, is doing the same for marketers on its wildly popular YouTube property. That said, it doesn't appear the respective efforts of online ad giants such as Facebook, Google, and Twitter to "buy direct" are taking hold yet.
The good news is that of the Internet users surveyed, almost 25% plan to use social media to conduct their holiday gifting research. That pales in comparison with other forms of marketing, such as TV, but it could prove to be an important initial step in boosting social commerce in the long run.
If more consumers turn to Facebook and its peers for research, get the information they want, and are able to complete the process then and there, buy buttons will become a simple extension of the purchasing process. Until then, Facebook investors can still focus on its multitude of other revenue-generating opportunities, which are more than enough to continue driving its stellar growth.
Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.