If you prefer to buy some things secondhand, you're probably very familiar with Craigslist. The online classified site helps connect local buyers and sellers all over the world. But Facebook (NASDAQ:FB) thinks it can do better.
With 1.55 billion users around the world, Facebook has a much bigger direct audience than pretty much any company in history. Over 900 million of those users are in a Facebook Group, and a growing number of those Groups enable local commerce. The company is looking to capitalize on that trend by testing a Local Market button that organizes items for sale in each Group into an easy-to-browse and searchable interface.
This feature would allow Facebook to facilitate commerce and further monetize its enormous user base.
A built in inventory
Back in February, Facebook unveiled a new tool for Groups that allowed users to list items for sale more easily. It had the added advantages of giving Facebook a clearer picture of the amount of commerce taking place on its local Buy/Sell Groups and providing a catalog of items for sale.
Now, Facebook can roll out a test of its Local Market section, and some categories will already have thousands of listings. Facebook simply aggregates items for sale near a user's location. Sellers have to enter a location when they list an item in a Group, and Facebook can use a potential buyer's GPS or provided hometown to promote what's available nearby. There's no extra work necessary for the user.
Ultimately, the social network is just facilitating commerce. Likewise, Craigslist only charges for a small portion of ads listed on its website, such as New York real estate or job listings in several major cities. Facebook is also working to increase the amount of commerce on its site through Pages, a dedicated shopping section for retailers, and functions in Messenger. So far, Facebook isn't making a dime off of any of it.
But the potential for revenue is there
Wherever there's money changing hands, there's a good opportunity to take some of it for yourself. That seems to be Facebook's philosophy lately, as it continues to grow the number of ways for people to discover products on its social network.
Facebook could certainly expand its Local Market feature the same way it has convinced 2.5 million small businesses to advertise on its platform. It just needs to give sellers a little nudge.
When a small business makes a post on its Page, Facebook asks if it wants to promote that post and reach a wider audience. Likewise, when a user posts something for sale in a Group, it could ask if he'd like to promote that item so it sells faster. The company could push that item to the top of its respective category, or place it at the top of relevant search results. It definitely beats coming back to Craigslist every day to update the post and bump it to the top of the listings.
Facebook has an opportunity to do something similar with professional retailers and its new searchable shopping feed. If a user searches for something specific, a promoted item may find its way to the top of results eventually.
With 1.55 billion users, Facebook should be an attractive platform for anyone looking to sell a product, whether it's one person or a huge retail operation. As long as Facebook continues making it easier to connect sellers to its huge audience, it should find a way to monetize that action. Revenue from shopping on Facebook could offset the decline of the company's Payments business, which brought in just $202 million last quarter.
Investors should watch for Facebook to officially roll out Local Markets some time next year along with its dedicated shopping feed (and the two may overlap). Still, like all Facebook products, it could take much longer for the company to monetize either one, even though there's significant potential.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. 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.
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