Like most things Facebook (NASDAQ:FB) does before introducing new services and features, it's been methodically testing the inclusion of a buy button on some of its marketing partner's ads for well over a year now. It wasn't long before Facebook's primary digital advertising competitor Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) entered the buy button picture with its own version designed for its fast-growing YouTube property.
Though not in the same digital ad ballpark as Facebook or Alphabet, Twitter (NYSE:TWTR) quickly followed suit, and recently expanded its instant buying capabilities after partnering with some big-name e-commerce platforms. Why all the interest in digital buy buttons? There are several reasons, not the least of which is enormous potential for growth.
The inclusion of buy buttons on social media platforms and sites like YouTube have been gaining in popularity according to a report from eMarketer. That's the good news. The even better news for folks like Facebook is that fewer than half of U.S. retailers -- the leading digital ad market in the world -- are currently implementing buy buttons in their online spots.
The relatively infrequent use of buy buttons equates to a ton of potential, particularly for Facebook thanks to its strong ad conversion results. Facebook is head and shoulders above Twitter and every other social media platform in garnering results for its ad partners in the way that matters most: turning ads into sales.
According to a survey conducted with U.S. and U.K. digital retailers, nearly two-thirds said Facebook had the best conversion rates: more than three times the 19% that opted for second place Twitter. Interestingly, Facebook's Instagram property finished a solid third in the retailers list of best converting social media sites, garnering 9% of the votes. Facebook and Instagram combined were named by a whopping 73% of the retailers surveyed.
Facebook's unmatched conversions are also why of the few U.S. digital advertisers that are using buy buttons, only email marketing is a more popular alternative, likely due to its relatively low cost. Still, Facebook placed a close second, garnering 22% of advertiser's buy button business compared to email's 27%. Alphabet was a distant third, chosen by just 6.8% of advertisers, followed by Twitter and Pinterest, which were preferred by 5.9%.
What's the big deal?
Assuming the lack of U.S. retailers currently utilizing buy buttons in digital ads is applicable in other regions around the world, combined with the fact that Facebook and its properties are far and away the first choice of digital marketers, suggests the upside is enormous. Facebook's buy button strategy has an advantage over Alphabet's YouTube plans, too.
Instead of a consumer hitting a buy button and being sent directly to a retailer's site, a la YouTube, Facebook has come up with a better mousetrap. Instead of leaving Facebook to go buy whatever struck a consumer's fancy, its buy button allows users to review and complete the online purchase, all while remaining on Facebook. That may not seem like a big deal, but user engagement is near the top of CEO Mark Zuckerberg's to-do list, and keeping Facebook "friends" engaged at the same time as delivering results to its advertisers is a definite win-win.
Another benefit to Facebook -- along with Alphabet and to a lesser extent Twitter -- is that directly converting an ad to a sale utilizing its in-depth user profiling to deliver the right ad at the right time, will have advertiser's salivating. That said, the successful and widespread launch of a buy button should translate to higher ad fees. After all, if Facebook is able to provide its marketing partners with tangible, direct sales, it stands to reason increased ad rates would follow.
Unlike the revenue potential of WhatsApp, Messenger, the Oculus Rift virtual reality (VR) headset, and the newly monetized Instagram, Facebook stock isn't up nearly 40% year to date and hovering around the $110-a-share level because of buy buttons. But the fact that Facebook is already the runaway choice of the few digital advertisers using buy buttons -- and those still exploring the idea -- is yet another means to drive its stellar growth.
Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), 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.