First-Party Data by SimplicityDX Confirms Social Commerce Is Going Through a Metamorphosis

Charles Nicholls
September 12, 2022

Charles Nicholls, SimplicityDX – Video Commentary

The news that Meta’s Instagram will pull back from its drive into online shopping confirms what many have seen as inevitable for some time. According to media reports, Instagram is shutting down its Shopping page and replacing it with a simpler, less personalized version.

Let’s dig a bit into what went wrong, why shopping at the edge is here to stay, and how it is different from what Instagram and other social media platforms originally envisaged.

A Decade of Missteps

We’ve been talking about the intersection between social (where customers spend their time) and ecommerce (where customers go to shop) for more than a decade. The screenshot below shows what it looked like in 2011. It didn’t take off. Then in 2014, Twitter and Facebook again launched ‘buy buttons’ but then subsequently killed them. Now in 2022, Meta is once again pulling back.

facebook social commerce in 2011 screenshot

The social networks’ motivations for wanting to convert sales within their platforms stems from their avaricious desire for customer data. As cookies become progressively more problematic for targeting advertising, first party data is pure gold: Because the networks are used by multiple brands, they can build a rich consumer profile of each consumer as they shop across different product categories and brands. Very few companies have this data and the consent to use it, and it is a great basis for targeting advertising in a post-cookie world.

Given this, it’s clear why the social networks sought a different revenue stream from online shopping that would also help to drive advertising sales.

When Instagram launched its checkout feature in March 2019, an A-list of 26 brands were featured prominently as early adopters including Adidas, Burberry, Dior, H&M, Kylie Cosmetics and Prada. Today, almost one quarter of those launch partners no longer use Instagram Checkout, but direct traffic to their brand eCommerce stores instead. Brands leaving Instagram checkout include Michael Kors, Prada, Dior, Balmain, and Uniqlo.

Instagram also waived its usual 5% seller fee for these launch partners, but this still wasn’t enough to get them to stay.

So, What’s Gone Wrong This Time Around?

There are three core reasons behind brands trying, then rejecting social checkout:

·   Brands want to control the shopping experience

The shopping experience on social media falls a long way short of where it needs to be for many brands. A big part of the pleasure of shopping is the brand experience itself, and brands want to control this end to end. That’s problematic on social media, not just because the look and feel is different and the amount and type of content restricted, but because many of the actual commerce processes on social media are far from perfect.

Take inventory synchronization, for example. In this example of a purchase on Instagram, the item is shown as available at the moment of purchase, and the purchase confirmation duly follows. However, two days later the order was canceled, without any real explanation, due to the item being out of stock.

 

instagram commerce order flow

This is symptomatic of a larger issue with all social platforms in that the social checkout is not synchronized with inventory in real time. Had the customer bought the item directly on the brand ecommerce site, then the purchase would have likely been successful. These types of experience missteps are highly problematic for customers shopping on social media, where trust is the number one thing holding customers back from purchasing. It’s also not the type of experience that most brands want to deliver that will encourage customers to come back again and again, becoming loyal and profitable shoppers over time.

·   Brands want data and consent

Many brands are focused on building first party data together with consumer consent to market to them. The combination of stricter consumer privacy legislation and the demise of third-party cookies has put this into sharp focus as strategically important. The reasons are obvious: the cost of customer acquisition is so high that merchants almost always make a loss on the first sale. Only repeat sales are profitable with brands losing on average $29 for each new customer acquired.

Selling through marketplaces or social media almost always means no ownership of customer data, and no right to contact these customers to get the repeat sale. 

  • Consumers prefer shopping on the brand site

Overwhelming evidence shows that while many consumers like social networks for discovering new products, almost three quarters prefer to check out on the brand site. For those consumers that do checkout on social media and need to return a product, our research shows that sixty-six percent were unlikely to make another purchase on social media because of the difficulty of returning products. 

But it is clear that customers are spending ever more time on social media (2.5 hours per day on average) and marketers are planning on reaching these consumers by committing 25% of their digital ad spend to social platforms this year.

The Bigger Opportunity in Social Commerce

The opportunity therefore is not to build and maintain a duplicate ecommerce store on social media, rather to leverage social media’s strengths as a place where customers can discover new products and then check out on the brand site.

Perhaps what the social networks have still misunderstood is how people shop. Only a small percentage of purchases are impulse purchases where a consumer discovers a product for the first time and instantly buys it. More often, shoppers make a sequence of visits over time before making a purchase, considering, deciding and then purchasing. During this journey, the customer may seek reassurance about the authenticity of the product, its fit, what others think about it and check their finances. Finding a social post that the customer saw some days ago on social is notoriously difficult making the consideration phase and eventual decision to purchase highly problematic on social.

Given the latest news from Instagram and the current state of social checkout in general, it’s likely that social checkout isn’t going to be a big success the third time around, but that the bigger opportunity is to leverage social for new customer acquisition and to direct traffic to the brand site.

Charles Nicholls is a social commerce expert and board advisor to several e-commerce startups. He founded SeeWhy, a real-time personalization and machine learning platform, which was sold to SAP. Serving as SVP of product, he built SAP Upscale Commerce, an e-commerce platform for direct-to-consumer brands and the mid-market. Today, Charles serves as chief strategy officer for SimplicityDX, a commerce experience company. He has worked on strategy and projects for leading ecommerce companies worldwide, including Amazon, eBay, Google and many others.

Learn more about the state of social commerce.

When is the best time to post on social to encourage eCommerce sales?

The Truth about Meta's Social Commerce Market Share

Impulse Buying in Social Commerce: Fact or Fiction?

Key Considerations for your Social Commerce Strategy

Should All Brands Sell on Social Media

Shopping at The Edge – The New eCommerce Reality

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