The Huge Potential Of Facebook Stores

With the launch of Facebook Shops last week, Facebook (NASDAQ: FB) took another step into social commerce. Small and medium-sized companies may use the feature to upload their catalogs to Facebook and Instagram, giving customers another option to shop online.

The app is free to use, and Facebook will only charge small businesses that use the Checkout feature on Instagram, which it launched last year. Analysts, on the other hand, see Shops as a huge opportunity for the social media behemoth. According to Lloyd Walmsley of Deutsche Bank, Shops could generate up to $30 billion in additional revenue.

And, as with almost all Facebook does, the majority of the potential is in advertisements.

Read: Marketplaces on Facebook | Buying and Selling Marketplace items

Fighting back against one of its biggest challenges

Amazon has been one of the most significant challenges to Facebook’s supremacy in the digital advertising industry in recent years (NASDAQ: AMZN). Amazon’s digital advertisement business has expanded rapidly, from almost zero to nearly $13 billion in ad spend last year. According to eMarketer projections, the number could double by 2022.

Large volumes of shopper data and Amazon’s status as the top destination for online product searches are two of Amazon’s advantages. Both help it target advertising on its Fire TV and Kindle devices, as well as on its main web site’s search results pages. Furthermore, since the transactions take place within the same ecosystem, Amazon can reliably connect ad impressions to consumer purchases. Ad buyers may use this information to assess the value of their promotions.

The shop gives Facebook the chance to emulate Amazon’s strengths. With its Checkout feature, it can collect more shopper data and more reliably attribute ad impressions to conversions. Since it eliminates the friction between discovery and checkout, direct checkout from Facebook can boost ad conversion rates.

If more people use the feature and store their credit card details on Facebook, a virtuous loop — a network effect — will emerge, making it easier to convert inside Facebook rather than going to the retailer’s website. As a result, Facebook will have more shopper data to target advertising and recommend items, similar to how Amazon does.

Can Facebook really take on Amazon?

Since it is the most popular online shopping destination, Amazon has been able to rapidly grow its advertising business. Facebook would not be able to take Amazon’s place as the go-to platform for shoppers searching for a particular item. At least not in the near future.

Nonetheless, “hundreds of millions” of people around the world use Facebook’s Marketplace feature. Since early 2018, when it announced 800 million monthly users, it hasn’t updated the figure. Meanwhile, a growing number of Instagram users regard the app as a place to do some virtual window shopping. Instagram has embraced it with the addition of a new Shop section to Discover, among other things.

In other words, users have already shown an interest in shopping on Facebook’s applications. Shops simply make it easier for retailers to get their goods in front of potential customers and turn them into buyers. And, just as it has been a vital part of every third-party retailer’s strategy on Amazon, ads can play a key role in the process for retailers. The advantage of Facebook is that retailers aren’t competing directly with the organization with which they’re doing business.

Read Also: List of Facebook Marketplace challenges and how to

The potential for Facebook with Shops is to improve its e-commerce advertisement capabilities to the level of Amazon’s. If it can do so, it should be able to generate more ad sales in one of the most significant verticals. Even a small rise in the average ad price for e-commerce advertising will result in billions of dollars in extra revenue.

This article is the author’s personal opinion, which may differ from a Motley Fool premium advisory service’s “official” recommendation stance. We’re a mishmash! Questioning an investment thesis, including our own, encourages us to think objectively about investing and make choices that will make us smarter, happier, and wealthier.

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