New Feature: Choose Your Keystone

August 9, 2011 by Elan Sherbill.

Today we’re bringing you a new series in Building Keystones called “Choose Your Keystone.” We will present opposing views on relevant e-commerce topics with the goal of prompting intelligent discussion and debate. These posts will help you critically analyze different sides of a topic, and decide which practice is best for your business.

This week’s topic: should digital product sellers make significant investments in social commerce right now?

Craig’s View: Embrace social commerce now
As technology has evolved, so has communication in the marketplace. From the early days of email and instant messaging to the world of social media, new ways for individuals and businesses to interact are constantly emerging.

The next stage in this evolution of interaction is “social commerce”. Defined as the use of social media to assist in the buying and selling of products and services, social commerce presents  new opportunities for digital vendors to increase their e-commerce revenues.

With millions already using sites like Twitter, Facebook and Linkedin, these social media giants continue to display astronomical growth. Facebook continues to post big user gains in developing nations such as Brazil and India.  We’ve also witnessed an expansion of the number of services offered by these sites.  More services means more time spent on the sites and more opportunities for e-tailers to market their products to customers. Worldwide social commerce revenues are expected to skyrocket in the next five years, with an estimated 93.4 percent annual growth rate.

Digital products may be the most natural fit for companies selling via social commerce.  Social media users are more comfortable with the concept of purchasing a digital product online, paying with a web-friendly payment method, and receiving their product in the form of a digital download or web service. With the ability to promote, share and discuss your products and services, social media customers can serve as new marketing channels.

It is important to keep in mind that your competitors are probably already using social media to promote their brands and communicate with customers. While some companies think of social media strictly from a marketing perspective, more and more businesses are using social channels to drive direct sales with Facebook stores or by announcing new products and promotions through LinkedIn and Twitter.

The costs to enter the social commerce environment are relatively low, and while it’s important to avoid a half-hearted approach to this new channel, nearly any business can find the personnel and resources to run a successful social commerce campaign.

Keystone: Nearly any digital seller can benefit from investments in social commerce. Failure to act on this opportunity will leave your business at great risk of losing customers to more social-savvy competition.

Elan’s View: Take a wait-and-see approach
Online vendors should take a “wait and see” approach before making heavy investments in social commerce.  Social commerce makes up only a tiny fraction of global e-commerce revenue and the long term viability of social media as a vehicle to drive direct sales is still in doubt.

While user counts are impressive, the actual revenue generated through social commerce is still relatively low.  “Nearly 60 percent of retailers agree that the returns on social marketing efforts are unclear,” according to Forrester’s eBusiness Professional, Sucharita Malpuru.  Perhaps even more shocking, “only 7 percent of retailers say it’s an effective customer acquisition source.” It’s clear that many businesses are doubtful about social commerce as a legitimate sales and marketing channel.

Another reason to be skeptical of social commerce is the increase of aggressive discounting and special promotions. If your deal isn’t aggressive enough, you can lose customers in a heartbeat. This has created an almost perverse incentive for online sellers to drastically discount their product, sometimes to the point where they can barely make a profit. There is now strong evidence suggesting that the primary reason customers choose to “friend” a brand is to gain access to exclusive deals and offers.

Another major weakness in the social commerce model is the high level of risk that retailers take when they invest in social media activities. Social Commerce risk manifests itself in two ways:

  1. Damage to your brand image – If you make mistakes as a company it can be magnified exponentially with social media.  For example, Redner Group, a PR firm specializing in video games, tweeted a controversial statement that prompted their client 2KGames to fire the agency.
  2. Lack of control of the social commerce channel – Nearly every part of the social media experience is closely regulated, from the way content is displayed, to the ways customers can conduct transactions on the site. By investing in social commerce and building out campaigns and strategies to take advantage of the social graph, you take the risk that the “rules of the game” could be changed at any time.

Keystone: Digital sellers should look at social commerce with a healthy level of scrutiny.  The business value of this new sales channel has yet to be proven, and vendors are wise to withhold heavy investment until the business gains from social commerce are clear and substantial.

Now that you have our views on the topic, we would love to hear from you! Share your experiences with using social media to drive your e-commerce business forward.

2 Comments

  1. Brian Ekerman

    While I believe both arguments are valid and raise interesting points, it’s important to remember that there is no “one size fits all” approach to social media/marketing. What may work for one promotion/model, may be a disaster for another. If a social media campaign with a positive ROI is expected, it needs to be executed on a surgical level; all variances must be taken into account.

    @Craig – Social media stats are meaningless in the long run. May I direct you to Myspace. Things change so rapidly in this sphere, that “projections” in e-commerce, or social media, must always be taken with a grain of salt. Look at the recent change of accounting of Groupon for example. As a business owner who has run a Groupon, I have mixed feelings about what it can do for a business. I also know many other business owners who have done business with them as well as other daily deal sites, it’s not all one big gravy train for everybody. So that point, I must say, is not the end all be all.

    I believe you did hit it on the head however with the the rise of international social media/e-commerce. That is where the next revolution will occur IMO. One that has been overlooked relatively thus far on a grand scale as far as new streams of revenue are concerned.

    And yes, I agree that any digital seller can benefit from social marketing, if done right however. Shady promotions and black hat marketing however are beginning to run rampant. The new trend is doing anything you can to up your “likes” on FB or followers on Twitter. This black hat tactic is done as easily as posting a job offering on Craigslist, and saying that you are going to be expanding into this market, but for any potential candidates, for them to have to go to your FB page and “like” your company, and then to submit a resume. These postings are not actually hiring in those “new markets,” nor do they have any interest in hiring anybody, they just throw that out there to up there social media status.

    Lots of room for black hat in this interwebs world. And people fall for it, time and time again. I guess my point is, is that there is still lots of black hat shady stuff going on with social media. Not everything you see is what is really the truth.

    @Elan

    While ROI on social media efforts may not be exactly clear , it is a mandatory channel that any company which wants to stay relevant must adhere to. Company’s and exec’s must think of it more of a telephone line, you can’t exactly calculate ROI on having a phone line, but you need to have it. It’s a necessary channel. If you want ROI on it, that’s up to you as the decision maker as far as what you want to do with it. You don’t have to run promotions or discounts, you can just engage your base and keep a presence. But again, if you did want to run a special, do your homework, don’t get burned. Regardless though, it is a must to have those channels available. Sink or swim. Times change, this is the new face of commerce. Either get ahead or get left behind. How you choose to use it, that is the golden question. That is the bottom line.

    As far as revenue coming directly from FB or other sites, with the 7% stat and what not, I don’t buy that. Brand building is hard to trace. Although I may not DIRECTLY purchase from FB, who’s to say that the presence on FB didn’t contribute to the end conversion? It’s hard to quantify. And to early in the game, with questionable surveys and stats to quantify any of that.

    So no, I don’t buy any of those stats directly. I don’t. Having a presence via social media is critical to surviving in today’s marketplace. How you want to use that though, is going to be the make or break.

    You can brand build, you can run a promo, or you can engage your base, or do all of that plus more, but regardless, a well though out strategy, with opt in marketing, intent on not alienating your base with in your face marketing, which will generate revenue one way or another upstream, is the key to success in the social media sphere.

    Reply
    1. Elan Sherbill - Post Author

      Brian! Good to hear from you. Thanks for your feedback.

      I agree that companies definitely need to use social media to show the world who they are and why their goods and services are worthwhile; the audience is too big to ignore. But to even hope to capitalize off of these social media sites, companies will need to divert valuable resources from more worthwhile channels.

      Even with a passionate and dedicated team and a well organized strategy there’s no way to know if you are just distracting yourself from more traditional sure-fire revenue streams.

      Here is a great report from Susan Etlinger, an industry analyst for the Altimeter Group, that illustrates the difficulty of determining ROI on social media and what kind of resources one needs in place to begin using social media to effectively increase revenue:

      http://susanetlinger.wordpress.com/2011/08/10/research-report-a-framework-for-social-analytics/

      All the best!

      Reply

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