Social Commerce: The Power Of The Network
“The potential for social commerce today is inﬁnite… Every ecommerce site will have to adapt” — Bing Gordon, video game executive and technology venture capitalist at Kleiner Perkins
In 2020 Ryan Kaji, a nine-year-old boy had an income of USD$30mm from his YouTube channel called Ryan’s World (30 million subscribers and 12.2 billion views), it is estimated that he entered an additional USD$200mm from his line of toys and clothes and signed a multi-million-dollar deal for his own television series on Nickelodeon. Ryan describes himself as an influencer and is the clearest example of Social Commerce.
This is one of the stories that began to emerge around 2010, which was possible thanks to the rapid development of social networks and Web 2.0, promoting the transformation of electronic commerce from product orientation to customer orientation and community. Web 2.0 is based on user participation, conversation, community, identification of participants and the quality of the system.
Social Commerce is based on e-commerce (transactions on platforms), under a social, creative and collaborative environment. The main characteristics of ecommerce are usability, information quality, system quality and playfulness. In Social Commerce, users add value by generating and sharing content. Yahoo coined this term in 2005, but it began to take relevance with the rise of Facebook and Twitter, between 2007 and 2008.
The design of social commerce consists of the following elements (Huang and Benyouce):
- Individual: It is the central point of the business model with its own identity and a conscience that is recognized by others. Its characteristics are the personal profile, content, and activity online.
- Conversation: The interaction between the participants required to establish a community through motivation and generation of social content. Its features are social content presentation, topic, group notification, content creation and information sharing.
- Community: The group of individuals who support each other in making decisions. It is based on community support, connections, and relationship maintenance.
- Commerce: The activity to carry out online transactions. Its design includes group purchases, authority recognized by society, reciprocity, participation, social applications and advertisements, business functions and payment orders and mechanisms.
All these elements are supported by trust in the system and individuals. Unlike e-commerce where there is little or no interaction between individuals at the time of purchase, in social commerce the interaction is direct, sharing experiences and suggestions. A link is developed in the social commerce network. Trust in the system refers to the perception that the community is trustworthy and a predictive place for social interaction, rather than the performance of a single individual.
The global social commerce market was estimated at USD$90bn in 2020 and it is expected to grow at an annual rate of 31.4% reaching +USD$600bn in 2027.
Within developing markets, the benefit is notable, as much of it depends on informal businesses. In them, digitization is an efficiency tool in sales processes, customer service, inventory, and distribution; representing opportunity areas to improve. In this way, social commerce democratizes the power of purchase and sale within the market, allowing both small businesses and people to sell with tools that are already used by large brands.
For example, as of October 2018, around 800 million people used the Facebook Marketplace to search, buy or sell products. Although it is the most important, there are also other Social Commerce international platforms such as Pinterest, Instagram and Snapchat, enabling a single store or merchant to make use of more than one platform as a sales channel. Therefore, to face the challenge of serving various channels, there are platforms that promote social commerce and act as channel aggregators, such as Avana, Halosis, Manuable, Vestúa and Mercately.
Another way in which this model impacts these economies is through group purchasing power; there are platforms such as Apperto or Mercately, where small businesses gather to make volume purchases within the same supply channel and get a better pricing.
The ecosystem is made up of the following platforms (according to Roland Berger):
- International social media platforms: promote social commerce as part of their business model. Some examples are FB, Instagram, and Pinterest.
- Product review platforms: offer the review of products by users and their subsequent purchase., such as Buywith.
- Platform for large groups: integrate e-commerce and social commerce services in a single platform or interface. For example, WeChat and TaoBao.com.
- Support platform for social commerce: offers a support tool for businesses that sell on social networks, like BornLogic, Havana and Mercately.
- Social resale platform: allows users to register as a reseller and market third-party products to their friends or other people.
-Group purchase platforms: allows users to form or join groups achieving greater purchasing power and acquiring items at lower prices. As Love Local in India or Apperto and Mercania in LATAM.
Hector Shibata Salazar, adjunct Professor at EGADE Business School and Director of Investments and Portfolio at AC Ventures Fund
Ana Maury Aguilar, VC Investor at AC Ventures
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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