And the Social Commerce Plot Thickens

On March 19th, Instagram unveiled the Checkout feature which allows users to purchase products without having to leave the app. This new feature is currently in a closed beta for businesses and is available for people within the US.  Notable brands included in this closed beta include adidas, H&M, Nike, Burberry, Zara, Dior, Uniqlo, and the list goes on. How does this complexify any already fragmented ecosystem and what does this mean for advertisers?

The Social Commerce Ecosystem

The walled gardens continue to wall up. Instagram Checkout is proof that each walled garden (Google, Facebook, Amazon) needs to offer full-funnel solutions, from Awareness to Commerce, which allow advertisers to thrive in the direct-to-consumer era. While Instagram Checkout is a cautious first step, being dubbed a closed beta that isn’t available in Canada at the moment, Vishal Shah, Head of Product said that Instagram is out to build a complete shopping experience.  For context, this is not Instagram’s first step into commerce as they have been working up to this by testing out the shopping feature organically, without an in-app checkout. This approach is in line with Facebook’s product approach of initial organic testing followed by the paid product release. Given the sheer dominance of Instagram and Facebook’s other platforms, we’re certain consumer adoption is set to follow. An example of this can be seen from the launch of Stories, proving that if they build it, consumers will use it. 
From a revenue growth perspective, Facebook Inc. had a fabulous 2018. According to fourth quarter and full year 2018 financial results, Facebook Inc. revenue grew by 37% YoY to $56Bn, with a bulk of their revenue coming from advertising. Their non-advertising revenue was relatively flat with a meagre, by Facebook standards, $100Mn YoY increase. Seen in isolation this seems great. While Amazon doesn’t break out ad-revenue in its quarterly calls, its revenue under “Other” category surpassed $10Bn in 2018. The category which according to financial statements “primarily includes sales of advertising services, as well as sales related to our other service offerings” has gone hand-in-hand with a consistent evolution of Amazon’s ad-tech stack. With its proprietary eCommerce data, Prime Video, Alexa and programmatic tools, Amazon is arguably best positioned to go after Facebook’s brand dollars.  Conversely, with the massive time spent on the Facebook family of apps, Facebook Inc. has both the opportunity and the incentive to move into Amazon’s turf. Whichever way this pays out, we’re in the midst of a tectonic shift and in the heart of the battle for the future of premium retail online.

What does this mean for advertisers? 

Consumer behaviour will change. Social platform usage dominates the amount of time spent online by consumers and Facebook’s family of apps account for a vast majority of those minutes, therefore their ability to navigate users to new features on their apps is enviable.  
For large advertisers, this will represent a meaningful channel to distribute on. Any inertia on this front is likely to be filled quickly by smaller and nimbler competitors. Most importantly, unlike offline trade partnerships, success in an auction environment isn’t linked to scale alone; value extraction is now a function of savvy data management and algorithmic optimization. This means that sophisticated advertisers are more likely to discover and build equity with the juiciest consumer segments; something sporadic marketers are less likely to deliver and thus, in the long term, lose market share.  
Secondly, much like relationships with large distributors like Walmart & Costco in the offline world, brands will find it easier to initially scale with one of these dominant platforms. This convenience comes at a cost of data-ownership and of not having a true 1:1 relationship with customers.  It’s more critical than ever for brands to invest in data partnerships, collection and management especially around their first party assets.  
Lastly, and perhaps most importantly, we will have to raise the stakes in digital and given that there’s no cross-platform data-operability between walled gardens, invest in each major platform independently. This is true from both an ad-spend and human resource perspective as it may result in nearly tripling the volume of work on attribution processes due to the lack of cross-platform data-operability.  Doing lip service to any of these platforms or choosing to sit individual platforms out is likely to be filled in by other category competitors relatively quickly, especially with the emergence of the direct-to-consumer revolution. Facebook, Google & Amazon are likely to mobilize their current bases rapidly and an early move is likely to provide sustainable value.

What about Canadian brands?

Instagram Checkout is not available north of the border, but it is coming - and coming fast. Canadian brands should be keeping their ear to the ground for learnings and best practices so when that inevitable launch date comes, they have the Canadian first mover advantage. Now is the time to prepare accordingly for what could be the single most important shift in social commerce for the foreseeable future.

Ian Cameron, Rachel Banks and Lisa Gamble also contributed to this article.