Facebook's Trojan Horse Commerce Strategy

A version of this essay was originally published at Tech.pinions, a website dedicated to informed opinions, insight and perspective on the tech industry.

If you were to ask the question, “What is Facebook?”, you might get a variety of different answers: A social network, a communication platform, a content aggregator and so on. Yet one thing Facebook isn’t — yet — is an e-commerce player. But it’s arguable that much of what Facebook has been building over the last several years amounts to a Trojan horse strategy to become one. Rather than entering Amazon’s market directly, Facebook has been building the scaffolding around its e-commerce business, and doing everything but actually introducing ways to buy things across Facebook. Given how Amazon tends to respond to direct threats to its business, this may be one of the smartest things Facebook has done in its history.

What then, is this e-commerce scaffolding Facebook has been building? Think about what you’d need to have in place to build a successful e-commerce business:

Goods: Either goods procured directly or close connections with companies that could be suppliers of such goods

Potential buyers: As large a number as possible of potential customers for those goods you have to sell

Signals: Ideally, strong signals about which goods you’ll offer will be of interest to your potential customers

Customer-service infrastructure: Ways for your buyers and sellers to communicate with each other before, during and after the sale

Marketing tools: Both above-the-line advertising and word-of-mouth tools for making potential customers aware of the goods on sale

Facebook, at this point, has all of this and more. With more than a billion and a half users, and masses of businesses that already run Pages and buy advertising on the site, it has well beyond a critical mass of potential buyers and sellers. Every company of any size in the vast majority of the major countries in which Facebook operates has a presence on the site and a relationship with Facebook, and a majority of individuals in many of those countries do, too.

Facebook already knows a great deal about your interests, and indeed, serves up targeted advertising for those products already, even though today the purchase flow that follows a click on one of those ads is completed outside the Facebook walled garden. In the form of Messenger, which was recently expanded to allow businesses to communicate with customers, Facebook has a customer-service infrastructure and communication medium to allow buyers and sellers to interact throughout the purchase cycle. And through both paid advertising and the social connections and ability to amplify messages through social sharing, Facebook has a variety of tools to get the word out about products. With the M virtual assistant, Facebook even has a discovery mechanism for connecting potential buyers with sellers that may meet a particular current need, combining timeliness and relevance in a way only search engines have previously achieved.

The next interesting question, then, becomes where the Buy button shows up first.

The next interesting question, then, becomes where the Buy button shows up first. It clearly has potential in the context of advertising, but, given the emphasis on Messenger as a channel for B2C interactions, it seems likely it will have a role there, too. Ultimately, Buy buttons should pop up in appropriate contexts throughout Facebook, probably even inserted automatically by AI that recognizes product names in status updates and Messenger conversations and recognizes the products themselves in pictures and videos users share. Of course, all of this will spread to both Instagram and WhatsApp (perhaps even Oculus) over time, as well. At this point, it’s far less a question of whether Facebook will embrace commerce and much more a question of when.

One of the biggest determinants of Facebook’s ability to finally pull the trigger on commerce will be its ability to solve its biggest and thorniest problem — payments. For all the information users have willingly handed over to Facebook over the years, the one vital piece of information it hasn’t asked for or received is the 15 or 16 digits on the front of users’ credit cards. Yet having some kind of payment infrastructure in place is an essential piece of that commerce scaffolding.

One of the biggest determinants of Facebook’s ability to finally pull the trigger on commerce will be its ability to solve its biggest and thorniest problem — payments.

David Marcus, who now runs Messenger, obviously has a long history in this space, but so far all we’ve seen along these lines is peer to peer payments in Messenger. When that product launched, I surmised that it might well be a way to break through the payments barrier, but it hasn’t exactly set the world alight since.

Using partners that have existing payment systems would be one option, but many of the most obvious partners have become direct or quasi-competitors to Facebook over recent years, including both Amazon and Apple. Once a user’s first transaction is completed, the rest is straightforward, but it’s that first transaction that’s going to be the hard part. Crack that, and Facebook should quickly become a major player in e-commerce, adding yet another arrow to its quiver and opening up a whole new set of revenue streams.

Jan Dawson is founder and chief analyst at Jackdaw, a technology research and consulting firm focused on the confluence of consumer devices, software, services and connectivity. During his 13 years as a technology analyst, Dawson has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. Prior to founding Jackdaw, Dawson worked at Ovum for a number of years, most recently as chief telecoms analyst, responsible for Ovum’s telecoms research agenda globally. Reach him @jandawson.