What Facebook Shops Mean for Entrepreneurs

Facebook has just released a new product that will allow its over 3 billion users to sell and buy directly from their favourite brands without leaving Facebook.

In a live video broadcast on Tuesday, CEO Mark Zuckerberg announced the launch of Facebook Shops and described the major features of the new Facebook Shops as well as future features that will be rolled out in the coming months. Mark Zuckerberg described it as Facebook’s biggest and latest effort to support the small businesses that have been hard hit by the economic fallout of the coronavirus pandemic.

As an entrepreneur in the e-commerce space or a small business owner here’s what you should know about Facebook Shops.

What does Facebook Shops mean for E-commerce Entrepreneurs?

It’s clear at this point that the future of buying and selling is e-commerce. Amazon has enjoyed a boost in its share price and volume of sales as the pandemic drove more shoppers online. The e-commerce space is clearly much more attractive to entrepreneurs now.

What Facebook Shops represents at a basic level is the entry of another heavyweight in the e-commerce space. It’s also coming as a disruptor of the traditional commission-based structure of e-commerce. Here are three ways Facebook Shops is challenging traditional e-commerce.

1.    It threatens traditional commission-based e-commerce.

Commissions made after sales is the major revenue source for e-commerce players like Amazon, Jumia, and Alibaba. The new Facebook Shops is challenging that model

Prof Ndubuisi Ekekwe, Chairman of FASMICRO Group notes that “Facebook does not need the commissions as its core business is advertising, but Amazon needs that money as that is the business of the merchant aggregator.”

2.    Facebook owns the audience.

Facebook Shops, image from NoyPiGeeks

“Facebook Corp is a continent,” says Prof. Ekekwe. It is a fair assessment, given that Facebook’s active monthly users are several billion strong.

A lot of the small business owners, like the vendors who list their products on Jumia or Jiji already buy Facebook ads to reach their audience on Facebook. Facebook Shops will be creating a vast and truly global online marketplace since Facebook owns both the audience and the “shops”.

Naturally, people go where the shops are – and if the shops are right on your Facebook feed or Instagram Story viewer, why go elsewhere? Think about it, would you drive out to some mall when you have an equally great mall just opening right across the street?

People are not going to change their buying behaviour overnight but expect the human desire for convenience to slowly wean shoppers – especially social media buyers away from the non-native shops they go to.

Commissions made after sales is the major revenue source for e-commerce players like Amazon, Jumia, and Alibaba. The new Facebook Shops is challenging that model.

3.    No rent.

Some e-commerce platforms charge “rent” for vendors using their platform to sell. While they may have escaped Facebook’s no-commission hammer, Mark Zuckerberg was quite emphatic about Facebook Shops being “free”.

Mark hopes that the new vendors coming to display their wares in Facebook Shops will need to buy Facebook ads to reach more customers will become a significant source of revenue justifying the no rent, no commissions marketplace.

Photo by Erik Mclean on Unsplash

Already over 160 million businesses use Facebook to showcase products and even close sales, with about 8 million businesses (5%) buying Facebook ads. With more businesses coming online and finding ways to reach new buyers you can expect these numbers to go up significantly.

What’s more, Facebook is not creating the product in isolation, Facebook Shops lists other big players in the e-commerce as partners instead of providing a solo end-to-end platform. Shopify, WooCommerce, Channel Advisor and Big Commerce are just a few of the partners that are integrated with Facebook Shops.

Feature image: Photo by Will Francis on Unsplash

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