Retailers Wait For Facebook To Deliver

Even as US Christmas shoppers have spent record sums online this year, one of the biggest disappointments for some internet entrepreneurs has been a company that is otherwise hot property: Facebook.

Retail executives and consultants say Facebook has yet to take off as a retail platform, defying excited predictions that "social commerce" – jargon for shopping via social media sites – would be the next big thing.

Jonathan Johnson, president of Overstock.com, an online retailer, says: "I agree that the commercial aspect of social media is overhyped and no one's really caught that rabbit yet."

Sceptics say social commerce was a rhetorical fad inflated by Silicon Valley self-belief. Advocates counter that it is merely in its infancy and that someone will soon find the right combination of technology and atrraction to make it work.

They use the term "F-commerce" to describe the potential crossover between Facebook and shopping, but as retailers' experiment with it, their options fall into three broad categories.

First, they can use Facebook as an advertising tool to draw customers to their own websites. Second, they can use it to gather data about shoppers and recommend products based on Facebook interests – as Overstock.com and Walmart's Shopycat service are doing for gifts. Third, they can set up fully functioning stores inside Facebook.

However, Kevin Ryan, chief executive of Gilt Groupe, an online fashion retailer, says there is less commerce on Facebook than many people had anticipated just nine months ago.

"It's an extraordinary place where people go and connect with their friends," he says. But "to date, they are not using it really to make concrete purchasing decisions and they are certainly not purchasing things on Facebook".

On Cyber Monday, a post-Thanksgiving shopping day in the US when retailers offer big online discounts, just 0.56 per cent of buyers were referred from social networks, according to IBM.

Facebook itself, which is due to float on the stock market in 2012, shows no interest in being a retailer. It is focused on advertising.

But it says 88 per cent of the top 200 internet retailers are "integrated" with its site and have seen traffic from Facebook increase by an average of 236 per cent from the holiday season last year.

Joel Bines, a retail consultant at AlixPartners, is sceptical: "It feels like flavour-of-the-moment . . . It's [growing] off a tiny base and very soon it'll revert to the mean and be just another way of marketing to people."

Only a few retailers have created genuine stores within Facebook, including Aéropostale, a US teen clothes retailer; Asos, a UK online fashion store; and 1-800-Flowers.com.

Against a backdrop of privacy concerns, Jason Taylor of Usablenet, a software company that sets up such stores, says retailers run them off their own systems and do not share sensitive financial data with Facebook.

The theory behind F-commerce was that young people who spent hours on Facebook wanted as much of their lives to be there as possible – including shopping.

But there's a hitch. "Consumers today are not looking at Facebook psychologically as a place where you go to buy things," says Mr Ryan of Gilt.

Mr Taylor agrees: "When people are on Facebook they're in sharing mode, not purchase mode. So the measure for success is not revenue through Facebook. It's sharing of the brand and traffic."

Facebook itself wants to draw advertisers' attention to how its site can inspire shopping ideas – even though it's impossible to pin down a causal link between, for example, one person clicking the "Like" button on a Tiffany & Co ring and a friend who noticed and a month later bought a Tiffany necklace.

Booz & Co, the consultancy, forecasts that social commerce in the US will grow from $1bn this year to $14bn in 2015, but it uses a loose definition that includes purchases influenced by Facebook and product buys on daily deal sites such as Groupon.

Mr Johnson of Overstock.com says: "We're not trying to use it as a sales piece as much as an information-gathering piece. Finding out what our customers want; whether they like a product; how could we sell it better."

Siva Kumar, chief executive of comparison shopping site TheFind, says data gleaned from Facebook's Like function had helped him improve online searches by highlighting the most-liked products on the web.

While he acknowledged that social commerce hasn't been very successful so far, he updates the optimistic forecast heard from others at the end of last year: "I expect 2012 is really the year that social commerce is going to take off . . . . It's like crawl, walk, run. The running should happen next year."

(Additional reporting by Tim Bradshaw in London)

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