Facebook (FB) and Alphabet (GOOGL) want to make it easier for businesses to do business on their platforms.
Last week, in a Facebook post discussing his company’s long-term goals, Mark Zuckerberg said that over the next decade, Facebook hopes to “build tools for commerce and payments so that every small business can have easy access to the same technology used only by big companies. . “
And in line with past remarks, Zuck suggested that Facebook wants to better integrate its trading and payment tools so that “anyone can sell products through an Instagram store, send messages and support their customers through Messenger, or send money home immediately to another country and at a low cost through WhatsApp. “
On Tuesday, Google announced that it is acquiring Irish-based Pointy, which offers hardware, software and services that help small businesses make their products available online more quickly.
TechCrunch reports that the purchase price was $ 163 million, with Pointy working with about 10% of U.S. physical sellers in specific verticals, such as toys and pet supplies. It may not be a coincidence that the deal follows Google’s recent hiring of former PayPal (PYPL) COO Bill Ready to be its store president.
Of all the indicators, the main motivation for Google and Facebook to provide businesses with new trading and payment tools is not to generate revenue through things like commissions and fees, but to strengthen their advertising business. If it becomes easier for consumers to discover and buy goods and services on their platforms, Google and Facebook reason, businesses will have a greater incentive to buy ads on their platforms and bid more.
Facebook claims that 140 million small businesses worldwide use its platforms. This in turn implies that more than 5% of small businesses using Facebook platforms currently buy Facebook ads, given that the company reported that it had seven million total active advertisers (including larger businesses) last year. Getting a penetration rate at about 10% would be a big gain.
The fact that Facebook is serious about e-commerce is not a secret before Zuckerberg’s latest remarks – indeed, one of my technical predictions for 2020 (No. 20) was that Facebook’s e-commerce momentum was accelerating. Last year, the company unveiled its Facebook Pay platform, started introducing a billing service on Instagram, and revealed some features for its Marketplace service (which is already a thorn in Craigslist’s side), which positions it to compete against eBay- a (EBAY) going forward,
Facebook has also taken down all of its Libra cryptocurrency initiatives, which – if approved by regulatory authorities – could enable things like paying for low remittances and digital microtransactions. But even if regulators are preventing Libra, Facebook clearly has a number of opportunities to launch more trading activity on its platforms.
Google, for its part, has taken steps to allow consumers to click on its ecommerce ads in Google Shopping (often seen on search pages) by purchasing items without leaving the Google website. The company has also invested in machine learning tools to help small businesses optimize their spend on Google ads, as well as local business-friendly ad solutions.
To some extent, Facebook and Google’s efforts to provide store-building tools present a challenge for Shopify (SHOP), which offers a range of solutions to help small businesses sell online (and in some cases elsewhere). Accordingly, last week Shopify CEO Tobi Lütke claimed that Facebook’s efforts were positive for his company, given the company’s long history of working with Facebook and the fact that Shopify’s platform operates across different store channels.
The media is always trying to create SHOP Vs. [company] narrative … With the last decade we have collaborated with Facebook on every trade experiment. The more sites that become active trading channels, the more valuable multi-channel software like Shopify becomes. https://t.co/iILGXIHfam
– Tobi Dolls (@tobi) January 10, 2020
Amazon.com (AMZN), whose growing ecommerce advertising is a competitive threat to Google and (to a lesser extent) Facebook, might find it a bit more in the crosshairs. But Amazon Prime, the company’s large infrastructure / logistics infrastructure and its large reseller market size are all competitive forces that won’t go away.
Of course, given that e-commerce still accounts for only about 15% of US retail spending after things like cars, fuel, and restaurants pull in, shopping online is hardly a value-free game. And when considering how Facebook and Google’s efforts to win small businesses also aim to drive more ad purchases from local / offline businesses, they don’t have to eat Amazon’s lunch to pay off.
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