WhatsApp to WhatsShop

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Good Morning Dear Reader,

Lots of things going on in India. The farmer protests continue to rock Delhi. The emergency use authorisation of two Covid-19 vaccines remains under consideration. And at least one key public official believes that India has “too much democracy”—an assessment that some international agencies seem to disagree with.

Sigh.

Meanwhile, back in the United States, multiple lawsuits have been filed seeking to break-up Facebook for antitrust reasons.

The details of the lawsuits aren’t particularly new, interesting or surprising. Also, given the nature of antitrust law, it’s also quite unlikely that this will actually result in Facebook being broken up anytime soon.

However, thanks to this development, I spent some time looking at Facebook. Having studied some of their recent product launches— specifically, on WhatsApp for Business—I figured it’s probably worth talking about what Facebook is trying to do to reshape the online commerce industry.

And this is most consequential for one country—India.

Let’s dive in.

The splitting of the e-commerce platform

Photo by WebStacks on Unsplash

Let’s start with some historical context.

I am old enough to remember when words like e-commerce (and later, m-commerce) were faithfully reproduced in the ‘Future Initiatives’ section in all my B-school assignments. It was a little bit like how people view cryptocurrency today—something that was exciting and belonged to the future, but with little sense of how exactly it would pan out and what it would look like.

As an aside, did you know that the first ever e-commerce transaction online was a drug deal?

Anyway, back to e-commerce.

Back in the early days, there were two (somewhat) competing theories on how e-commerce should work. Remember that this was a time when people were trying to replicate the offline model in the digital world, and nobody really understood the rules.

The first theory was that the best way to sell something online was to create a store that sold everything. In the digital world, stores weren’t constrained by floor space, so catalog depth became a differentiator. This led to things called the long-tail effect, and eventually the success of companies like Amazon.

The second theory was that specialisation was the way to go. Pick a category (preferably one that had a big enough market). Create an easily identifiable property. Get people. Sell. There were success stories here— like Zappos, which sold shoes, and later got acquired by Amazon. But there were huge, massive failures too—most infamously, Pets.com, which has now (unfairly) become the poster child for the excesses of the dot-com era.

These two theories mimicked the way we shop offline. Many people prefer to go to Walmart to pick up everything under one roof. Sometimes, those same people go to that little cafe across town to buy those perfectly roasted coffee beans with notes of apricot that they can’t do without.

Over time, in most markets, the first theory was generally seen as the path to success. Specialised, taste-driven shopping wouldn’t really work because it wouldn’t scale.

So this continued for a while, and companies like Amazon got bigger and bigger. Amazon’s power and might is a consequence of it being two things at the same time.

It’s a place where billions of users go everyday and spend their time with the intent of buying something. In other words, it’s a place that helps in discovery.
It’s also a place where the same users check out products, compare prices, see features, and eventually make a payment. In other words, it’s also a retail store that leads to commerce.

Today, especially thanks to Amazon, we think of both of these as being inextricably linked. But that wasn’t always the case.

Take IKEA, for example—one of the largest retailers in the world. For a long, long time, since 1951, IKEA published a physical copy of their catalog with beautiful colour photos of their products. In fact, a BBC documentary claimed that over 200 million copies of the catalog were published annually —making it more widely distributed than the Bible or the Quran.

The catalog was the storefront. It was a book in your hand. The retail store was separate. That was the place you went and bought things.

All of these assumptions changed with the rise of Facebook.

Facebook created a place where billions of people spent their time everyday, mostly doing nothing. Facebook decided that the best way to monetise this time and attention was through advertising. So, Facebook collected more data about you. And the more it collected, the more it knew about you, and soon, it was able to allow anyone to target you with ads based on really narrow preferences.

This is when the second theory of e-commerce, the one that was based on the premise that narrow, specific preferences could be sold online, started to look lucrative. The problem was never about selling online, but about finding those people who were interested in what you had to sell. Facebook solved that problem...in a fashion.

Now, for a long time, Facebook was perfectly happy helping niche businesses reach their target market through advertising.

Then Facebook thought—wait... why don’t we let them buy it here itself?

And the buy button was born.

Here’s an article about it, from back in 2014.

The button should come as no surprise. Inside the company, a man named Nicolas Franchet has long worked as Facebook's global head of retail and e-commerce. His job is to figure out how to leverage the site's command of your time and attention to turn it into a place where you shop. As ads have crept into Facebook's News Feed---scoring the company a dramatic victory in the notoriously challenging realm of mobile advertising---the company has quietly been building in the capacity to take the next logical step: Facebook as an online store that operates unlike another online store. "We can offer a sheer reach that no other platform can," Franchet said during a press roundtable discussion in San Francisco earlier this year.

Facebook explains why it wants to be a retail store, Wired

But Facebook also took pains to say what it would not do.

Not that Facebook is looking to clone the experience of shopping on those other platforms---meaning Amazon and Google. The purpose and use of Facebook would have to change dramatically before it could rival either competitor as an online starting point for product search. Franchet is aware of this distinction, and he said that search won't drive shopping on Facebook. Instead, the focus will be on browsing and discovering new things more like hanging out at the mall than going to the grocery store. "There are very few things you buy with deep knowledge ahead of the purchase," Franchet said, by way of arguing that product discovery driven by your likes, interests, and friends is at least as compelling as utilitarian searches driven by price, selection, and features.

Facebook explains why it wants to be a retail store, Wired

This distinction is important because it underscores the limits of what Facebook wanted to do. It was going to help ‘serendipitous discovery’, and because Facebook knew everything about you, what felt serendipitous was probably well orchestrated. And the theory was that once you found something you liked, you’d click a button and buy it.

Well...that didn’t really work out.

Here’s what happened by 2016.

Just because an ad product makes a lot of sense, it doesn’t mean it won’t fail.

Twitter squashed its buy button this week. Facebook had previously killed its own buy button and Instagram and Pinterest have struggled with theirs as well. Sources told Digiday that buy buttons have struggled on social platforms because transactions have been clunky, inventory has been mismanaged and consumer intent was never properly understood.

“Users don’t buy on social networks currently,” said Forrester analyst Jessica Liu. “Users are much more likely to discover and explore brands, products and services on social media than they are to buy.”

Social platform buy buttons fail to catch on, Digiday

Remember how I wrote that Amazon was two things? It was both a place for discovery and it was a retail store.

Facebook did a great job at the first thing.

The second? Not so much.

To solve the retail store problem, you needed a company that could help small businesses create online retail store destinations that showed all your products, helped users compare prices, add to a shopping cart, make payments, etc., etc.

And that company wasn’t Facebook, but Shopify.

Here’s what Shopify’s revenue growth looked like in late 2016, two years after Facebook launched its buy button.

This, after Shopify had a feature to help merchants integrate Facebook’s buy button. From Shopify’s perspective, Facebook’s buy button wasn’t even a competitor, it was at best a complementary feature which users wouldn’t use anyway.

That’s how commerce on the internet evolved.

On one side, you had Amazon, which offered a massive store with both users and an infinite catalog—a combination of discovery and retail.

On the other side, you had social platforms like Facebook, which did discovery, and retail platforms like Shopify, which did retail. If you are an online retail business, your biggest expense was basically two heads—a budget for Facebook ads to find customers, and a Shopify subscription to host, catalog, and sell your products to them. Users found you on one, and finished the transaction on the other.

Then earlier this year, Facebook and Shopify, nearly at the same time, decided to take a shot at capturing each other’s territories.

Shopify launched an app called Shop, to help users discover products.

And Facebook launched another product to help users purchase products after they’d discovered them on Facebook.

Also called...Shops.

Here's how Facebook described what they were trying to do.

Facebook Shops make it easy for businesses to set up a single online store for customers to access on both Facebook and Instagram. Creating a Facebook Shop is free and simple. Businesses can choose the products they want to feature from their catalog and then customize the look and feel of their shop with a cover image and accent colors that showcase their brand. This means any seller, no matter their size or budget, can bring their business online and connect with customers wherever and whenever it’s convenient for them.

People can find Facebook Shops on a business’ Facebook Page or Instagram profile, or discover them through stories or ads. From there, you can browse the full collection, save products you’re interested in and place an order — either on the business’ website or without leaving the app if the business has enabled checkout in the US.

And just like when you’re in a physical store and need to ask someone for help, in Facebook Shops you’ll be able to message a business through WhatsApp, Messenger or Instagram Direct to ask questions, get support, track deliveries and more. And in the future, you’ll be able to view a business’ shop and make purchases right within a chat in WhatsApp, Messenger or Instagram Direct.

Introducing Facebook Shops : Helping Small Businesses Sell Online, Facebook Blog

That was back in May.

Since then, Facebook has been doubling down on this.

Not on Facebook.

But on WhatsApp, which is owned by Facebook.

In October, they launched shopping, payments, and customer service for businesses on WhatsApp.

Then, three days ago, they launched a Shopping Cart on WhatsApp to give customers the ability to buy more than one product at once.

So, what is Facebook's big plan?

For Facebook, a company that makes 99% of its revenue from advertising, WhatsApp presents a chance to diversify its business and protect itself from erosion in enthusiasm for its core social networking apps. Eventually, Facebook believes, it can control the entire exchange between a brand and its customer, starting with an ad on Facebook or Instagram and leading to an interaction or product sale on WhatsApp or Messenger.

“Instagram and Facebook are the storefront,” says WhatsApp Chief Operating Officer Matt Idema. “WhatsApp is the cash register.”

Facebook sees India as its future, Antitrust suit or not, Bloomberg

In India, WhatsApp also has the JioMart integration.

Only the last link in the chain remains for Facebook to make WhatsApp into the most powerful commerce engine in India—payments, which is something that Facebook has been fighting to get for a long time, with approvals being stuck for years. Finally, just recently, it made it through.

Fittingly, last week also marked the end of another era.

Remember the IKEA catalog? The one that has been around since 1951?

Ikea decided to put an end to it yesterday.

As web shopping surged over the past two decades, IKEA said fewer and fewer people were using its catalog. A spokeswoman said that, in the course of testing new formats and ways to distribute the catalog, the company found it wasn’t worth the investment anymore.

“Media consumption and customer behaviors have changed,” said Konrad Grüss, managing director at Inter IKEA Systems BV, the world-wide IKEA franchiser and part of a wider group of interlinked companies that make up the closely held IKEA group.

IKEA isn’t alone in scaling back on print. H&M owner Hennes & Mauritz AB last year stopped printing its catalog, saying it offered plenty of fashion inspiration in its stores and online. Victoria’s Secret in 2016 ended its print catalog. J.C. Penney Co. scrapped its catalog in 2010, but has since brought back smaller mailers.

The IKEA Catalog defined home for millions. Now it's gone. Wall Street Journal

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Take care.

Regards,
Praveen Gopal Krishnan

The Nutgraf is a paid weekly emailer that explains fundamental shifts in business, technology and finance that happened over the last seven days in India. In a way you’ll never forget.

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WhatsApp to WhatsShop