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The Rise of the Social (Commerce) Network

Social media platforms and retailers are learning how to convert “likes" and “followers” into “add to my cart” and buyers, with substantial implications for eCommerce.

Ecommerce is almost as old as the Internet, while social networks have been around for more than a decade. By comparison, social commerce, the use of social networks to drive online transactions, is still in its infancy—in 2014, it accounted for just 1% of all eCommerce sales, or 0.1% of total retail sales.

Baby steps, for sure. Online, however, such trends can mature quickly. In a new report, “Who Is Best Positioned to Capitalize on Social Commerce?” Morgan Stanley Research looks at how social platforms and retailers are quickly learning how to convert “likes" and “shares” into “add to my cart” and “buys.” The implications could be substantial, not just for retailers and social media channels, but all eCommerce.

Given the wide adoption of social media, particularly among younger audiences, these platforms stand to capture a larger share of eCommerce spending, which is projected to grow from 10% of retail sales to 15%, or $535 billion, by 2020. “We see 'social shopping' being a materially larger distribution channel," says Brian Nowak, lead US Internet analyst for Morgan Stanley.

‘A Super Bowl on Mobile’

A large and growing audience is just one factor. “Social media platforms in particular allow for a more personal interaction than email; consumers experience more than just promotional content, and retailers are able to receive immediate product feedback," says Kimberly Greenberger, Morgan Stanley’s lead North American retail analyst.

Traditionally, social media has been used to “catch" and “connect" with consumers. To close a sale, however, brands have had to entice consumers to visit their stores or websites. In the retail business, this is what is known as “friction” along the “path to purchase.”

Which is why major social media platforms have recently introduced features that make it easier for users to complete transactions right inside their platform. These include “buy" buttons, online storefronts and ad-retargeting.

Linking Ads to Transactions

What’s in it for the social networks? Aside from the sliver of growing sales, social commerce allows for a direct connection between retail advertising dollars and transactions. The ability to quantify return on investment for online advertising remains the holy grail for both social networks and the retailers who advertise on them. The former can now better quantify the value of their ad services, and the latter can better justify and target their ad spend.

“In our view, consumer adoption of these products is likely to lead to even faster dollar growth for the major social networks," says Nowak.

Another advantage is the Big Data trove from social media. Information on how users engage with or ignore certain products, in which online social spaces, via whichever device of choice, and in whatever physical and virtual locations they may be can be parsed, shared and leveraged to further reduce that aforementioned friction for a smoother path to purchase.

From Followers Into Buyers

While many social commerce initiatives currently are aimed at small and midsize businesses, larger retailers also stand to benefit. Their success, of course, hinges on their ability to effectively connect with their consumers.

To gauge how major brands are positioned for social commerce, Morgan Stanley Research looked at 50 different brands and scored them across key platforms. The best “show a large and sustainable total user base with high levels of engagement," adds Greenberger.

One major lingerie brand, for example, has 22 million followers on a photo-driven social media site. Another luxury brand has created its own proprietary shopping tool within a social network to convert virtual browsers into buyers. In another example, a brand focused on trendy clothing for young women uses multiple social media channels to promote new products on a daily basis.

Welcome to the growing social (commerce) network.

For more Morgan Stanley Research on on social commerce, ask your Morgan Stanley representative or a Financial Advisor for the full report, “Who Is Best Positioned to Capitalize on Social Commerce?” (Oct 6, 2015). Plus, see more of our Ideas.

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