Exploring Social Commerce
Human interaction is back in vogue — but this time in a different way. As the e-commerce market has exploded over the past decade — driven further by the COVID-19 pandemic — consumers are demanding more exciting ways to learn about new products, purchase new products, and engage with the brands and ambassadors that make and sell those products. The answer to their desires is Social Commerce.
If you were paying attention to the recent North American Black Friday / Cyber Monday sales figures, you’ll know that the total volume of e-commerce orders continued to increase on a year-over-year basis. That’s a tall order considering the huge impact COVID-19 had on e-commerce sales in 2020, and consumer propensity to purchase goods and services online. It’s hard to predict the permanency of the new purchasing behaviours that consumers have adopted during the pandemic, but what we do know is that a huge chunk of people in North America have finally experimented with e-commerce in its fullest form. Consumers have pushed the online capabilities of merchants to their limits — with some buyers delighted by the experience they received, and others yearning for much more. As investors, we’re excited to learn about startups enabling, or directly delivering this “more”.
Product quality will always be important in driving sales and efficient supply chains will always be paramount to ensure sufficient inventory relative to consumer demand. To that end, we’re seeing many exciting startups that are helping merchants to stay on the ball on all things related to manufacturing and the movement of goods. But there is another layer in the e-commerce value chain that is primed for innovation — one that we’re even more excited to explore. That layer is the online consumer shopping journey itself.
What is Social Commerce?
One of the overarching technology themes that is growing in importance (and relevance) with respect to the online consumer shopping journey is the theme of “social commerce”. We pedantically define social commerce as a subset of online commerce that involves the use of social media, online media, or online community to support the buying and selling of products and services virtually.
Social commerce isn’t a new phrase; international Big Tech platforms have been germinating social commerce sensibilities among merchants and consumers since the dawn of social media, with those in China paving much of the way. The timeline below shows some key milestones that have made this way of doing commerce online ubiquitous around the world:
However even though social commerce had been buzzing as a space for many years in several parts of the world, it hadn’t really had a coming out party in North America. The pandemic is helping to slowly change this.
Stagnation in offline retail over the past several years — fueled further by the pandemic — has led to the emergence of newer online channels for purchase. And even when considering online commerce channels more broadly and globally, social commerce growth is poised to outstrip traditional e-commerce growth by 2x to become worth $267 billion globally by 2024. The U.S. market currently accounts for $29 billion and is expected to grow at a 30% compound annual growth rate (CAGR) to reach $84 billion in the same period.
These large numbers are not surprising. They show that the momentum in the social commerce space is just getting started. And we believe this new medium will be the key to maintaining the momentum in online commerce. After all, traditional e-commerce manifests itself in the form of static catalogue product pages, rudimentary reviews, and bland checkouts experiences. Social commerce has the power to make the online buying experience fun, personal, and analogous to how we make purchasing decisions in the real world — through ephemeral visual inspiration and conversations with trusted friends, to name a few examples.
To further explain how social commerce goes one step further than traditional e-commerce, let’s consider the possibilities through the lens of a consumer’s online buying journey, as articulated below:
The graphic above shows the following steps in the consumer journey:
- Social ads and promotions consist of efforts geared towards bringing consumers onto your digital store.
- Driving consumer engagement and providing a differentiated experience can be done through activating conversational or livestream commerce experiences.
- Community building entails the cultivation of social proof, group deals, and conversations among communities of customers to inform future purchasing decisions.
- Customer service and management refers to the core and foundational technical capabilities needed to keep the online consumer journey flywheel going.
Social commerce as a term reflects all four buckets noted above and the sub-buckets that fall under them. We are seeing the most amount of exciting activity and traction on the consumer engagement side. And within the consumer engagement part of the online consumer shopping journey, we’re particularly excited about the possibilities presented by livestream commerce.
We’ll share some thoughts on what is getting us excited about livestreaming in particular below, with a view to double-clicking on other exciting parts of the customer journey in future posts.
Spearheaded by the Chinese market, livestreaming has been growing quickly globally. According to McKinsey, the value of China’s live-commerce market grew at a CAGR of over 280% between 2017 and 2020, reaching an estimated $171 billion in 2020. This growth spurt has been intensified by the COVID-19 pandemic, and Chinese sales are expected to reach $423 billion by 2022.
This growth is reflective of the fact that merchants report online sales conversions more than 30% higher when leveraging the livestreaming medium. Simply put, livestreaming is a much more powerful tool than a static e-commerce site with catalogue product pages. Building off of the growing e-commerce penetration, rise of influencers, and accelerating online content consumption, we believe that livestreaming will continue to grow in the West as traditional social media advertising becomes saturated, and as startups continue to bridge the gap between social discovery and online purchasing.
Merchants can choose to work with a growing community of startups to activate livestreaming experiences for their shoppers, but that’s not the only option. The Big Tech companies today were the originators of social media; this has provided a foundation for many of the major platforms to slowly build up their own social commerce and livestreaming capabilities. Since the social commerce market is currently dominated by the leading tech firms, it is indeed a higher barrier to entry for upcoming startups and a potential threat to their growth — this is a factor we consider when evaluating the attractiveness of emerging startups in the space. Fortunately for the new insurgents in the space, the business models of major social media platforms continue to largely consist of amplifying content that supports generating ad revenue, and not necessarily e-commerce sales. As such, there’s an exciting window of opportunity for startups to service the market with a “commerce first” lens to drive shopping activity and customer sales conversions.
The Potential of Livestreaming
To summarize our views on the opportunities in livestreaming, we asked ourselves three main questions:
What is driving the adoption of livestreaming today?
- There is rapid growth in e-commerce and social media sales globally.
- Small-medium businesses (SMBs) are moving online, and trying to differentiate themselves.
- The number of influencers is rising.
- Cord cutting and the emergence of 5G is continuing to move eyeballs away from television.
What do we need to believe for livestreaming to take off?
- Traditional social media advertising will become crowded and competitive.
- SMBs and Digitally Native Vertical Brands (DNVBs) will drive demand for live streaming marketplaces and software.
- Video content consumption will continue to grow in North America.
- There will be growing demand for integration of livestreaming within social media, websites, and shopping platforms.
What will determine the winning startups in livestreaming?
- Winners will seamlessly merge content and commerce to deliver a complete experience to the end consumer.
- Winners will unify brands with influencers and key opinion leaders to provide engagement.
- Winners will have the ability to leverage and integrate with Big Tech, while surviving the competition from Big Tech.
Stay tuned for coverage on other parts of the social commerce value stack. If you want to talk about social commerce, feel free to reach out to our team at Wittington Ventures.