March 19, 2019
Just as Facebook’s core platform is beginning to wilt, Instagram is launching an assault on the shopping market built on the walled garden business model which bloomed in by-gone years.
A few people might have scoffed at Facebook handing over $1 billion for Instagram in 2012, but this acquisition is looking to be a clever bit of business. Facebook’s core social media platform, and the business model which underpins it, might be looking a bit jaded after recent attacks, but Instagram is maturing into a very attractive proposition.
Launched today (March 19), users can now purchase products from certain brands in the Instagram app. The team has been working hard to create a marketplace in Instagram over the last 12-18 months, and while the digital advertising model has been paying off, you get the impression the narcissistic tendencies of the app lend itself well to the online shopping arena, especially when it comes to fashion.
“When you tap to view a product from a brand’s shopping post, you’ll see a ‘Checkout on Instagram’ button on the product page,” the team said in a blog post. “Tap it to select from various options such as size or color, then you’ll proceed to payment without leaving Instagram. You’ll only need to enter your name, email, billing information and shipping address the first time you check out.”
For retailers, this could be a very interesting route to potential customers, both old and new. Instagram has proven to be a very effective tool for brands to engage consumers from a brand marketing perspective, but in terms of direct sales, the risk of navigating to another website comes with shopping carts being abandoned. Through in-app purchases, one purchasing hurdle is removed, simplifying the buying process.
Customer information will be stored with Instagram, and while it has been reported the details will not be pre-populated in other Facebook platforms, it would not surprise us if this is in the pipeline. Instagram will receive payments as a percentage of the total spent in-app, though in Facebook’s typically transparent fashion, the waters have been muddied with the team not revealing how much this percentage is.
This is perhaps another perfect example of Facebook’s ability to create a walled garden and charge third-parties to access the cultivated digital customers.
For years, Instagram has been creating an incredibly user-orientated platform, which is simple but very usable and addictive. The only way for users to access these users, to try and pry open wallets, is to strike a deal with Facebook. Facebook is not monetizing its users directly but charging third-parties entry at the gate. This model worked incredibly well for years, putting Facebook is the dominant and influential position it is in today.
The beauty of this plan is that Facebook/Instagram seems to have struck at the right time. Users are becoming increasingly used to using the app as an online catalogue, geared around window shopping not purchases. Another update launched last year, allows users to click on products which might features in posts or stories to see more information. Taking it one step further is a logical step, as long as its not done too aggressively.
While the raw materials are certainly there, the challenge which Instagram will face is not to over commercialise the platform. This is what happened with Facebook’s core social media platform, the focus was less on engagement and more on advertising revenues, resulting in the new generation ignoring and traditional users spending less time on it. If Instagram has learned from prior mistakes, this could be a very interesting proposition, with plenty of room for growth.
That said, learning from mistakes is one thing but keeping under-pressure executives in-line is another. Slowing growth figures have put the Facebook management team under pressure from investors, while scrutiny placed on the traditional business model in ever-increasing. New regulations to remove some of the freedoms granted in the data-sharing economy put profits under threat, and as with any other publicly traded company, they will have to be replenished somehow.
Recent attempts to carve out new revenue streams, such as Watch or Today In, have seemingly not produced the hoped-for bonanzas. In the case of news app Today In, the team is ironically struggling because Facebook and Google effectively destroyed the commercial viability of so many regional news sources. The ‘locusts are complaining there is no more corn’ one Twitter user commented.
Another development which is worth keeping an eye on is the change in management. After 14 years working for Facebook and Instagram, Chief Product Officer Chris Cox announced he was leaving last week. A replacement has not been announced, but the experience of this individual might give some insight as to how aggressively commercial elements of Instagram will appear.
Despite criticisms which might be directed towards Facebook and Instagram, this looks to be an excellent strategy. The team have been cultivating this audience for some time and seem to have created the perfect conditions for growth… just as long as the team learn from previous mistakes.
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