But then there are all those 'little' issues having to do with process and fulfillment and coordination that the big picture guys think are the reason they hire all those inexpensive coders in South Asia to solve: like synching inventory, payment and delivery systems. And then there is the not insignificant task of convincing retailers to join these networks despite well-founded fears that this will eat further into their margins.
We know, we know: don't be so negative, that's not the tech way. Overcoming obstacles is merely a means of increasing profits. It's just that investor tolerance for economic friction has diminished to the point of invisibility. And no one wants to hear your explanations about why it might take longer than expected. JL
Jason Del Rey reports in re/code:
It’s not clear how well this model can scale. Order fulfillment and shipping costs remove a bigger chunk of profit margins on one-item orders versus multi-item orders. Apps are saying ‘We have millions of users, so we can just put in a payment processor and people will buy.’ It’s just not that simple.
One year ago, the idea of shopping directly from Google, Pinterest, Twitter or Facebook was mostly unheard of. Today, these companies are hoping it becomes one of the hottest Internet trends over the next year.
Within the last 11 months, all four of these massive digital platforms have announced plans to either test or introduce some version of a “Buy” button, salivating over the chance to turn their social networks and discovery platforms into shopping malls as well. A new battleground for the consumer Web has come into sight and these players are coming for your wallet.
But for the ones like Twitter and Facebook that have been conducting public tests for some time, progress is hard to find. And for Google and Pinterest, there are significant hurdles that will stand in the way of their goal of convincing searchers and Pinners to become buyers next.
Among the challenges these Goliaths face is integrating inventory and payments systems from retailers big and small that have little experience selling stuff outside of their own storefronts. They also face the challenge of convincing the people who use their service to get used to, and trust, buying stuff from their site for the first time. What’s more, they have to allay fears of retailers that they will steal the customer relationship, banishing them to glorified warehousing and shipping partners.
“Shoppers are increasingly spending more time in third-party apps,” said Razvan Roman, CEO of a software startup called TwoTap that helps apps integrate buying features. “But the problem is a lot of these apps are saying, ‘We have millions of users, so we can just put in a payment processor and people will just buy, right?’ It’s just not that simple.”
The beginning of the trend came into view when Re/code first reported in January 2014 that Twitter was in talks with payments company Stripe to help process payments for a new shopping-related initiative. By July, Facebook had beaten Twitter to launch and announced a small test that would allow some small businesses to add purchase capability to some of their posts along with ads featuring their products.
Twitter formally announced the launch of its Buy buttons in September, with a small selection of brands, retailers and artists. Google and Pinterest have since acknowledged they have their own plans to integrate buying capability into search ads and pinned images, respectively.
It’s about advertising
There are a few factors that pushed these platforms to this point and it’s no coincidence that all of their businesses are supported by ads. First, all of them are looking for ways to make their ads on their mobile apps and websites work better.
While mobile commerce grew more than three times as quickly as commerce on desktop websites in the first quarter, the percentage of people who go on to buy something after clicking on an ad is lower on phones than on desktops. But if you could let someone buy a product directly from the ad on Twitter, Facebook, Pinterest or Google — through, say, a Buy button — the thinking is that this conversion rate will improve. And when conversion rates improve, advertisers buy more ads.
After someone makes a purchase for the first time on one of these sites, most of these platforms will store — or have a vendor store — the card and shipping information so that a shopper can quickly make future purchase without having to worry about the difficulty of entering in payment and address information on the small screens of phones. That, in theory, would help reduce some of the friction that makes mobile sales a challenge for many retailers today.
The new e-commerce capabilitiesalso allow the tech giants to position themselves as allies for retailers who are continuing to lose business to Amazon among those shopping via desktop websites, and are struggling to compete with Amazon and the other biggest e-commerce sites in mobile shopping, too.
New research from ComScore shows that while nearly 60 percent of all online retail browsing happens on tablets and phones, only 15 percent of e-commerce sales actually happen on these devices. All of these tech platforms are now jostling to remove the friction that leads to this disparity between browsing and buying. If they succeed, they can make their services indispensable to big retailers and small businesses alike, who are searching for technology-forward knights in shining armor to help them compete.
In the retail industry, Pinterest is widely viewed as the most natural fit for an expansion into e-commerce. A new Pinterest-backed survey found that 87 percent of its users make purchasing decisions based on what they discover on the site.
“We think Pinterest is a great platform for discovery and inspiration,” said Serena Potter, group vice president for digital and social media at Macy’s, which will be a partner on Pinterest’s Buy button expansion. “It’s the perfect way for us to get product in front of our customers and in front of new customers.”
The problem with inventory
But big hurdles exist. For many retailers, such as Macy’s, this is the first time they’ve attempted to sell products outside of their own website or stores. That means they have to sync their product catalogs and order management and payment systems with Pinterest to make sure they’re receiving orders and processing them in a timely manner.
And in turn, these platforms also have to make sure they’re placing Buy buttons on images of products that the retailer or brand actually has in stock. Pinterest said it is working with partners to get updated inventory information every 15 minutes and also pings an inventory system again when someone clicks on the Buy button. But it’s not clear how well this model can scale if Pinterest wants to bring on hundreds or thousands of sellers.
There are other obstacles standing in the way of mass appeal to retailers. They typically don’t like to sell one product at a time online, especially if the item doesn’t cost a lot. Why? Order fulfillment and shipping costs typically remove a bigger chunk of profit margins on one-item orders versus multi-item orders.
It’s also an open question whether it’ll be easy to train people to shop from these platforms when only a tiny percentage of the products they come across will be available for purchase. For Pinterest, it would take a ridiculous amount of time to track down all the merchants whose products appear in images on Pinterest and then integrate into whatever disparate systems they use to run and track their business. For now, it is working with e-commerce software companies Demandware and Shopify to help sign up brands and small businesses they work with, but this approach only goes so far.
“The problem with Pinterest now is that so much actually isn’t buyable and never will be directly from where the image originated, and in fashion things constantly go out of stock,” Sucharita Mulpuru, an analyst with Forrester Research, said in an email. “People love things that are years old. So the solution is to find the next best match. But that’s not what Pinterest is doing with this Buy button.”
Pinterest execs say they are structuring the initiative to work around the potential scarcity issue. Monetization boss Tim Kendall said in an interview that Pinterest will work hard to get shoppable Pins in front of users in a variety of ways. They’ll be featured prominently in search results, on a user’s home screen where appropriate and in sections of the site where Pinterest makes recommendations on other images to look at. Retailers and small businesses will also be able to pay Pinterest to show the pins to more users than would otherwise see them. Again, it makes sense to think of these Buy buttons as sophisticated ads.
“They’re threaded into every aspect of the experience,” Kendall said.
Early success of the initiative, then, will rest in part on how well Pinterest targets these Buy button placements. Present them to the right people at the right time and the new business could flourish. Push them too aggressively and in contexts that don’t make sense and the Pinterest faithful may revolt.
Despite Twitter and Facebook’s head start on implementing Buy buttons, neither platform has sprinted ahead of the field. Twitter has found that some tweets with Buy buttons have led to the sale of hundreds of a given product and, in some cases, thousands. But Buy buttons are still not showing up on the social network frequently.
People familiar with the initiative said that Twitter has been spending a lot of time working on the back-end integrations with payment providers before opening up the capability more widely. But it also hasn’t appeared to be a top-most priority at the company, even though it recruited former Ticketmaster CEO Nathan Hubbard to run the commerce group in the summer of 2013.
Twitter has had more pressing priorities to try to appease Wall Street, such as tweaking its core product to keep new users from fleeing the service since it historically is not the easiest service to understand. It has also prioritized video initiatives this year, both through the launch of video tools built in-house and the acquisition of live-streaming video app Periscope. Now, it’s not clear with CEO Dick Costolo stepping down and Jack Dorsey stepping in whether Twitter will move more aggressively with its Buy buttons or whether they will continue to take a back seat.
Meanwhile, Facebook is still in testing mode 11 months after first announcing the feature. Rather than integrating directly with sellers, the social network is working with Shopify, which helps small businesses set up online shops, to get these small businesses selling directly on Facebook. The company isn’t working with any big-name brands or retailers and also looks to be taking a surprisingly methodical approach considering its big competitors pursuing similar strategies.
Startups are also facing obstacles
All of the companies are largely working off a blank slate since there are few technology platforms that have built big e-commerce businesses after starting off in a completely different field. Even startups thinking about building businesses around Buy buttons are finding their own challenges. A startup called Wanelo burst onto the scene in 2013 with an app that teen girls and young women used to browse through never-ending streams of clothing images that others upload to the app. The company originally made money by earning a fee every time someone clicked on one of the products and went on to buy it on another shopping website.
But in the fall, Wanelo announced it was going to introduce Buy buttons on 500,000 products, with big names like Urban Outfitters and Nasty Gal supposedly participating. Within a couple of months, the Buy buttons for those brands were gone, and the company is now rethinking its approach, according to sources. In the aftermath of these struggles, CEO Deena Varshavskaya approached multiple big tech companies this year, in part to gauge interest in acquiring her company, multiple sources told Re/code. The company has also been talking to investors about raising new funding, these people said.Wanelo CEO Deena Varshavskaya
When asked for comment on the above, Varshavskaya did not directly address any of it.
“We’re heads down at the moment with a ton going on, so we’re staying focused on that for the time being,” she wrote in an email. “We’ll definitely be in touch as soon as we’re ready to share some updates. And the only shopping around we’re doing is for great suppliers for our marketplace.”
Polyvore, another app used by women to discover new clothing and outfits combinations, has also been thinking about adding a Buy button, though it hasn’t gone there yet. The company currently makes money from affiliate fees and promoted listings, but CEO Jess Lee acknowledges it will need to allow for shopping through its app at some point if it will reach its full potential in a world increasingly dominated by browsing on mobile phones.
But Lee is not in a rush because she does not see a solution right now that will work across all of the retailers who have images on the site. She thinks it will take one of the big tech platforms — maybe Google or Facebook — to push retailers into doing the work to create a standardized way to integrate their systems with third-party platforms. The hope, then, is that retailers can use a similar approach to sell via Buy buttons on other sites and apps, such as Polyvore’s.
“[T]hey could issue a decree saying that retailers who adopt the buy button will be weighted higher in the ads ranking algorithm,” Lee wrote in an email, discussing Google. “Because they’re such a big important source of traffic, many retailers would opt in. Once enough people opt in, everyone will have to.”
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