Google, Facebook, Visa To Benefit as Social Commerce Rises, Says Morgan Stanley

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Morgan Stanley Internet analyst Brian Nowak and colleagues this morning unleash a 23-page report on social networking and its connection to electronic commerce, arguing the inclusion of the “Buy button” will increasingly let social take share from conventional shopping.

Alphabet’s (GOOGL) Google division, Facebook (FB), Shopify (SHOP), Visa (V) and MasterCard (MA) are all poised to benefit, the firm believes, while PayPal (PYPL) has “mixed implications.”

Social commerce has only a small portion of electronic commerce, he writes, at just $3.3 billion in 2014:

It’s small because, in our view, shopping is still an emerging online social network use case. But as eCommerce penetration grows from ~10% to an estimated ~15% by 2020 (and the annual pool of US eCommerce grows from $332bn to $535bn per year), we see “social shopping” being a materially larger distribution channel.

But Facebook and Google will increasingly bring the Buy button to their platforms, he notes:

We see Facebook and the other leading online platforms (Google, Twitter, Pinterest, etc.) adding various versions of buy buttons to their offerings. In our view, buy buttons are part of the internet platforms’ efforts to more directly link advertising dollars to transactions (leading to more measurable – and likely higher – advertiser ROI). In our view, successful consumer adoption of buy buttons is likely to lead to even faster ad dollar growth for the major social networks. We see Facebook– and its 1.55bn global monthly users – as the most likely beneficiary in our coverage. Buy buttons would enable Facebook to move closer to a transaction-based model; if retailers were willing to bid up Facebook’s retail CPCs to a 5% “implied take rate” on just 3% of enabled US eCommerce, it would add roughly 5% to our 2017 Facebook N. American ad estimate. For Google, buy buttons are a way to continue to close the mobile monetization gap (with mobile CPCs still 50-60% less than desktop) as we believe a successful buy button – with searchers purchasing directly on Google – would improve mobile advertising ROI measurability.

The analysts note that Facebook is increasingly offering storefronts to make itself a kind of online shopping mall:

The Facebook Shop storefronts are free to set up … and (again) are primarily designed to bring more advertising dollars onto Facebook. And while they are mainly aimed at SMBs, we believe consumer adoption of these stores (which we expect to eventually have buy buttons) would likely cause other larger retailers to explore setting up shop in the “Facebook Mall” as another incremental online distribution channel. After all, we believe retailers are eager for new online channels to gain consumer adoption beyond Google and Amazon. Here again, consumer behavior and social network use trends will be important to monitor. Facebook also recently announced a partnership with Shopify (SHOP; covered by Morgan Stanley Software & Services analyst Brian Essex) that allows Shopify merchants to create “Shop” sections on their Facebook pages for free. This makes it easier for merchants to showcase and sell their products directly on their Facebook page and removes friction from the SMB selling processes on Facebook.

Just a small slice of U.S. electronic commerce could be a big revenue driver for Facebook, write the authors. They offer the following infographic to show the impact (click on the image to see it larger).

Buy buttons are a “double-edged sword” for PayPayl, they believe:

On the positive side, as the leading general purpose buy button in the desktop environment, PayPal has a large lead over other general purpose buy buttons on both merchant and consumer acceptance, with an opportunity to bring its active user base of 170m+ consumers over to the mobile environment. The company has also introduced One Touch technology, which allows its users to store their PayPal user name and password securely on the mobile device, enabling the bypassing of the login and password entering process at eligible sites (One Touch also works on desktop/laptop environment) [...] On the negative side, a proliferation of platform-specific buy buttons, which offer seamless one-click checkout functionality, could reduce the use case for PayPal’s own general purpose buy button in the long-term (e.g. the Amazon’s checkout experience), though near-term impact is limited given how nascent the buy button phenomenon is. With buy buttons, we also think that consumers would not change their payment settings often before completing a purchase, which would make the primary funding source all the more important. Several of the platform-specific buy buttons that have been launched so far do not currently include PayPal as a funding option.

Source:barrons.com

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