Facebook enters the e-commerce business with “Facebook Shops”. The company is thus entering the Amazon territory. The high number of users of the social network indicates a great potential of the new concept.
Facebook is expanding its business model to benefit from the growing e-commerce market. The new concept is called “Facebook Shops”. This service is designed to enable small businesses to offer and sell their goods directly through Facebook and Instagram. Potential customers are closer to the products through the integration of Facebook Shops. At the same time they are more likely to buy them.
Rising sales and profits expected
Facebook kills two birds with one stone with this coup: On the one hand, merchants are willing to pay larger sums for advertising on the e-commerce platform. On the other hand, Facebook charges a fee of five percent on sales from Facebook shops. The sales potential for the American Internet giant is enormous: Facebook has around three billion active users per month across all platforms. If the company succeeds in capturing a market share of two percent of the global e-commerce market by 2023, according to analysts a cumulative turnover of up to seven billion US dollars from advertising revenues and the fees charged is possible. Facebook’s entry into the e-commerce sector has the potential to pose serious problems for competitors such as Amazon and Alibaba. Should Facebook actually be able to exploit the new opportunities, the company’s stock should also be revalued. Experts seem optimistic: immediately after the announcement of the new service Facebook Shops at the end of May, 45 analysts at Bloomberg put the stock at “Buy,” 5 at “Hold,” and only 3 at “Sell. According to the experts, the launch of the platform should make the social network’s cash register ring even harder than before.
After the Facebook share price slumped during the Corona crash – between mid-February and mid-March, the price plummeted from around $218 to $145 – its price has since risen significantly again. At the beginning of July, it was quoted at around 227 dollars.
Even though Facebook has been the subject of frequent criticism in recent years – for example, the social network has recently had to remove numerous pieces of misinformation about Covid-19 from its platform – the Californians still hold a dominant market position thanks to the deep global roots and consumer acceptance of their products such as Facebook, WhatsApp and Instagram. Experts speak of “moat stocks” in this context. This refers to shares of companies whose business model cannot simply be adopted or replaced because it is protected like a castle by one or more moats, i.e. by economic advantages over the competition that are difficult to overcome.
Facebook not only earns money with classic e-commerce, but also with acquisitions. For example, the online network recently bought a share of almost ten percent for 5.7 billion dollars in the Indian digital platform Jio Platforms – the subsidiary of a leading mobile phone provider. This is the biggest acquisition since 2014, when Facebook boss Mark Zuckerberg acquired the messenger service WhatsApp for around 22 billion dollars. The latest deal in India is an important strategic step. It is intended to secure access to one of the world’s largest future markets and above all to serve WhatsApp: In this country with its rapid technological progress, the messenger service is to be expanded to include the “WhatsApp Pay” payment function and thus compete with other payment systems such as “Google Pay”.