Because the rise of smartphones has transformed the way consumers browse, shop, and interact with brands, it has paved the way for a new branch of e-commerce: social commerce.
As the next step in the evolution of e-commerce, social commerce seems to make sense: social media apps like Instagram and TikTok are attracting significant segments of the online population on a daily basis, particularly Millennials and Gen Zers, the two generations with the first digital natives. For these consumers, social media is an integral part of their daily lives, going beyond its original purpose of sharing content with friends and family to connect people with products and services that they may not have found in the real world. By 2022, over 50% of Millennials and Gen Z will be browsing social media channels across traditional e-commerce platforms to discover global brands, and consumers within this demographic are projected to account for 62% of the global social commerce spend.
Regional differences
However, despite the opportunities offered by social commerce, its success has been patchy, to say the least. So far, the APAC market has proven to be the most lucrative for the medium: retail giant Alibaba’s livestream app Taoboa, for example, has seen exponential growth during the Covid-19 pandemic, generating $7.5 billion in transactions in a single day. USD (~£6.2bn). by household consumers. Even as the pandemic gradually ended, social commerce has seen noticeable growth in the region; By 2022, almost 15% of Singapore’s e-commerce could be attributed to social platforms, and social experiences were forecast to drive $42 billion (~£34.7 billion) of e-commerce sales by the end of the year ) across Southeast Asia.
That traction, while impressive, doesn’t seem to be making much headway outside of the Asian market just yet. Social media giant TikTok, for example, scrapped plans to bring its e-commerce platform TikTok Shop to Europe and the US after a dismal year in the UK market, despite the success of sister platform Douyin in China. And TikTok wasn’t alone: Meta, a social media contender, also stepped away from social commerce last year. Over the course of a few months, the company shut down its native affiliate marketing program and deleted Instagram’s shopping page before ending live stream video shopping on Facebook. Though Meta attributed its moves to a broader reorientation toward alternative products, the company’s withdrawal from social commerce painted a bleak picture of enthusiasm for the medium outside of Asia.
This lack of enthusiasm may initially be due to a lack of understanding. In China, for example, livestream shopping has been a lucrative tool for years, even before all e-commerce got a boost during the pandemic. However, for Europe, the UK and the US, the emergence of the medium means there is no existing infrastructure for brands to lean on when venturing into social commerce. Speaking to TIME magazine about TikTok Shop’s now-failed international expansion, Ying Zhu, an assistant professor in the Department of Management at the University of British Columbia, remarked, “If they want to expand in Europe and North America, they’re too optimistic.” Zhu added, “It’s easy to underestimate the complexity involved in this seemingly simple interaction.” Crucially, consumers also need a solid understanding of how social commerce works and why they could benefit from it for the medium to really take off . In theory, this shouldn’t be a difficult task: As Oliver Wright, Global Consumer Goods and Services Lead at Accenture, told Forbes, “Consumers want simplicity at their core, and social commerce is a very natural, integrated part of the social media experience. Despite this, there seems to be some reluctance among consumers outside of the Asian market to truly embrace social commerce, largely due to one issue: trust.
Privacy is important
While their popularity is undeniable, social media companies are some of the worst offenders when it comes to privacy regulations – Meta, for example, began fining over $400m (~£330.9m) for data breaches in the EU in 2023 . As consumers continue to engage with social media, it can be argued that this is largely out of habit — as we’ve already noted, for many Millennials and Gen Z followers, checking in on TikTok and Instagram is as routine as brushing their teeth. However, as consumers become increasingly aware of how social media companies use – and misuse – their data, it’s easy to see how apprehensive many would approach social commerce. Reports of “aggressive data collection” by TikTok and data breaches at Meta understandably raise concerns about the security of consumer data. Additionally, these practices are at odds with Gen Z’s rising expectations of brands to act ethically. With spending power of around $360bn (~£295.8bn) in the US alone, Gen Zers could be big business for social commerce, but only if their trust can be won.
Of course, social commerce will also struggle with the slump in consumer confidence and economic headwinds currently hitting the advertising industry, but appears well positioned to weather the storm. For example, Spark Foundry’s latest Insights Accelerated report found that 56% of UK consumers made at least one purchase via social commerce in the fourth quarter of 2022, with the percentage of people using Twitter, Snapchat and Pinterest to shop increasing vs has doubled in the previous quarter.
Joe Wood, Spark Foundry’s Strategy Business Director, commented, “The exact growth path remains to be seen but will depend on the key players in this space. We are currently seeing scaling being driven by Meta’s platforms and accounting for 90% of purchases. However, as TikTok increases its market penetration in the UK, particularly among younger consumers, we expect plenty of opportunities across all platforms. In 2023, social commerce will be watched.”
While gaining consumer trust may be an uphill battle for the US and EMEA, the future for social commerce overall looks bright. Globally, e-commerce generated around US$724bn (~£594.9bn) in 2022 and is expected to grow 30.8% annually through 2030. Despite a reluctance to engage in social commerce outside of Asia, the market is far from intangible; In 2021, US consumers spent US$37bn (~£30.4bn) on purchases via social media platforms, and brands focused on fashion, beauty and food and drink are already making strides through social commerce in Europe.
It’s undeniable that the rise of social commerce has already begun, but there’s still work to be done if the medium is ever to reach its full potential. By establishing an infrastructure that puts consumers’ needs for transparency and trust at its core, social media companies and brands will be much better positioned to grow their success outside of the Asian market. This will no doubt take time and resources, but this is the most sustainable way to establish social commerce as the next chapter of e-commerce.
