Which Sites Could Overtake Facebook as Tops in Social Commerce?
by Alex Walsh
Inarguably, Facebook’s massive user base gives it the top spot in terms of potential for social commerce. But as of today, it’s hard to go further than that one word — potential. Yes, the company brought in $3.7 billion in revenues in 2011, but the vast majority of those came from display advertising, while the remainder are mostly the result of a 30% cut taken from Zynga’s gaming sales.
The success of those existing operations means Facebook has time to decide how to put the e-commerce pedal to the metal. But its competitors — particularly those that support lots of image sharing, an expensive undertaking — have to act more quickly.
One such competitor is Pinterest. Named Best New Startup of 2011 by TechCrunch earlier this month, the photo-sharing website’s usage statistics are staggering. On Feb. 7, comScore declared Pinterest the fastest site to reach 10 million uniques in one month in the history of the web. The site has amassed more than more than 10 million registered users, and 2.4 million people access the site for craft ideas, recipe shares, and fashion advice through its Facebook app every day, according to AppData.
Like Facebook, Pinterest has not yet managed to sell much stuff from its site. But it is generating revenue from social commerce — not by taking a percentage at the point of sale, but by claiming affiliate revenues on sales that originate from its site. Pinterest gets those revenues by working with skimlinks, a London-based startup that launched in 2006; when Pinterest users promote a retail good with a link, skimlinks automatically alters that link to include a reference to Pinterest, so Pinterest can be credited when its users buy things seen on its site.
The Atlantic’s Alexis Madrigal argues that those revenues could actually be worth something — maybe as high as $45 million annualized, according to a hasty back-of-the-envelope calculation. But Madrigal warns that IP issues may prevent Pinterest from leaning on that revenue stream for too long. “Pinterest's backers don't want the company's revenue engine (i.e. SkimLinks) to be located outside the company,” he writes. And those backers will definitely get to have their say: Pinterest has raised $37 million in equity capital to date.
(Of course, supposing there’s a difficult decision to be made about keeping certain revenue streams open assumes there’s significant revenue to begin with — TechCrunch’s Alexia Tsotsis says her sources have estimated Pinterest’s skimlinks revenue all the way down into the $25,000-a-year range.)
Regardless of all that, while Pinterest may or may not be generating revenues from social commerce, it’s clearly not doing so from sales completed on its own site. So then who is? Is it even possible?
Joe Einhorn thinks so. Einhorn is CEO of Fancy, a photo-intensive site similar to Pinterest. In 2010, the New York Observer described Einhorn’s dream by saying he wanted to create the “Facebook of stuff,” with a focus on fashion and consumer goods that can be bought and sold.
Currently, around 250,000 dedicated users are posting images of things they like looking at to Fancy’s servers. And last Thursday, Einhorn implemented a new commercialization system that aims to leverage his site’s rapidly growing store of tagged goods.
The Fancy way of doing business looks a bit like Pinterest’s system, at least when looking at it with a wide-angle lens. Knowing that hundreds of thousands of people are already “idea shopping” on his site, Einhorn hopes to connect Fancy’s images to the merchants who create those products — basically acting as an affiliate, taking a cut when the site connects buyers and sellers from its references.
But rather than send users to a different site to handle the sale, Fancy is building a point-of-sale system directly into its site. By making itself a one-stop shop rather than just a referrer, it justifies taking a larger cut of the transaction — 10%, according to Business Insider, as opposed to the less-than-5% Pinterest is likely to be getting from its sales generation through skimlinks.
Of course, making more money usually involves more work, and it appears that will be the case for Fancy as well. In Einhorn’s case, the challenge will be getting merchants to sign up to create brand new storefronts on Fancy, rather than use the retail technology that’s already in place. It remains to be seen whether Einhorn can grow that side of his new platform business.
Maybe, a year from now, all of this will be for naught, and Facebook will have made their stockholders very happy with a retail system that makes consumers comfortable with buying retail goods on their site. But if that isn’t the case, perhaps one of these two other social commerce competitors will have managed the feat.
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