Commerce is fueling the next wave of mobile innovation. There has been a flurry of recent activity from leading companies across the mobile eco-system from Apple Pay, Android Pay and Asian apps such as Line and KakaoTalk.
The advantages for Facebook promoting in-app retail are clear:
1. Bringing the point of advertising and the point of sale closer together. One of the main challenges holding back online ad revenue is the lack of standardized measurement. TV has the Nielsen, BARB or Mediametrie ratings, and search has the click, but display advertising lacks a single currency for advertising effectiveness. By bring commerce into the Facebook or Instagram platform, Facebook will be able to directly demonstrate the cause and effect of its ads from brand awareness all down the funnel through to sales.
2. Data, data, data: Facebook has a wealth of data about users’ online behavior, but until now it has not tracked any purchasing behavior. The introduction of commerce in its app will deepen its understanding of the consumer, which will drive its developments in its ad offering, augmented reality experience, and messaging apps.
3.Expanding native advertising on Facebook platforms. The majority of Facebook’s ad revenue comes from mobile today, which requires different formats than the desktop. User frustration with the mobile banner has led to a now ubiquitous problem of ad blocking, a key concern for the industry. Facebook’s strategy is to focus on its native in-stream advertising product, which is more immersive and does not obstruct the user experience, tackling the current antagonism towards advertising. This will in turn yield higher CPMs (cost per thousands) and higher revenues for the online advertising company.
4.Promotion of Instagram advertising formats. The commerce product comes less than a year after Instagram’s start of advertising operations and a month after Instagram’s announcement of new ad formats at dmexco in September. The ability to purchase fits well with Instagram carousel ads and Facebook hopes it will boost ad revenue for the platform quickly. Instagram is a key focus for Facebook in 2015 and 2016, as the online tech giant wants to prove the scale and potential of its subsidiary to investors who are increasingly asking about the monetary value of the 2012 acquisition.
Jack Kent and Eleni Marouli are senior analysts at IHS, a leading source of insight, analytics and expertise in critical areas that shape today’s business landscape.