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Is Facebook Sitting in an E-Commerce Bubble?

May 16 2011, 12:45pm CDT | by , in Rumors | Technology News

Is Facebook Sitting in an E-Commerce Bubble?

Survey says: Yes.

Facebook. The conquering titan of social media. It towers above the Internet, eclipsing all competition and slowly- but inexorably, gobbling Google up. The Facebook IPO is expected to break $100 billion. There appears to be no stopping Mark Zuckerberg's juggernaut.

And yet, there are chinks in Facebook's armor. Cracks that are starting to spread, and threaten to compromise the site entirely.

Facebook is afraid of Google. They hired a PR firm to slander their rival, secretly. That is not the well-measured, confident move of a company on top of the world. It's a desperate move to cause a rapid reversal in Google's fortunes. So why would Facebook risk their public image just to screw with a competitor they're already 'beating'?

Because Facebook is trapped in a bubble and they're racing to get out before it pops. Much of the Social Network's assumed value rests on its perceived potential as a commercial platform. The profitability of games from Zynga and the like have lead many to suspect that Facebook will be equally profitable for e-commerce. In fact, there is little evidence to support this belief.

Crowd promotion company Zuupy recently put up a blog post announcing the rationale behind using Facebook as the core of their service. Zuupy originally offered coupon deals that went 'live' after a certain number of likes were received. The service was based around Facebook for 6 months, and has now decided to 'downgrade' the social network to an independent add-on to their business.

They gave three reasons for why. First, Facebook's API changes too frequently to be worth focusing around. Second, Zuupy believes that Facebook is "overhyped". Many of their "600 million" accounts are not regular users and even more aren't comfortable trusting it with any data behind a little bit of social information. The third reason for Zuupy's pull-out is the most telling of all: they believe the platform is too social to really make money.

Facebook is the world's most popular 'social' product. And people are happy to do 'social' things there. But they have so-far shown a reticence to make real transactions through the site. Doubt about Facebook's ability to drive e-commerce has even popped up in a Forrester research report.

"In spite of the fact that hundreds of millions of people around the world have Facebook accounts, the ability of the social network to drive revenue for eCommerce businesses continues to remain elusive. eBusiness professionals in retail collectively report little direct or indirect benefit from Facebook, and social networks overall trail far behind other customer acquisition and retention tactics like paid search and email in generating a return on investment."- Sucharita Mulpuru of Forrester.

Facebook does a good job of driving commerce in the context of a loyalty program, or in publishing and gaming and the like. But once we make the step up from microtransactions, consumers just aren't interested in buying through Facebook. This is confirmed in a recent Booze & Allen report which showed that 73% of online buyers will not buy through a social networking site.

This doesn't mean that Facebook can't make money. It's proven very successful at driving certain transactions. And it has enormous value to advertisers, especially in its capacity as a data collection service. But the industry expects more of the social network than it can possibly deliver. Facebook appears to be trapped inside a $100 billion bubble that is bound to burst as the extent of its limitations hits home.

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