Why Facebook and Twitter Want Us to ‘Buy Now’
Business + Economy

Why Facebook and Twitter Want Us to ‘Buy Now’

REUTERS/The Fiscal Times

Facebook and Twitter face different growth scenarios, but both are now focusing their gaze on the same market: Retail.

There's a logical reason for the shift. The social networking sites are testing out "buy" buttons in an effort to tap into the $304 billion that eMarketer estimates will be spent on e-commerce this year. U.S retailers will spend $11.2 billion on digital ads, and 37 percent of those digital ad budgets will be focused on mobile, an area of strength for both Facebook and Twitter.

So what are Facebook and Twitter's "buy now" buttons?

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Twitter's "buy now" button first appeared in tweets earlier in July from an e-commerce site called Fancy, which enabled users to buy products within the Twitter platform without exiting to an outside website.

Along with Twitter's recent purchase of Cardspring—a payments company that allows consumers to load discounts onto their credit cards—the combined new functionality could enable users to have a seamless "buy later" experience.

For example: A retailer might offer a deal with a promoted tweet; a user could then save that deal and attach it to his or her credit card, to redeem later while in the retailer's store. Expect tests of this "buy later" functionality by the holiday shopping season as Twitter looks to tap into the 85 percent of shopping that still happens in stores.

As for Facebook, it's testing a feature to allow small businesses to drive sales through their pages and posts—or ads—in Facebook's news feed. The move enables users to buy directly from a business without leaving the social network.

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The company says the test is limited for now to a few small and medium-sized businesses and gives its users control over whether they'd like to save payment information. It could also help small businesses launch an online retail presence.

The buzzword for what Facebook and Twitter are trying to do is "reduce friction"—or take a step out of the process—for advertisers who want to make it easier for consumers to buy.

Forrester retail analyst Sucharita Mulpuru-Kodali says the social networks know that there's a lot of content being communicated about products on their pages, and they want to make it easier to enable purchases.

For Facebook, the "buy now" button isn't as much about trying to generate new revenue by taking a cut from purchases, as it is about perfecting how Facebook serves specific types of retailers, says RBC analyst Mark Mahaney.

"Amazon's increasingly advertising on Facebook; we're seeing more and more direct marketing dollars flow onto Facebook than really anybody thought was likely to be the case three or four years ago," Mahaney said. "They've figured out form factors that work well for advertisers and for users, so users don't find these ads too intrusive, and they're very action oriented."

Mahaney says these types of ads work well for e-commerce companies, like Amazon and eBay, which are committing more resources to Facebook, as well as to gaming companies and travel companies. "We think you'll see more retailers use Facebook as a marketing channel," Mahaney says.

So who's better positioned to tackle retail, Facebook or Twitter?

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Mahaney and Forrester's Mulpuru-Kodali say Facebook, because of its rich data on who its users are and what they like. Facebook's larger scale is also an advantage.

Still: Facebook did make a foray into retail purchases that didn't work out well: Gifts. The company tried allowing users to send physical gifts to friends, tapping into huge activity around birthdays, but it failed to take off and the social network shut it down.

The other promising social e-tail plays are Pinterest and Instagram. Forrester's Mulpuru-Kodali says the problem with Pinterest and Instagram are that now half the links don't add anything useful.

Debra Aho Williamson, eMarketer's principal analyst, says Pinterest has the potential to be a really big player in social commerce but is now a couple years behind since it just started allowing ads in the past six months.

This article originally appeared at CNBC.

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