Does Facebook Finally Understand Social Commerce?

Facebook (NASDAQ:FB) announced that it would begin making merchants buy a minimum of $5 worth of related ad space for deals they post through Facebook Offers. This comes just after Facebook Exchange was bumped out of beta, allowing advertisers to bid on display space. Combined, these two marketing avenues open up a big, crazy world for social commerce.

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IBM (NYSE:IBM) showed that during August, traffic coming from social networks generated 2.2 percent of apparel sales. This may be a small overall figure, but a substantial – 113 percent – increase from 2011. Overall socially generated purchases rose 69.7 percent. Facebook dominates this game, generating 80 percent of all traffic sent to retail sites from social networks. As the synergy builds between the world’s largest social network and retailers big and small, we can only expect the conversion rate to increase.

IBM has also showed that mobile commerce is growing — 15.1 percent of online sales in the second quarter of 2012. While social commerce dropped to just 1.9 percent of online sales activity, he upcoming holiday season may be the next benchmark to see this number increase. Facebook’s “word of mouth” style of promotion is particularly effective for influencing things like gifts. In the coming weeks, savvy retailers could advertise products to selected demographics through the exchange, and then hit the exposed audience with a tailored coupon. As Gokul Rajaram, director of product management for Facebook’s advertising and pages, said, “We think this aligns incentives nicely.”

This symbiosis could spell bad news for Groupon (NASDAQ:GRPN) which lacks Facebook’s captive audience. Groupon is expected to hike up marketing costs in order to compensate for fatigue in the daily deal industry. The company has also received a lot of negativity related to how successful – or unsuccessful – its deals have been. Merchants are growing increasingly hesitant to use daily deals.

Google (NASDAQ:GOOG) also has social commerce potential through the combination of Google+ and Google Offers. Although the Google+ network is a fraction of the size of Facebook’s, it does also offer shopping and wallet functions which could build synergy.

Facebook has to most to lose and the most to gain as online commerce moves from desktop web browsing to mobile social networking. The past few weeks have shown that the company is taking steps in the right direction, and hype about a Facebook search have brought back some investor faith.

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