Author | Nexus Research
Compile | US Stock Research Institute
01
Summary
Shopping progress on the platform generates valuable first-party data that informs targeted advertising efforts, enhancing the appeal of Instagram advertising solutions.
Meta (NASDAQ: META) encourages merchants to enable checkout on Instagram by offering exclusive e-commerce/marketing features.
Charging an exorbitant 5% selling fee for sales through Instagram checkout could discourage merchants from using Instagram checkout, undermining Instagram’s ability to generate e-commerce revenue.
Instagram’s exclusive features for merchants that support checkout can also be found on other rival platforms, undercutting the exclusive appeal of Instagram’s marketing features.
The company didn’t provide any meaningful conversion improvement figures, raising questions about whether checkout on Instagram actually improves sales conversion rates for merchants on a broad scale.
In an increasingly competitive advertising industry, the shift to e-commerce has become an important strategy in the race to provide high-converting advertising solutions. Meta has been steadily advancing Instagram’s shopping features over the past few years, including a move to allow business owners to set up storefronts on Instagram.
While merchants are able to run Instagram Shops for free, Meta has been rolling out various strategies, primarily through its checkout solution on Instagram.
02
Instagram’s e-commerce push
Over the past few years, Meta has been rolling out various shopping tools to facilitate e-commerce activity through Instagram. That effort accelerated during the pandemic, as Meta let U.S. business owners set up storefronts on Instagram for free in May 2020. The company is working to monetize e-commerce activity, primarily through the Instagram checkout feature it launched in March 2019.
This enables consumers to complete purchases within Instagram, rather than being redirected to a merchant’s third-party website, and saves consumers from having to repeatedly fill in their details on various external websites. Therefore, a smoother checkout process is designed to increase conversion rates for merchants on Instagram.
When consumers check out on Instagram, businesses primarily pay a 5% selling fee on each product sold, though that fee is currently being squandered until June 30, 2023. Note that merchants are not obligated to enable Checkout on Instagram. They can still set up a storefront on Instagram for free, and can continue to direct consumers to their own website to complete purchases, thereby avoiding the exorbitant 5% selling fee, even beyond June 2023.
Nonetheless, Meta is encouraging merchants to enable checkout on Instagram by offering exclusive e-commerce/marketing features. Additionally, by temporarily waiving the 5% selling fee, the company is working to embed exclusive features deep into merchants’ core marketing campaigns, making it less likely that business owners will disable checkout on Instagram after June 30, 2023.
03
Exclusive Features Promote Instagram
Product Launch: This is one of the exclusive features available to merchants that support checkout, and it allows merchants to announce to their Instagram audience that their products are coming soon. Consumers are able to discover and browse new products and set purchase reminders when they are in stock. The feature is designed to make Instagram stickier as a shopping destination, encouraging shoppers to revisit the platform to discover the latest product launches.
As more shoppers repeatedly visit the Drops section, it heightens the appeal of the product launch feature, which in turn drives more merchants to enable Checkout on Instagram to take advantage of it.
Shopping partners: Merchants who support checkout also have the option to extend the Product Tags feature to shopping partners. Product tags used to be available only to professional creators, but earlier this year, Meta expanded the feature to all Instagram users in a list of select countries. This feature enables businesses to grow their audience faster by accelerating product awareness and a wider source of shoppers beyond professional affiliate creators.
Additionally, this feature makes it easier for regular Instagram users to become influencers and earn income through product promotions. The potential to earn income through Instagram can indeed induce greater engagement and time spent on the platform.
Live Shopping: The ability to host live shopping events is also available exclusively to merchants enabled for Checkout on Instagram. Merchants and creators can sell and tag products in a more inspiring and interactive way, enabling viewers to shop while watching. Live shopping can be a great way to capitalize on a popular creator’s fanbase.
04
E-Commerce Should Improve Effectiveness of Advertising Solutions
The aforementioned Instagram shopping advancements should improve Meta’s ability to engage shoppers and gather valuable, first-party consumer data. A key reason Amazon (NASDAQ: AMZN ) has been able to successfully penetrate the advertising market over the past few years is primarily due to its recurring intent-to-purchase website visitors, increasing the conversion potential of its advertising solutions.
Likewise, Instagram’s transformation into an e-commerce destination should improve its ability to reach high-intent shoppers, benefiting the conversion rate of its advertising solutions.
Apple’s (NASDAQ: AAPL) changes to iOS in 2021 and a general crackdown on data privacy across the digital economy have only underscored the importance of first-party data to facilitate targeted advertising. Instagram’s push into e-commerce yields valuable insights into how consumers interact with shoppable content like product tags and live-streamed videos, while the ability for consumers to set reminders for product launches provides better insights into consumer preferences understand.
05
counterproductive considerations
While e-commerce initiatives are critical to driving engagement and enhancing the appeal of Instagram’s advertising solutions, other social media platforms such as YouTube and Pinterest are also transitioning to e-commerce platforms, which hinders Meta’s ability to attract aspiring networks The ability of visitors rather than competitors.
In fact, JungleScout’s findings (based on 1,000 U.S. consumers) show that the number of people searching for products on Facebook and Instagram declined in Q3 2022 compared to Q3 2021. Meanwhile, TikTok and YouTube have seen marked improvements in their ability to engage consumers.
Source: Generated using data from JungleScout Consumer Trends Report Q3 2021, JungleScout Consumer Trends Report Q3 2022
Note that JungleScout’s research is based on a sample of 1,000 U.S. consumers, and larger sample sizes may indeed yield different results. Still, despite Instagram’s e-commerce gains, the platform is still struggling to become the social media platform’s go-to place to shop.
Additionally, the 5% selling fee charged for selling through the Instagram checkout is very high, and once the selling fee exemption period ends on June 30, 2023, this may discourage merchants from using Instagram checkout and instead direct consumers to their own website to complete the purchase.
While Instagram is trying to bolster the appeal of its in-house checkout solution with exclusive features, the appeal of these features depends on Instagram’s ability to continue to attract visitors who want to buy. If the above-mentioned downward trend of consumers searching for products on the Meta platform continues in the future, merchants will become unwilling to generate excessive sales fees by checking out on Instagram, or worse, become unwilling to do it on Instagram at all. advertise.
Additionally, Instagram’s exclusive features for merchants that support checkout can also be found on other rival platforms, giving business owners additional avenues for marketing. Rival YouTube, for example, partnered with Shopify (NYSE: SHOP ) to facilitate seamless live shopping through the video-sharing platform, undercutting the exclusive appeal of Instagram’s live shopping feature.
Meta revealed on its website that the 5% sales fee is not only to cover third-party payment transaction fees, but also to raise funds to fund other projects and promote e-commerce activities through the platform.
Given the highly competitive nature of the fintech industry, companies are striving to offer the most competitive processing rates to bolster their merchant acquisition strategies, a competitive disadvantage. Offering cheaper processing fees has hampered Meta’s ability to encourage checkout-on-Instagram across its merchant base.
Meta’s strategy of funding e-commerce efforts through exorbitant selling fees is misguided, and should instead subsidize e-commerce functionality with its high and recurring free cash flow to better penetrate the e-commerce market. Instead, intensive resources are currently being allocated to building metaspace, the potential of which is still open to debate.
Checkout on Instagram seeks to simplify the checkout process for consumers, thereby increasing sales conversion rates for businesses on Instagram. When it launched checkout on Instagram in 2019, Meta claimed that a more seamless checkout process would lead to higher conversion rates.
However, despite analysts asking executives directly for insights on earnings calls, the company hasn’t provided any meaningful conversion improvement figures since then, casting doubt on whether checkout on Instagram is actually improving on a broad scale. The merchant’s sales conversion rate.
06
in conclusion
Meta has been working to steadily transform Instagram into an e-commerce destination, with the ability to build free storefronts, and enable marketing features exclusive to merchants who check out on Instagram. Shopping progress on the platform also generates valuable first-party data to inform targeted advertising efforts, enhancing the appeal of Instagram’s advertising solutions.
That’s despite the fact that increased competition has sapped Meta’s ability to attract web visitors with the desire to buy. Despite Meta’s e-commerce efforts, Meta is striving to become consumers’ go-to destination for product searches.
Investors will be able to better judge Meta’s ability to generate e-commerce revenue through Instagram when the temporary waiver of the 5% selling fee ends in June 2023, which will test what merchants see as Instagram’s commerce solutions versus costly sales How much is the fee worth.
Any decision to buy or sell Meta stock should take into account the aggregate picture of all business units/product lines. Given this article’s particular focus on Instagram, I would assign a neutral “hold” rating to the stock.
(Disclaimer: This article only represents the author’s point of view, not the position of Sina.com.)
This article is transferred from: https://finance.sina.com.cn/tech/csj/2022-12-15/doc-imxwtamz3502156.shtml
This site is only for collection, and the copyright belongs to the original author.