Facebook Chairman and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington, October 23, 2019.
Erin Scott | Reuters
Mark Zuckerberg spent the majority of Facebook’s Wednesday earnings call outlining the company’s e-commerce strategy, which will be crucial to how the social media company grows its ad business in the wake of one of the biggest changes to mobile ad targeting.
The company’s most popular e-commerce offering today is Marketplace, where users can buy and sell goods from one another directly through Facebook. Zuckerberg said that Marketplace now counts more than 1 billion monthly users.
Zuckerberg also talked about Facebook Shops and Instagram Shops, two features launched last year where brands can upload their catalogs and sell their products directly on the social networks. He also alluded to Creator Shops, a feature he announced earlier this week that will allow Instagram creators to enable e-commerce on their profiles.
Zuckerberg’s comments on Wednesday were his first to analysts since Apple on Monday rolled out iOS 14.5, an update to the iPhone and iPad operating systems that will enable users to pick which apps are allowed to track their activity on their devices.
For Facebook, tracking user activity has been critical to measuring how effective personalized ads are. The company has relied on a metric known as view-through conversions, which measures how many users saw an ad but did not immediately click on it, then later made a purchase related to that ad.
But Apple’s change creates uncertainty. Nobody knows how many iPhone users will allow the social media company to keep tracking their activity beyond Facebook.
That’s where these e-commerce products come in. If Facebook can sell more products through its own apps, it’s not so dependent on cross-site user tracking.
Here’s how this would work in theory:
An advertiser could pay to run an ad for a product, such as sneakers, to Instagram users who follow creators whose content is focused on sneakers. A user could click on the ad and be taken to the brand’s Instagram Shop, where they could pay for the advertised sneakers directly within the Facebook-owned app. In this scenario, the advertiser reaches their intended target, the user buys the item directly on Instagram, and Facebook is able to continue to prove the effectiveness of its ads.
Facebook is not getting into commerce because it wants to compete with the likes of Amazon or Walmart. In most cases, Facebook only charges a 5% fee that covers things like taxes and payment processing. The point isn’t to make money from sales but from advertisements that promote those products.
Indeed, although Facebook has groaned and griped for months about Apple’s iOS 14.5 changes, CFO David Wehner on Wednesday told analysts “the impact on our own business we think will be manageable.”
Investors seem to be buying that claim. The market sent Facebook stock up more than 6% after hours after the company smashed expectations on revenue and earnings.
