Companies are pouring billions of dollars a year into social media and influencer marketing campaigns, many of which target consumers on Facebook-owned Instagram, in an effort to parlay social engagement into sales.
Now, as part of its effort to grow Instagram’s revenue as its core News Feed ad business slows, Facebook has unveiled an ecommerce offering that could help companies more easily sell to Instagram’s more than 180m users.
Dubbed Instagram Checkout, the new offering allows companies to sell products directly through the Instagram app. It works by attaching a Checkout button to organic posts published by participating brands. Users can pay for products with major credit cards, as well as PayPal, and Instagram will save
their payment data for future purchases.
— Instagram (@instagram) March 19, 2019
The success of those brands – each reportedly valued at upwards of a billion dollars apiece – demonstrates the potential of social media popularity to be converted into sales.
But because of a number of challenges, including measurement and a limited to link to external websites, many brands still have difficulty selling and quantifying sales on social platforms like Instagram.
Instagram Checkout addresses many of the biggest challenges. More importantly, because it reduces the friction associated with making a purchase on an external website, it’s likely that Instagram Checkout will produce higher, and potentially substantially higher, conversions for brands.
But higher conversions will come at a cost that might be greater than the unpublicized fees Instagram is charging brands for the privilege of selling to consumers in its app.
First, customers who purchase goods through Instagram Checkout are effectively Instagram’s customers, not a brand’s. Instagram will share with brands only the information necessary to fulfill an order, and customers will have to opt-in to share their email address for marketing purposes.
In other words, brands aren’t even guaranteed that they’ll be able to obtain customer email addresses.
That alone is a hefty price to pay.
What’s more, Instagram controls the customer experience and will optimize it to suit its interests, which might not necessarily be aligned to the interests of brands. By operating what is for all intents and purposes a marketplace where it doesn’t have to carry inventory and manage fulfillment, it’s questionable as to whether Instagram will, for instance, care nearly as much about metrics such as average order value (AOV) as an individual brand would.
On their own websites, many brands use a variety of techniques, including upsells, cross-sells, and intelligent discounting, to boost AOV. And for good reason: increasing AOV can have a dramatic impact on a company’s fortunes.
While it’s possible that in time Instagram will give them the ability to tap into new features that are designed to help them sell more effectively, they won’t have anywhere near the same ability to create their own customer experiences. Instead, brands in the same space, such as Nike and Adidas, will be pitted against each other in a marketplace where there they have a fairly limited ability to differentiate themselves from the each other as far as customer experience goes.
The inability to own customer experience, as well as customer relationships themselves, is arguably a huge price for brands to pay.
But will brands feel compelled to pay it anyway?
Many are already spending significant sums on Instagram-focused influencer marketing campaigns that they hope will drive sales. High conversion rates could make Instagram Checkout especially enticing to brands eager to see ROI from their social media investments.
Additionally, Instagram says that interactions with Instagram Checkout will be factored into the algorithm that determines which content is displayed to users. Reading between the lines, this would seem to indicate that brands using Checkout could, under certain circumstances, see their content treated more favorably in Instagram feeds.
If that proves to be the case, Instagram Checkout could be as much of a stick as it is a carrot, putting brands that refuse to sell through Instagram at a disadvantage to those that do.