Analysis
The observation of the four companies found that they all offer a fairly similar basic proposal to their users, which is the ability discover, organize, and share information about products through their websites. All four companies present a similar basic business model. This is a combined model which incorporates elements of the brokerage, advertising and infomediary business models. Within this broad concept, some minor variations were also available.
On one hand, the idea of social shopping websites is well grounded. These sites intend to bring back the social component of traditional offline shopping activities. In fact, shopping is in its core a social activity (McCarthy, 2007). In the traditional sense, shopping involves input from friends, family, experts, celebrities and so on, and it is far from being a solitary act as it is usually in the online world. Also, according to a recent study (Megna, 2006) customers are increasingly using social networking tools--such as instant messaging, social networking sites, and e-mail--to exchange information about products they intend to buy, which may indicate the presence of a growing trend.
In terms of customer value for individual consumers, all four companies promise access to a wider variety of product reviews which are created by peers without any editorial filters. Looking closer into the relevant individual components of the business model, the differences among the four companies are, however, minor. It is evident that the social shopping scene is very crowded and only a few—if any—out of the many social shopping companies will sustain themselves. Despite offering a good business concept, our analysis encountered that all four social shopping sites face a serious threat from the industry’s low barriers of entry. Competition is steep and substitutes are abundant. Furthermore, individual consumers are in a powerful position, with plenty of similar options to choose from and low switching costs.
It is imperative for a social shopping website to find ways to differentiate from its competitors. So far, there are only some minor variations in regards to site features among the four companies which could be seen as a means to differentiate one company from the others but these features are easy to replicate by competitors. Therefore, differentiation by product features seems only a good short term strategy.
In terms of differentiation via market segments the companies offer their value to, StyleHive seems to be the only company trying to differentiate with a more fashion oriented approach, while the others target a wider range. This could be a viable strategy to provide StyleHive with some competitive advantage over its competitors. However, capturing such a small niche will also present further challenges.
Another twist on the social shopping business model involves partnering with already established larger Internet companies. Kaboodle is taking advantage of this in a more aggressive way than the other three sites. Kaboodle’s partnership with eBay to create MyCollectibles is an example of possible arrangements. Also, with its agreement with MySpace, ThisNext is another good example of the type of linkages that can be further developed by these companies.
As mentioned above, social shopping sites need to offer more customer value to obtain a competitive advantage over their many competitors. In this respect, social shopping websites could consider the further developments of connected activities. One area that could be a natural fit is to offer customers the ability to complete the purchasing cycle from the same sites and to offer better price comparison and alternative sources from where to buy products. Again, for this strategy to be effective, agreements with other companies are crucial.
In terms of sources of revenue, we will probably witness some changes in the future. So far most sites seem to rely heavily on advertising. However, with such a strong competition and the average low fees for Internet advertising, this exclusive source of revenue seems unstable. In regards to exploiting a commission based revenue model for driving sales towards other sites, whether these sites can have a significant impact on sales remains to be seen.
Though social shopping sites have recently sprung a quantity of articles in several industry publications, not all commentaries are optimistic. As one reader noted in a comment to a social shopping article (Social Shopping Faceoff, #12), "the elephant in the room that no one mentions is that traffic moving across the social shopping sites is tiny". This is particularly noticeable compared to epinions or cnet. Another reader posted "I conclude that the term Social Shopping is an oxymoron, a meaningless combination of words that doesn’t represent reality" (Yeager, 2007). More established social networking sites like facebook.com, orkut.com or myspace.com—according to data retrieved from alexa.com—have between 50 to 400 times more visitors than the best of these four social shopping sites we analyzed.
The number of Internet users visiting social shopping sites is somewhat discouraging. In the last three months, the number of users who visited social shopping sites has dropped a 14% (thisnext.com) to 41% (crowdstorm.com), while for the social network sites mentioned above the trend is ascending from 16% (myspace.com) to 64% (facebook.com). In an American Marketing Association (AMA) survey, 47% of consumers responded that they would go to a social networking site to find out and discuss about gifts and 29% said they were willing to buy products on these sites (Horovitz, 2006). Comparing social shopping sites with social networking sites, 29% of the users visiting the latter exceed by several times the whole number of users in the social shopping sites.
Furthermore, the ability for social shopping websites to sustain strong communities of users will be a key determinant of performance. The larger the network the more attractive a social shopping website would be for its own members as well as for potential advertisers and transaction partners. However, our analysis showed that competition for creating sustainable communities is extremely high. Not only are many social shopping sites competing for users but, again, they also have to face already existing social networking sites. In addition, smaller niche communities offer yet more competition since users find them appealing for their greater specificity and expertise. Indeed, and issue to take into account is whether “shopping” offers enough motivation for users to sustain a community after the initial buzz is over.
Finally, other possible strategies for the social shopping sites are mergers and/or acquisitions. A merger of the two types of networks or an acquisition of a social shopping site from a social networking one, will increase the number of users and will provide the social networking sites with the shopping feature, which is almost missing in them so far. It will also provide the social networks with the expertise to advertise better and convert more users into possible buyers. Whether the larger social networking sites would buy into this or whether they would develop their own tools remains to be seen.
If social shopping websites manage—by differentiating from the pack or by mergers/acquisitions—to secure enough critical mass, there would be an opportunity to create a sustainable business. The area that may offer more potential for further development is that of services offered to corporate customers. In fact, corporate customers seem to be the sector towards which social shopping sites have more bargaining power. These customers find social shopping sites very attractive as platforms to generate buzz about their products.
All the possible strategies for social shopping sites are very much tied to the ability to count with a large number of users. Even possible affiliate deals with online retailers—by which a retailer pays for sales generated via these sites—need to happen at a large scale to be a significant source of revenue. Some companies experimented with offering a commission to users as means to encourage them to publicize products. In this model, the social shopping site would still receive a fee. However, any variation of this model would still require large amounts of traffic.