Environment
In addition to their choice of business model, the environment is another
crucial factor of influence in firm performance. The environment includes
competitors, suppliers and customers with often conflicting interests.
Threat of Entry
Clearly, the barriers of entry for social shopping industry are low,
which can be seen in the recent emergence of numerous companies of this
type. In addition to social shopping sites, nothing stops traditional
social networking sites from entering the industry. Large social networking
sites--MySpace, Facebook, Orkbut, etc--are increasingly growing their
user base. Users are already networking within these communities and,
thus, these places seem like a natural platform for the exchange of ideas
about products. One may question the need for users to register in yet
more social networking websites that specialize in shopping while they
already belong to a much larger community in which this can also be accomplished.
Suppliers
Suppliers in this industry include those companies that commercialize
the products reviewed in these sites. Because they belong to an array
of diverse industry sectors, they are spread out and unable to act as
a group in most cases. Though in this respect their bargaining power
is low, many of these companies already count with other channels to
advertise and commercialize their products which provides them with
negotiating power. These companies benefit from traffic to their websites
and transactions generated from social shopping websites as long as
this is priced accordingly. Smaller companies may be more attracted
to pay fees for having their products displayed and linked to via this
sites, but only if these sites can guarantee enough of a critical mass.
Buyers
As we introduced above, the customers for social shopping sites include
two groups: individual users and companies that use these channels to
advertise their products. Though individual users are not charged user
fees in any of these sites, they are still a key force in this industry,
for without them there would no business. Since the social shopping
scene is young, undifferentiated, and has little switching costs, individual
consumers have great bargaining power.
Rivalry
Yahoo's version of social shopping, Shoposphere, is the oldest and
best established player. For being integrated with Yahoo Shopping, Shoposphere
offers a one-stop shop and price comparison, which adds convenience
to the user experience. In addition to the four studied companies, many
other firms dedicated to social shopping are competing for market share,
including StyleFeeder, MyPickList, Wists, FiveLimes, Chitika,
and more. Rivalry within this industry is clearly high.
Substitutes
For many users, large search engines such as Google and Yahoo, may
be the "number one" option for product discovery. Even though
search engines may not be as efficient for finding products or reviews--as
they usually return too many non-relevant hits--they are still well
incorporated as the starting point for product discovery and comparison
in most people’s searching habits.
Furthermore, niche review sites--such as Cnet for computers and electronics--offer extensive information on specific categories of products, and therefore, they can offer more accurate and detailed reviews compared to a general shopping site.
Finally, deals-focused sites may also appear as substitutes since the new breed of deal-tracking sites also offer social networking features. Through deals-focused sites, users can discover and recommend deals to one another. Some of these companies include Dealplumber, Dealspl.us, Clipfire (Baisel, 2006).
Community as a Success Driver
Providing customers with the ability to interact with one another has been recognized as a good strategy to build customer loyalty and generate economic value (Armstrong and Hagel III, 1995). The four companies studied here seem to be well aware of this, since they all emphasize the importance of developing a community and, consequently, use different strategies to acquire and retain users. In order to develop a successful online community, aquiring either a large user base or a very well chosen niche must be accomplished.
The communities formed through social shopping websites try to address a combination of users’ needs. In one sense, they constitute communities of interests for they bring together participants who interact with one another usually around a common interest. For example, Stylehive “is the world's largest social shopping community made of people seeking out the world's most interesting products, the sites that sell them and the people that find them." This statement could be well supported by the other three sites, which express similar interests.
In regards to the community interests, one may wonder whether “shopping” is a strong enough common denominator to hold a community together. As mentioned above, users may find niche sites, with focus on specific types of products, more appealing than social shopping sites. Indeed, ‘gardening aficionados’ or ‘wine lovers’ may prefer to spend time in specific online communities dedicated to these matters and make their purchases through them if available, rather than going through a general social shopping site. Consequently, one challenge for social shopping sites in to discover those interests that can be attractive enough to hold a community together. Indeed, one of the four companies is already doing this. Stylehive tries to differentiate somehow from the pack by building its community around fashion and style, conforming “... a place dedicated to discovering "what's hot. right now."
Social shopping websites also constitute communities of transaction because they facilitate the buying and selling of products. ThisNext and Stylehive offer links to complete a purchase at the site where the product was originally retrieved from by the user who posted it. In addition to linking, Kaboodle includes the option to compare prices and to buy a product from a few different sources. Crowdstorm, so far, only facilitates transactions by driving traffic to Amazon and eBay.
Strong online communities are supported by intense loyalty on behalf of their users. In online communities, first-movers are often in advantage over competitors (Armstrong and Hagel III, 1995). Even if social shopping websites could offer attractive features for supporting communities of interests or transactions, it may be difficult for emerging social shopping sites to compete with much larger and already established players such as MySpace, Facebook, Bebo and other large social networking sites. Users are already networking within these communities and, thus, these places seem like a natural platform to exchange ideas about products as well. One may question the need for users to register in yet another social networking websites which specializes in shopping while they already belong to a much larger community in which this can also be accomplished.
Management of the Communities
Management is a particularly important factor for successful online communities. There seems to be some differences among the ways that these four sites manage their communities. In this respect, Kaboodle offers the most social networking features, followed by ThisNext. Kaboodle offers various features which encourage people to interact within the site. For example, it features on the homepage a member’s birthday, ‘Featured Kaboodlers’, ‘Help me choose”, ‘Active groups’, as well as ‘Hot Picks’, ‘Popular searches’ and ‘New lists’. All these features contribute to create opportunities for interaction among members. In the member profile section, there are links to friends of each member, the ability to add that member as a friend, and a search link to ‘related’ people.
ThisNext includes a few social networking features for members as well. Members can maintain a profile and a list of recommended products. These products may in turn appear featured on the homepage, which gives members some publicity. However, users can only rate other users’ recommendations; they cannot comment on them. Users do not have networks of friends as in Kaboodle or MySpace. Finally, a link to MySpace is included as well as the ability to quickly export a product description to MySpace.
Stylehive also offers its members the ability to maintain a blog and to have a circle of followers. There is also a Forum which invites people to introduce themselves, post announcements, inform about discounts and deals, and exchange ideas about specific topics such as eco friendly or indy products. The forum seems like a good way to encourage interaction within members. Crowdstorm also features a forum, but this one is not organized by topics. Instead each user can start a new post which appears in a common section. Crowdstorm also offers users the ability to establish themselves in the roles of ‘friends’ and ‘followers’ which encourages interactivity. Users can navigate other users’ profiles and they can send messages to each other.
If social shopping websites manage to sustain strong communities of users, they could offer great value for small businesses and advertisers. Social shopping sites would then be able to serve the brand building efforts of small and large companies. For small companies, these sites serve as channels for raising awareness of their products. Indeed, social shopping has been identified as a form of word-of-mouth marketing (Gordon, 2007). By placing their products in social commerce websites, companies can create "buzz" which may turn into sales. This has been mentioned as a particularly powerful resource for smaller companies which lack the budget to obtain publicity via the expensive traditional advertising channels (McCarthy, 2007).
For larger companies, social shopping sites can be integrated into a bigger marketing strategy which utilizes a variety of channels. In fact, social shopping sites can be exploited by companies as platforms for guerrilla marketing, that is, "programs that use unconventional communication vehicles to create conversation and awareness, breaking through the clutter that diminishes the effectiveness of measured media" (Aaker, 2002). The web offers also a platform for amplifying traditional marketing tools such as measured media advertising, by not only multiplying the exposure of the advertising but its impact (Aaker 2002, p.6). Therefore, social shopping sites can be used towards this goal by generating conversations about products.
To summarize, social shopping websites constitute both communities of interest and transaction. The size and cohesion of the online communities associated with each social shopping website will be an influential factor to determine performance. Not only social shopping websites are competing for users with each other but they also have to face competition from the abovementioned traditional social networking sites such as MySpace and Facebook. From the four sites observed, Kaboodle seems to offer the most functionality to encourage socialization. One way or the other, community is a vital component for the survival of social shopping.