Social Commerce: A Paradigm Shift in E-Commerce

Wissee Perspective — Deep Industry Analysis

What’s the difference between Social Commerce and E-Commerce?

Even though you may have no idea about social commerce, you must have found e-commerce familiar, which transformed most aspects of people’s daily lives. Over 2 billion people shop online via platforms like Amazon, eBay, Etsy, ASOS, and websites such as Shein, Zara.com, and Nordstrom.com.

E-commerce's classic mode is based on the logic of “People seeking products.” When people have clear needs to buy something, they go on Google or Amazon to search for specific products or brands. In other words, e-commerce utilizes demands to incent purchases.

One big pitfall for this model is that it’s hard for new or small brands and products to get rapid growth in sales or even survive as the entry to the game is centralized on Google and Amazon or other big e-commerce platforms. These platforms are dominated by established players with big advertising spending.

With the rise of social media, this old centralized model is changing rapidly! When social media collides with e-commerce, social commerce appears — People can directly make purchases within the social media platforms based on the content they read or watch from brands, influencers, and friends they may or may not know. This decentralized mode of shopping within one’s own network is fueled by entertainment content on social media (such as Instagram, Tiktok, Pinterest, and Facebook) rather than centralized advertising on Google or Amazon. With social media, the commerce model shifts to “Products seeking people.” That is, instead of pushing advertisements on platforms where people go to search for products, brands use content and content creators(a.k.a. influencers) as a gateway to stimulate product purchases. Brands can market products with various social content, such as images, videos, advertising, live-streaming, and stores. Amplified by the recommendation algorithms of the social platforms, such content will be pushed to people with relevant user attributes and labels.

This new “Product seeking people” paradigm aligns with the consumer mentality. Social commerce allows consumers to establish real-life and real-time connections to brands and creators and also have a smooth shopping experience without interrupting the social experience, increasing customer stickiness.

Social Commerce in the US: The now and the future

Social commerce is a new trend in the US. In 2019, Snapchat launched in-app stores for top-tier Snap influencers. In the same year, Instagram enabled influencers to create shoppable posts. In 2020, TikTok joined the social commerce market by partnering with Shopify. We can see major social media platforms in the US have started to spur this new sales channel by transitioning from its roots as social networking tools to focusing on social shopping. They are trying to offer social shoppers immersive social commerce experiences.

Social media shops in the US are still at the early stage of development. Currently, influencer marketing campaigns are popular on Instagram and Tiktok, where brands pay influencers to promote their products with images or videos for sales increase. However, sometimes the processes are complicated and time-consuming as there are many negotiations and implementation efforts. The results after the hard work may not be desirable. Even though many influencers started their own shops on Instagram, this way hasn’t been regarded as a common shopping way yet.

Social commerce in the U.S. is new, but its growth is astonishing, especially with Gen Z shaping the new social media era. According to Insider Intelligence forecasts, Gen Z is pushing social commerce to move forward, with U.S. retail social commerce sales set to rise by 24.9% to $45.74 billion in 2022.

Gen Z is growing up along with the development of social media, so social media is an indispensable part of their lives. They rely heavily on social media to seek massive novel, authentic, interactive, and clear information and make decisions before purchases. Meanwhile, they have strong fans/followers' economic effects. According to Fast Company, Gen Z accounts for 40% of U.S. consumers, and 60% of Gen Z in the U.S. explore new brands, products, and services on Instagram. Additionally, more than 76% of Gen Z say they follow an influencer on social media, and 48% of Americans aged 18-34 make purchases on social media.

With the growing purchasing power of Gen Z in the coming years and decades, the social commerce trend is definitely not slowing down.

Let’s take a look at how the world’s top social commerce platforms are playing this new game.

Case Study: What we can learn from Tiktok China(Douyin) on the future of US Social Commerce

China is the largest e-commerce market globally, and it's well ahead in adopting social selling in the past three years. The penetration rate of online shopping users increased from 42.9% to 78.6% from 2012 to 2020, and the sales of social commerce in China reached $35 billion in 2021.

Douyin, the Tiktok China app, is a perfect example for us to learn about the future of social commerce in the US. Douyin is China's most popular short video platform, with more than 600 million daily active users. From May 2021 to April 2022, 1.8 million new social commerce merchants entered Douyin. 3.86 million social commerce merchants are currently running their businesses in Douyin, and more than 22 million people have earned more than 5.9 billion dollars.

To best facilitate social selling and shopping, Douyin came up with the "FACT" model. This model integrates the brand's Field, Alliance, Campaign, and Top Influencer. Field emphasizes the brands' self-management on their official accounts— they need to improve their content supply ability so that stable daily sales can be guaranteed through self-management content; Alliance aims to build up a matrix of video/live-streaming creators to widely spread out the product to different levels of consumers— with the form of images, videos, or live-streamings. Such collaborations can rapidly expand the supply of diverse and rich content for brands, which can help brands achieve a deeper user penetration; Campaign focuses on official marketing or themes activities on social media platforms—brands can combine platform and brands resources to create a centralized outbreak of brand events. Top Influencer means collaboration with influencers or celebrities—brands can utilize the fans' economic effects and social influences of top influencers and celebrities to drive traffic for product sales and increase brand awareness in a fast and responsive way. These four operations in Douyin aim to guarantee brands' consistent output of good-quality content, incent audiences' purchase desires, and promote efficient transactions.

Besides the "FACT" model for content marketing, Douyin mentioned two more strategies that brands can combine together. One is to utilize Douyin shops and the search function to stabilize transactions and precisely match the products with the right consumers: The brands can have official online shops within Douyin, and they can decorate and upgrade the shops to fit their brand image, providing users with a real shopping scene; The interest-oriented search function help users reach to more related content and products when users get inspirations from the content they have seen. Then, brands can be able to see the feedback of search at the back-end and form accurate user labels based on the user behavior data points, helping them generate better content and products. This strategy further opens up the two-way consumption path between "products seeking people" and "people seeking products''. Another strategy is that brands can make paid advertisements to increase visibility and exposure among tons of social feeds. By empowering and connecting these three strategies, brands can comprehensively carve a new path that creates massive engagements efficiently and quickly.

Example: Chinese new beauty brand—Joocyee

Empowered by Douyin, Joocyee, a 3-year-old beauty brand in China, has achieved 72 million dollars GMV in its third year. Joocyee makes full use of Douyin's features and attributes to expand it