"Retail Bandwagon - Instagram Launches its Very Own Marketplace"

Joseph McConellogue, Global Head of eCommerce

For years, social networks have been trying to build eCommerce capabilities into their platforms, but for the most part, these efforts haven’t caught fire. Last week, Instagram announced a new eCommerce product that we believe will finally allow Facebook to have a legitimate in-app eCommerce offering. With the launch of Instagram Checkout (currently in beta with 22 brands), Instagram has brought the purchase of a product directly into their platform, allowing them to act as a marketplace for brands to sell product with a seamless in app experience.

Instagram has allowed brands to include product tags and stickers to their Instagram posts for a while now, but what’s unique about Checkout, is that the product tags, once clicked, will no longer need to be directed to a brands website. Once a user adds in their billing information to Instagram, that person can convert in a frictionless environment, never having to add their details again. Instagram Checkout sounds wonderful, right? Well, it is… and it isn’t.

Overall, the product is a step in the right direction for Instagram, and its loyal user base, however, the product has some limitations too. Let’s take a look at the “good”, and the “not-so-good” (because there really aren’t any “bad’” to this innovation).

The Good:

  • Instagram is a discovery platform. While Amazon has done a great job solving the buying process, it has yet to figure out the shopping experience. It’s very much a transactional platform, and is limited when it comes to shopping “discovery” and shopping “experience” when compared to brick-and-mortar, and other more visual channels. Instagram, however has become a platform very much engrained in experience, and brands have leveraged the visual nature of the platform to get their products in front of their most valuable audiences. As a discovery platform, brands are able to leverage the visual nature of the platform to expose their products to potentially new customers, and allow them to convert directly within the app.
  • Instagram Sponsored Posts are not as “annoying” as sponsored posts on other platforms. Reprise Strategy teams have concluded that users are not finding sponsored posts on Instagram as “annoying” as sponsored programs on other platforms, so this shopping experience only adds to the already positive experience users have on Instagram discovering new products and brands, particularly from trusted influencers. Important to note is that Instagram Checkout is not available for Sponsored Posts at this moment, but that’s certain to change with time.
  • It’s a great solution for the challenges of mobile commerce. Instagram Checkout helps solve some of the core conversion challenges brands face on mobile devices. In general, mobile websites are typically clunky. They require multiple data entry tasks (think billing info, shipping info, etc), they often don’t load properly, and user data is rarely saved for next time without signing in again, all of which result in lower mobile web conversion rates. Brand app experiences, certainly remove the friction of data entry, but often lack the reach needed to scale to new audiences, ultimately limiting their ability to grow. Checkout partially solves these issues, and gets users to convert while having their attention. With built in audiences, Instagram poses the opportunity to scale out to new customers through a seamless checkout experience. This feature allows them to input billing/shipping info once, and with it, it’s in the app until they delete it. Big pro.
  • Brands are already familiar with Instagram. Instagram has done a great job onboarding brands to the platform. Many brands have become quite sophisticated with how their leverage their own brand content, and how they partner with influencers. Brands like Adidas, Nike, etc, have been focused on driving traffic to their sites using hot spots/pins on their images, and are very familiar with how these programs work, and can work well. It’s an easy shift to link these products to Checkout.
  • ROI on Instagram is now a little clearer. It’s never been particularly easy to measure the value Instagram brings to a brand. While Checkout doesn’t solve the problem completely, it now adds some credibility to the value brands get out of Instagram. It allows brands to attribute in-app purchases to the platform, and diminishes the what-ifs around crediting the incorrect source of the purchase. We don’t suggest that a brand only measure the ecommerce value coming out of the platform, but it certainly helps layer on some valuable data.

The Not-So-Goods:

  • It’s only one product per sale. As it stands now, every product requires a unique transaction, so brands are unable to bundle products, or upsell. This will undoubtedly lead to a lower average basket size, and could lead to headaches for brands without sophisticated fulfilment management operations.
  • There are no ratings/reviews. Compare this to shopping on any other platform. Ratings and reviews are some of the most critical content consumed during the purchase path. The Product Detail Page on Instagram is light on content in general, and doesn’t include any Ratings or Reviews. Hopefully that will change.
  • Brands don’t have a 1P relationship with its customers. Instagram will not share user contact info unless the user opts in during checkout. In general, most people do not voluntarily share their contact info for future marketing opportunities, so brands have no way of building/nurturing the relationship with their customers outside of the platform. Building a retargeting plan to foster these customer relationships will need to remain within the walls of the Facebook ecosystem, should advertising in this format be made available.
  • Confidence is low in Facebooks ability to keep your data safe. Obviously, Facebook has had some major gaffes in its ability to keep users data safe. This is widely known, and consumers might be more hesitant to provide their credit card info to Instagram, knowing that their data could be at risk. This could limit the usage of Checkout.
  • We’re unsure of what the fee model is for brands. Simply put, Instagram hasn’t shared how they’re charging for Checkout. Our hunch is that there is likely a commission paid for each sale, similar to other marketplaces, but that’s purely speculation at this point.

Overall, the Instagram Checkout product is an exciting foray from Facebook into eCommerce, and one that we like very much. Will this replace Direct-to-Consumer eCommerce? Absolutely not. This is simply another marketplace that brands have access to, in order to drive product sales with convenience to the end consumer. What we like about Checkout is Instagram’s ability to engage and delight its users, due to its visual nature. It’s much more inspirational than traditional marketplaces, and gives brands a unique way to grow their base beyond just low funnel converters.