Money doesn’t drive Marketplace – user engagement does
31 Oct 2016
This article was first published in CIR17.20 on October 31, 2016, a client-only report. To receive the bi-weekly Classified Intelligence Report (CIR), go here.
When Facebook recently announced the launch of Facebook Marketplace, a classified listings service, classified publishers around the world took notice.
As well they should.
But, as we’ll explain, Facebook isn’t a classified publisher in the traditional sense. Nor is it likely to become one any time soon. Marketplace launched in four countries: the U.S., U.K., Australia and New Zealand.
Eventually, perhaps, it will, which is why every competitor should pay attention. But its motivations are completely different from most classified publishers who are in business to generate revenue from the advertising, traffic and leads they generate.
Facebook Marketplace really isn’t new. It’s at least the second reincarnation of services that have been around in one form or another for almost ten years. Interestingly, the 2007 version was also called Facebook Marketplace. That service was provided by Oodle.com, a Craigslist wannabe that worked closely with Facebook and allowed users to distribute their listings through social media.
More recently — we’ve written about it for more than two years — Facebook has organized listings that users organically posted in Facebook Groups. The company started testing the service in late 2014, and formally announced it in Feb. 2015.
Today’s version launched this October, when Facebook said “more than 450 million people visit buy-and-sell groups each month” and announced Marketplace, “a convenient destination to discover, buy and sell items with people in your community.”
Marketplace launched in four countries: the U.S., U.K., Australia and New Zealand. Market leaders in the “stuff” category in those countries are Craigslist (U.S.), Gumtree (owned by EBay) in the U.K. and Australia, and TradeMe.co.nz (publicly traded: ASX: TME).
Facebook plans to expand Marketplace quickly after getting traction and working out the kinks in those countries.
Two key differences between Marketplace and, say, Craigslist or Gumtree are:
+ The key driver for Facebook isn’t revenue, it’s user engagement. Facebook knows that eventually, people may tire of posting pictures of their gorgeous breakfast or spectacular sunset. What better way to expand the utility of Facebook and promote return visits than to provide utility — “things I (might) want to buy and sell?”
+ Facebook can generate lots of revenue merely by increasing (or maintaining) the number of page views it delivers, and by capturing more and more data about users and their interests. More than just “what my grandkids are doing” or “which restaurant I went to for dinner,” Marketplace searches and posts will provide pinpoint targeting for advertisers. Buying baby goods? You probably have a baby or grandkid. Searching for guitars and picks? You’re into music. Car listings? You get targeted auto ads. And so forth.
Facebook generates about 80 percent of its revenue on mobile devices (which is one reason Marketplace is only available on IOS and Android devices, for now). The more data it captures on users, the more those mobile ads will sell for.
That’s not to say Facebook won’t add more traditional classified elements at some point. “After we’re confident we’ve built out a great product experience for people, we’ll look into introducing [ads from] businesses if it makes sense, and after that we’ll look at how we could potentially monetize the service,” Bowen Pan, the product manager, told TechCrunch when it launched. (Facebook did not respond to requests from the AIM Group for an interview.)
More evidence Marketplace is not a traditional classified business? It’s positioned as a product within Facebook’s marketing units, not its revenue units. It’s unclear how many people work on Marketplace, but it appears to be a handful — perhaps 10 or fewer dedicated employees — rather than dozens or hundreds.
And finally? When Marketplace launched, it wasn’t announced by Facebook CEO Mark Zuckerberg, or one of the company’s C-level executives. It was posted to the Facebook media page by Mary Ku, the company’s director of product management.
What makes Marketplace so much more formidable than other competitors? Users visit their Facebook pages serendipitously, often dozens of times a day. By placing Marketplace in front of them, Facebook makes it much more seductive than Craigslist, Kijiji, LetGo or OfferUp, which are destination sites for people specifically looking to buy or sell.
Facebook also has a built-in security advantage over most other buy-and-sell sites. Although you may not be buying from a friend, or even a friend-of-a-friend, the personal nature of Facebook pages is a clear defense against fraud. Can Facebook profiles be faked? Absolutely. But it’s easy to tell if a profile is new, or has only a handful of friends. Not foolproof, to be sure, but it’s another level of protection. (Of course, we still believe users should transact at law enforcement offices, as promoted by our SafeTradeStations initiative.)
One failing? There are no ratings features, like EBay’s incredibly valuable feedback feature. Another? Facebook essentially says “you’re on your own” if a transaction goes bad. No difference from Craigslist or Kijiji, of course, but still, Facebook will probably find quickly that it’s dealing with law enforcement and product moderation in Marketplace far more than it would wish.
(There was already a problem: On the first few days after launch, prohibited products like guns, drugs and sex services showed up. Ku said Facebook was “working to fix the problem and will be closely monitoring our systems to ensure we are properly identifying and removing violations before giving more people access to Marketplace.”)
In the best review of Marketplace we saw, TechCrunch writer Josh Constine summed up the opportunity for Facebook: “Thanks to the popularity of Messenger, buyers and sellers can easily chat without phone numbers. A competing commerce platform still might have to rely on Facebook for communication. Facebook also doesn’t charge a fee, so you can transact however you want, and never pay extra,” Constine wrote.
“Facebook has a chance to do to shopping what it did to video consumption: make it spontaneous. You don’t go to Facebook to purposefully see videos, like on YouTube, but end up watching them anyway, because the feed intelligently inserts them. Now that casual pattern could come to commerce.
“We found that the vast majority of people just like to browse. They don’t have a specific item in mind. They are just … scrolling through the feed and seeing if there’s anything that might interest them,” Pan concluded. It mimics some of the offline shopping behavior of going to a Sunday market or to the mall. You might not know the items you want, but you’re open to seeing them.”
Ironically, Marketplace isn’t a marketplace at all, at least by our (and most others’) definition. It’s a classified site — listings without transaction capabilities. We define an online marketplace as a service that directly facilitates transactions — handling payment, offering escrow and shipping options (in many cases), providing fraud and abuse controls, and more. So, maybe it would be more apt to call it Facebook Classifieds.
Or, just wait a while, until Facebook truly develops it into a full-blown marketplace.