The world’s largest e-commerce company Amazon.com Inc. (AMZN, Financial) has never been lucky with social platforms or apps. The company has tried a few times and failed -- a case in point, the Amazon Fire Phones and tablets, which couldn’t gain enough traction.
It looks like the online retail giant knew all along that at some point it had to try to capture this rapidly growing new trend in the online shopping space. Social shopping has become the preferred method of buying goods and services online among a generation of millennials that spend more time on social media than any other platform, online or otherwise.
When Facebook Inc. (FB, Financial) launched 14 years ago, the idea was all about creating a platform that could help people share their social experiences with friends. It has grown to become much more than that. It is now an online advertising machine challenging Alphabet Inc.’s (GOOG, Financial)(GOOGL, Financial) Google for top honors. The social media space has evolved so much over the last decade such that no single brand wants to ignore its power.
After Facebook, came Twitter Inc. (TWTR, Financial) the short-messaging social platform, which despite experiencing a turbulent period as a public company continues to attract some of the world’s leading brands. Then Pinterest followed, and now, of course, we have Snap Inc. (SNAP, Financial), which could revolutionize the social shopping space after announcing a potentially game-changing partnership with Amazon.
According to reports, Amazon’s deal with Snap will allow Snapchat (Snap’s photo and video sharing platform) users to scan product barcodes using their phone cameras. And if the product is available on Amazon, they can then proceed to make the purchase. The Virtual Search feature has been one of the most elusive innovations in the social media space, but now it looks like Snap has got the ball rolling, which potentially gives it an edge over its social media rivals.
From Snap’s perspective, this could result in a significant improvement in its top line. The company generates nearly all its revenue from advertising products and given its 191 million daily users, the company could really boost its top line with a share of income from purchases made by its users on Amazon.com. Snap is expected to experience accelerated revenue growth between 2019 and 2021.
However, after more than doubling its top line in the fiscal year 2018, the company’s projected top line growth in the current year is expected to decelerate to about 25% with an expected revenue of about $1.1 billion in fiscal 2019 compared to fiscal 2018’s $824 million.
On the other hand, Amazon, which continues to challenge Google’s market-leading search engine for product search could tap into a unique set of customers that continue to elude some of the top e-commerce platforms. Socialized e-commerce has proven to be a difficult thing to achieve organically, and with most online shoppers spending most of their time on social media platforms, leveraging the power of these platforms to boost sales could be a game changer.
But it is never just about the numbers for Amazon. Anyone who has watched this giant grow over the last two decades can attest to that. The company will be looking for synergies that can be utilized to spur organic growth, some of which include trying to get as many of the 191 million daily Snapchat users to sign up for one or more products in its diverse portfolio.
Statistically, most Snapchat users are aged between 18 and 24 years. As of January 2018, Snapchat reached 78% of internet users aged 18 and 24 years in the U.S., 60% of those aged 25 to 34, 45% of those aged 35 to 44 and just 24% of those aged 45 to 54 years. Therefore, by tapping Snapchat’s users, Amazon is basically investing in the future. It is clear that a good number of Snapchat’s users may not be the primary decision-makers at home given the age distribution, but soon, they will be, and this is perhaps a perfect time to capture this highly socialized group of customers.
Snap’s visual search follows a similar product launched by Pinterest, dubbed Pinterest Lens, which allows users to take photos of items in their surroundings and receive insights about them including potential recipes for food products, grooming tips for clothing and attires and many more.
Facebook’s Instagram has a similar product too, which seeks to disrupt online shopping. Instagram Shopping in Stories allows an Instagram Brand account follower to tap on posted stories to gain more information about a product, after which they can proceed to make a purchase.
In summary, monetization of the social media space appears to be gaining traction and it makes sense why the likes of Amazon want to be apart of what could be an interesting growth story.
Disclosure: I have no positions in the stocks mentioned in the article.
