social-commerce-business-model

What Is A Social Commerce Business Model? Social Commerce Business Model In A Nutshell

Social commerce business models are designed to take advantage of social commerce, a relatively new phenomenon where eCommerce transactions take place on social media. Examples of this comrpise companies like SHEIN, Wish, WeChat.

Understanding social commerce 

Before we delve into social commerce business models, it is worth spending a bit of time explaining social commerce.

Social commerce describes the buying and selling of goods and services on a social media platform such as Facebook, Snapchat, Instagram, and WeChat. This process allows consumers to complete transactions without ever having to leave their favorite apps.

The shift toward social commerce has been driven, like many trends, by the COVID-19 pandemic. Many platforms revamped their social commerce during this time to help retailers streamline their eCommerce experiences. Retailers can now open virtual storefronts that can be found organically or via paid advertising. To a lesser extent, the shift has been helped by consumers making more purchases on their smartphones and demanding a more seamless checkout process.

The trend has not gone unnoticed by businesses, with around 80% expected to be incorporating social media-based commerce by 2024. The industry itself is expected to be worth an impressive $1948.5 billion by 2026.

Three types of social commerce business models

As it stands, three different social commerce business models are starting to emerge. 

These are discussed below in more detail.

1 – Social commerce via social media platforms 

This is a B2C model where platforms such as Facebook and Instagram offer eCommerce functionality to merchants such as an online storefront and smart product discovery. Facebook Shops, for example, are customizable storefronts where sellers can choose featured products in addition to adapting various fonts, images, and colors to match their brand.

In some instances, the transaction is handled by a third party – though it is predicted that most social media sites will handle their own transactions in the future. Facebook has made moves to integrate Shopify in the U.S. market to allow sellers to complete the process via the app or in Messenger. 

2 – Social commerce apps with a reseller ecosystem

Some companies are bypassing the need to spend money acquiring new customers by leveraging the power of word-of-mouth and curated products within social groups. In essence, they can determine the products users enjoy simply by listening in on their conversations.

Meesho is an Indian social commerce company that enables small businesses to sell their products to consumers. Resellers can also sell long-tail products via other channels such as WhatsApp and Instagram, among others. 

Meesho allows sellers to add a margin of their choosing to the products they sell. When a sale is completed, the company handles the payment and then distributes the margin to the seller. With the above in mind, this means the second model can be either B2C or C2C.

3 – Social commerce apps without intermediaries 

Chinese giant Pinduoduo is one platform that connects producers with buyers without the need for an intermediary. Consumers are encouraged to come together and make bulk purchases to reduce their costs.

Though the model was previously used by social coupon site Groupon, the so-called “farm to fork” strategy employed by Pinduoduo is seen as revolutionary and has numerous benefits. The strategy promotes more sustainable food systems that have obvious benefits for biodiversity and the environment. 

However, it also increases food security and affordability for poorer consumers while also generating favorable economic returns for farmers and fostering competitiveness in the market.

Key takeaways:

  • Social commerce business models are designed to take advantage of social commerce, a relatively new phenomenon where eCommerce transactions take place on social media. Platforms such as Facebook and Instagram utilize a B2C social commerce business model where users can set up a customized storefront and handle payments. In some cases, the transaction is handled by a third party.
  • Meesha is an Indian B2C and C2C social commerce site that utilizes the inherent strengths of social media platforms. Through word-of-mouth product recommendations and curated product lists, small businesses and individual resellers can sell products across multiple platforms.
  • Chinese giant Pinduoduo connects producers with buyers without the need for an intermediary. Consumers pool their resources to bulk-buy and receive a discounted price without affecting a producer’s profit potential.

Related Business Model Types

Platform Business Model

platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c-business-model
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

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