Social Commerce and the Influencer Economy

Weekly updates on the innovation economy.

Introduction:

Social Commerce = E-commerce + Social Media

Social commerce represents the intersection of e-commerce and social media platforms. In this newsletter, we explore the rising influence of social commerce and outline the growth opportunities for both investors and entrepreneurs within the social commerce ecosystem. Specifically, we would like to highlight these 3 important topics:

  • Grand View Research estimates the growth rate for global social commerce to grow at a ~28% compounded annual growth rate (CAGR) from 2021-2028. The global market size for social commerce was ~$475B in 2020.

  • FIS Worldpay estimates that global e-commerce spending may reach $7.3 trillion or more by 2024, which represents a significant increase from the ~$4.6 trillion in e-commerce spending in 2020. 

  • The rise of the “influencer economy” is influencing individual purchasing decisions. Network effects of social media platforms provide a voice and influence, particularly for individuals and companies with millions of followers on popular social networks. Influencers (ie. popular people on the internet with a large number of social media followers) and celebrities are increasingly being paid to promote and endorse products on Tik Tok and other social media platforms. 

In addition, Drawing Capital recently co-hosted a webinar with Interactive Brokers to discuss social commerce and the future of e-commerce in a post-pandemic world. You can view a recording of the webinar and the webinar presentation deck at this link: https://ibkrwebinars.com/webinars/e-commerce-in-a-post-pandemic-world/

Leading Apps in Social Commerce

Social commerce involves the proliferation of social media platforms and the “influencer economy” to promote and sell products and services. The biggest social media platforms for social commerce currently include Instagram, Pinterest, Tik Tok, Douyin, Sina Weibo, Taobao, WeChat’s Mini Programs, YouTube, Facebook, Snapchat, Poshmark, and more.  

Notably, there are different marketing and distribution strategies across different social media platforms. Tik Tok favors informal musical content with short videos while YouTube is more accustomed to longer video formats. Twitter promotes re-sharing of information and virality of its broadcast platform via re-tweets, while Snapchat focuses on a more personalized ephemeral messaging and video experience based on your friends and contacts. 

Rise in Social Commerce 

Social media platforms encourage multi-hour viewing of their apps on a daily basis. Spending hours of time per day on something will almost certainly influence a person’s behavior over time. If you played basketball 3 hours a day, you would probably be very good and actively put up stats in local basketball leagues. Conversely, if you scroll through photos and videos on Tik Tok and Instagram for 3 hours a day, the mind almost certainly starts to act differently in noticeable and nuanced ways. 

The rise of the influencer economy and creator economy is influencing individual purchasing decisions. Especially in fashion and beauty products, influencers and celebrities are increasingly partnering with and getting paid by trending brands to advertise a specific set of products. Additionally, sites like Pinterest provide a source of inspiration to pin and save items that drive future consumption and spending.  

Notably, total addressable markets ("TAM") for several industries and sectors have been expanded by global internet distribution. If you operate a gas station, your addressable market is restricted to travelers, car renters, and car owners in your locality. If you operate a social network or online store, your theoretical addressable market is anyone that has access to the internet. With massive distribution at scale with reasonably low variable costs, social commerce combines the network effects found on social media platforms and the growth of e-commerce to create a growing TAM that is currently worth hundreds of billions of dollars. 

Insights on Social Commerce from Grand View Research 

Grand View Research estimates an annual compounded growth rate of 28% from 2021 to 2028 for social commerce, and the estimated market size for global social commerce in 2020 was about $475 billion. In 2020, Grand View Research estimated that apparel and beauty products were the largest segment of social commerce:

According to Grand View Research, the Asia Pacific region captured about two-thirds of the geographic market share for social commerce in 2020, which can be directly attributed to the rising social media usage and rising number of active users on social networking platforms in South Korea, China, and India. As more people have daily internet access and increase their usage of social networking sites, it is natural for more people to have their consumption of goods and services be influenced by social media. The following chart from Grand View Research demonstrates the estimated rising market size of social commerce in the Asia Pacific Region for the next several years: 

Social Commerce in America

Furthermore in America, the following chart from eMarketer demonstrates the rising growth and influence of social commerce buyers. With an estimated over 100 million social commerce buyers in America in 2023, that would represent a greater than double the amount of American social commerce buyers in 2017.

Sample E-Commerce Companies

Leading E-Commerce Companies by Geography

Closing Thoughts

  • The totality of consumer expenditure is measured in the trillions of dollars annually and represents the majority of America’s GDP. 

  • Consumer spending has increased with mobile-friendly shopping apps, subscription service business models, social media algorithms that amplify and recommend products and services to consumers, and the concept of the “buy now, pay later” phenomenon.

  • The e-commerce tailwind for numerous companies will continue because e-commerce can increase price uniformity, provide more transparency and information to consumers in a decentralized method with the internet, make online prices more sensitive to change due to competitive forces, and alter the price level of certain goods and services for the benefit of consumers. 

  • Across major countries, there is a repeated trend towards cashless payments in transactions, which can be measured as a decreasing percentage of cash used in payment transactions by volume.

  • When e-commerce provides a cheaper, faster, and more convenient experience to consumers, then consumers will increasingly choose e-commerce in lieu of in-person commerce. 

  • A combination of both invention and optimization in the e-commerce ecosystem will continue to drive increasing e-commerce market penetration as a percentage of total sales. 

  • Social commerce and improved consumer experiences on mobile devices are driving the next wave of e-commerce spending. 

  • Companies that are combining a social element to e-commerce with the “influencer economy” are seeking faster sales growth and user engagement. 

  • E-commerce purchases are increasingly being made on mobile devices. In fact, mobile-based e-commerce transaction dollars were more than twice the amount of desktop-computer-based e-commerce transaction dollars. As a result, it has now become necessary for retailers to have a comprehensive and competitive e-commerce strategy with an excellent user experience on mobile devices. Retailers that connect with influencers and celebrities can leverage their personal brand and distribution channels to create viral product adoption and revenue growth. 


References:

(1)  "Social Commerce 2021 - Insider Intelligence Trends ... - eMarketer." 3 Feb. 2021, https://www.emarketer.com/content/social-commerce-2021. Accessed 2 Mar. 2021.

(2) "Social Commerce Market Size Worth $3,369.8 Billion By 2028." https://www.grandviewresearch.com/press-release/global-social-commerce-market. Accessed 2 Mar. 2021.

(3) "Social Commerce Market Share Report, 2021-2028." https://www.grandviewresearch.com/industry-analysis/social-commerce-market. Accessed 2 Mar. 2021.

(4) "Digital Wallets Eclipse Cash Globally at Point of Sale for First Time ...." 24 Feb. 2021, https://www.businesswire.com/news/home/20210224005222/en/Digital-Wallets-Eclipse-Cash-Globally-at-Point-of-Sale-for-First-Time-During-Pandemic-FIS-Study-Finds. Accessed 2 Mar. 2021.


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