In an earlier post we asked, is social commerce the next eCommerce? The answer is probably and potentially a resounding yes.
Social Commerce Business Model
The next question is, what is the business model of the emerging live shopping platforms and the associated social commerce companies?
- Social Commerce Intro & Market Size
- Social Commerce Market Players
- Social Media Backbone
- Live Shopping Backbone
- Social Commerce Business Model
- Social Commerce Business Model Canvas
Social Commerce Intro & Market Size
Right now, the majority of the market is based around retail goods and collectibles, as could be expected in a market that is the derivative of the eCommerce market.
The majority of the early market growth has been in the Asian market on the back of platforms like WeChat and Tiktok; however, the market growth has recently spread into the North American and Western markets in recent years and is expected to see exponential growth across all global markets over the next 5 – 7 years.
US livestream shopping revenue is expected to grow from $20B in 2022 to over $60B by 2025, when it will account for over 5% of total US retail eCommerce sales.Contrary Research
There are multiple layers to the market, including:
- a social media backbone in the cases of platforms like Tiktok and Twitter
- a live shopping backbone in the cases of platforms like WhatNot, BuyWith, and NTWRK
- a focus on commerce and conversion vs. likes and clicks
- a payments layer that allows for spending and transfer between creators and consumers
Social commerce is not social media, it is the next iteration of the eCommerce market due to demand for more immersive online experiences, along with the fusion between video technology and payments.
In relation to customer acquisition and retention of users, social commerce is defined by ‘trust’ relative to other marketing channels in the traditional eCommerce model.
Whether it is family and friends referring products/services to each other, or prominent influencers who have built large and loyal followings around specific topics, trust is built through social channels and converted into commerce.
Thus the big opportunity in the social commerce market space – beyond the platforms hosting the commerce – is for those creators who are able to monetize their skills and audiences, whether in live or asynchronous video. Social selling may become the big skill in the years ahead.
Social Commerce Market Players
There is an ‘undefined’ relationship beneath the ‘social commerce’ banner between social media 3.0 apps and the newer, dedicated, live-shopping platforms.
As we can see in the diagram below (from late 2022), platforms like Twitter and now BlueSky (by former Twitter CEO) are emerging to become pureplay social commerce platforms much like WeChat in China due to the integration of a payments backbone.
While Twitter is centralized and Bluesky is designed to be decentralized (thus offering more privacy), both focus on monetizing the creators who drive attention on the platform. Video-based Tiktok is innovating on its model in a similar way. Even audio-based Spotify may move its model in this direction in the years ahead.
Social Media Backbone
TikTok – Creator Marketplace + Live Shopping
TikTok has a creator marketplace for brands to connect directly with influencers/creators in order to produce branded UGC content. More recently, they have started to promote a lot more live shopping content to their audience, a trend we will explore more below relative to the pureplay live-shopping platforms.
Twitter – Creator Ad Payments + Subscriptions
Under Elon Musk, Twitter began innovating their business model by rolling out Twitter Blue to enable writers, content creators, and generally interesting people to build an audience and monetize it via Subscriptions. They have more recently began actually paying some of their top creators with ‘Ad Share’ payments for those who have a large reach on the platform.
BlueSky – Decentralized Marketplace
BlueSky incorporates a lot more technological innovation around decentralized ID and blockchain payments, yet it still angles to do what Twitter it currently doing without the ‘corporate spin.’ It will likely emerge as a competitor to Twitter and promote commerce between users as the way to do it, since it is slated to start off as Twitter did (free); however, the privacy approach means it likely will not go down Twitter’s road as a new-fangled Ads platform for big brands.
Spotify is often maligned for its core business model – subscriptions – due to what many artists articulate as an unfair split of revenue. They have recently moved into Audio Ads, but that really does nothing to change the equation for the artists. Recently, however, they have begun testing token-enabled playlists + NFts with a select group of artists, and this could, in fact, become a model that becomes much more artist-friendly.
But this is only one side of the market. While other major social media platforms move more in the direction of community and focus on enabling creators/hosts to build the strength and engagement among members, there is a rapidly-growing demand for live shopping where a brand can sell it’s goods.
While Coresight Research suggests 45% of US consumers in 2023 are on livestream shopping to find a good deal, a ballooning plethora still are on it to watch something new, just pass time, or discover new products.BuyWith CEO
Across generations, consumers are getting sick of scrolling, liking, commenting, and generally being ‘consumed’ by social media. While not completely different per se, live shopping is a more social experience and doesn’t require the same ‘mindset’ as social media. It is exploding in popularity for a number of reasons on a host of major platforms.
Live Shopping Backbone
WhatNot – Retail Products
WhatNot homepage (2023)
LA-based company Whatnot is a livestream shopping marketplace for collectibles that launched in December 2019WhatNot
WhatNot started off in the collectibles space, but now focused a lot more on retail goods, with fashion being one of their fastest-growing categories. Sellers must be approved (~50% are) and buyers create an account and login through the dedicated app.
WhatNot brands itself as a “social marketplace.”
BuyWith – Fashion, Beauty, Cosmetics
BuyWith homepage (2023)
BuyWith was founded in 2018 and initially focused a lot on fashion. More recently, they have gone deeper into the beauty sector through a partnership with Ulta Beauty. Unlike other platforms, BuyWith’s technology enables brands to bundle it into their core eCommerce technology (Shopify, etc.) and setup clickable links that brands can share across their social/email marketing channels. It is not an all-in app.
With the ability to host 1-to-1 and 1-to-many live stream sessions with a brand and a creator, directly on the e-commerce platform, it enables much higher engagement on site versus online shopping, which has shown a 11X reduction in return rate, 70% higher average order value (AOV) and 10X sales conversion rates.BuyWith CEO LinkedIn
BuyWith brands itself as a “live ecommerce” platform.
NTWRK – Collectibles, Art, Exclusive Co-Creations
NTWRK was founded in 2018 and has a distinctive feel relative to all the other live-shopping platforms with a more ‘niche/collectibles’ type appeal. It’s founder forged the company’s path relative to Gen Z and a history in the ‘streetwear’ space.
A self-described graffiti kid, Levant’s early passions for streetwear, sneakers and graffiti still resonate. Levant started his first company, streetwear trade show Agenda Show, in 2003 as a trade show with an emphasis on style, art and music.He later created and managed fashion festival events and used his savvy to co-found the NTWRK agency for retail brands from 2011-16.Entrepreneur.com
Similar to WhatNot, buyers and sellers access the product through a dedicated mobile app.
NTWRK brands itself as a “curated live shopping experience.”
The common foundation between social media and live shopping is, of course, video; however, the route from ‘video’ to full-fledged ‘social marketplace’ is entirely non-linear and could encapsulate any number of the companies above.
Social Commerce Business Model
As analyzed in the Video Ads business model, platforms like TikTok, Instagram, YouTube and others will take a % (typical model is 50/50) based on Ads served during creator videos. This type of ‘social commerce’ is really just an iteration of the Advertising business model, and is not pureplay social commerce.
Twitter’s new focus under Elon Musk has been on using Twitter Blue to boost subscriber bases and ultimately share revenue with top content creators. But the recently-rebranded X.com promises to push towards an all-encompassing commerce platform similar to WeChat. This is much more likely the image that comes to mind when we think of ‘social commerce.’
Social Commerce is not about Advertising
At the core of social commerce is commerce and not ads.
The most obvious metaphor would be thinking about it relative to TV in the 70s, 80s and 90s and their impact on the retail business model. Retail did not suddenly shift their operations to become TV-centric, they simply used TV as a new medium for advertising.
Similarly, many brands are using UGC Video and Live Shopping as a very efficient marketing channel to reach their desired audience(s). But these brands pay for advertising performance, they don’t pay per transaction. Social commerce is a transactional business model.
Home Shopping Network (HSN) + The Shopping Channel (TSC) Proxy and Business Model
In the USA, the original ‘Home Shopping Network’ (HSN) started in 1982 and went national for the first time in 1985.
It expanded into the first national shopping network three years later on July 1, 1985, changing its name to the Home Shopping Network, and pioneering the concept of a televised sales pitch for consumer goods and services.Wikipedia
In Canada, the original ‘The Shopping Channel’ went on air for the first time in 1987 as the ‘Canadian Home Shopping Club‘ (CHSC) and was affiliated with HSN.
The model at the time was purely ‘live,’ as “members” could only purchase goods for the windows of time that they were on the screen.
As viewers could only purchase items for as long as the products appeared on their screens, anywhere from two to ten minutes, the typical member would watch the program for several hours each day in an effort to find the best deals on products they wanted.Reference For Business
The HSN model was based on moving product much in the same way as the traditional retailer, and also coming up with their custom-branded product line.
A new product could be introduced to the nation on the network and within minutes, thousands of items could be soldReference For Business
The company grew rapidly and became publicly-listed on the back of this business model, passing $1 Billion in sales by 1990.
Live Shopping – Transactional Business Model
Going through the above-reference live shopping platforms:
- WhatNot charges an 8% Take Rate on the seller side of the transaction + payment processing fees
According to their website, Whatnot has an 8% take rate from every item sold on their marketplace and an additional 2.9% + $0.30 “payment processing fee” for the entire transaction from the seller. Buyers on the platform are responsible for paying taxes and any local custom fees charged for products they order.Contrary Research
- BuyWith charges a monthly SAAS subscription fee to sellers (ie. like Shopify) + affiliate commission on sales
- NTWRK has a model similar to the Home Shopping Channel cited above, where it ‘drops’ either exclusive content from partner brands or launches its own custom-branded products and takes an unknown (but likely high) cut of the revenue
The conversion rate between viewership and purchases is 10% to 15% on the low end and up to 70% at the high end.Modern Retail
We can see through looking at these 3 distinct ‘live shopping platforms’ that their core business models all diverge, yet converge around taking a % of the transaction volume to some extent. That’s because live shopping has much higher conversion rates and much lower return rates when compared to eCommerce.
Social Commerce Business Model Canvas
The business model around ‘social commerce’ is evolving because of the relative infancy of the market (especially in North America) and the rapidly-increasing competition.
The model will evolve as the market changes and consolidation (eventually) occurs (based on Rule of 3s), but at its core it will be transactional whereby platforms are incentivized to sell products at scale, either on behalf of brands or via their own exclusive lines.