Silicon Valley woke up early Monday morning to news that Facebook Marketplace is rolling out this week. The new person-to-person ecommerce platform enables its users to find, buy and sell items in their local community. It’s part of the main Facebook app, rather than a separate app, meaning hundreds of millions of users are getting this new feature in the coming days. The first phase of the roll out is limited to users in US, UK, Australia and New Zealand.
Facebook’s official announcement adequately describes Marketplace’s simple mission:
today we’re introducing Marketplace, a convenient destination to discover, buy and sell items with people in your community. Marketplace makes it easy to find new things you’ll love, and find a new home for the things you’re ready to part with.
The social media giant’s announcement also showed that Marketplace will be accessible via an icon right in the middle of the Facebook app’s persistent navigation.
This prominent placement for Marketplace in the Facebook App’s interface also means it has replaced the Facebook Messenger icon. Marketplace is clearly a very important part of the Menlo Park company’s strategy and they see it as a core feature of their app, on par with Messenger. And rightly so.
Here are a few reasons why Marketplace makes a lot of sense for Facebook:
Facebook’s knows A LOT about you
Facebook already knows a lot about its users from their activity on the site and the profile information they volunteer upfront, which enables them to create a highly relevant shopping experience. Earlier this year Facebook created a targeted ad education portal (I recommend checking it out if you use Facebook) which revealed the 98 data points they use to target advertising at users. The data points range from basic stuff that your barber knows about you, like location, age and gender, to data your mother couldn’t provide, like your home’s value, the age of your car, and whether or not you carry a balance on your credit card.
They can also tell alot about their users from the social graph – the social network of connections within Facebook that describe how everyone in the world is related. They know who your family, friends and coworkers are. As the saying goes “You are the average of the five people you spend the most time with.“
According to data firm eMarketer, Facebook is expected to capture 12% of the $186.8 billion global digital advertising market. That’s over $22 billion in revenue from selling targeted advertising based on what they know about you!
Let’s consider that confirmation that Facebook is really good at targeting ads to its 1.7 billion active users globally. Then the same data and targeting algorithms can easily be applied to classifieds which are essentially ads by an individual instead of a business.
Relevant classifieds ads in the Marketplace will make it a much better shopping experience than Craigslist and eBay (and Letgo which I’ll discuss later). Marketplaces are all about matching sellers and buyers in order to move items and cash as fast as possible. Not enough buyers means buyers have to drop their price or move elsewhere. Not enough sellers means buyers will continue shopping elsewhere until they feel confident making a decision.
Facebook is uniquely positioned to do well in this space because it has the data and algorithms to match sellers and buyers and make deals happen quickly for both parties.
Doing what Craiglist can’t do without selling out
Most early media reports compared Facebook Marketplace to Craigslist and eBay. However my initial impression was that its a lot simpler than eBay and more ambitious and thoughtful in its execution than Craigslist (though probably intentional and sensible for Craigslist). I actually think its most similar to Letgo, a person-to-person, mobile classifieds app that raised $100 million in a Series A funding, led by South African tech investor Naspers.
I used Letgo and Craigslist during my recent move from New York to Silicon Valley. Craiglist had more sellers and buyers than Letgo and therefore items change owners a lot quicker. However Letgo’s app was beautifully done and I ended up using it more simply because it wasn’t as much of a burden to upload photos and communicate with buyers. It also felt more like you were interacting with real neighbors socially, whereas Craigslist requires too much time and energy avoiding scams.
Facebook has the potential to combine the superior design and social shopping experience of Letgo with a volume of sellers and buyers that even Craigslist or eBay can’t compete with.
Secondhand market is a BIG opportunity
Most of Facebook’s current advertisers are selling new products or intangible services. However there is also a sizeable market for secondhand or used tangible items. An article by Internet Retailer indicated that “indirect sales outlets such as online auction houses, pawn shops, flea markets and charities represented $163.8 billion in revenue in 2012, up 35% from $121.4 billion in 2008”. The market is driven by the growing consumer trend towards cost-conscious shopping which favors platforms like Facebook Marketplace.
In the future Facebook could monetize Marketplace by charging a fee to post ads in certain categories or allowing users to pay to get their ad seen by more people. They’ve already proven that they can monetize ads.
Your neighbors are on Facebook
Who isn’t on Facebook? Marketplace is one tap or one click away for anyone using the Facebook app. In the future they may even find ways to make Marketplace more visible like showing classified ads in your timeline or in the sidebar ads. No other platform is embedded in the lives of millions of people around the world like Facebook is.
More importantly you can bet most people in your local community are active users of Facebook. Therefore if you had to sell your old sofa, Facebook Marketplace is your best bet. People already used their timeline or Facebook groups to sell stuff or rent apartments but the audience was limited to friends or people in the group. Marketplace opens up your audience to a lot more people.
Next: Marketplace for local ecommerce in emerging markets
The most exciting prospects for Facebook Marketplace are in emerging markets where it hasn’t launched yet. Online retailers in Latin America, South Asia, the Middle East and Africa face unique challenges in online payments, security, internet access and fulfillment. A peer-to-peer mobile classified ads platform avoids certain complications that online retailers have to deal with.
For one, local classified ads don’t involve the exchange of money online. That’s an advantage in places where there is often a lack of trust in anything other than physical cash transactions. The trust issues usually concern both the security of online payment and the delivery of products post-payment.
Payment and Delivery
For example, ecommerce leaders in emerging markets like Jumia in Africa and Flipkart in India have had to offer cash-on-delivery options so customers can see products in person and pay once the item is in their hands. This model is far more popular than paying online or shipping products by mail. Ghanaians prefer to meet up somewhere and see products in person to verify the quality before paying in order to avoid scams. Tonaton, which started as a classifieds site in Ghana, is now offering its own cash-on-delivery services.
As a classified platform, Facebook Marketplace uses a model that will be familiar to many shoppers in emerging markets. In the future it might get more involved in the payment and delivery of merchandise but for now they would be smart to avoid one of the biggest obstacles in ecommerce globally.
Facebook can also address the trust issue by promoting ads by your friends or showing how you’re connected to a seller. It can also show you the mutual friends you have with the seller. This is simply a digital version of how trust already works in many of these cultures around the world where credit scores, background checks and adequate law enforcement are rare.
Also, the secondhand market is already very popular in many parts of the world, especially for foreign goods and electronics which are hard to find locally or too expensive to purchase at the retail price. In such places the life span of foreign goods can be pretty long and items change hands quite a few times. Facebook, like mobile phones, has surprisingly reached people in some of the most remote and impoverished parts of the world (though not to the same extent or level of socioeconomic impact).
Facebook Marketplace could become a popular way to buy and sell mobile phones, laptops and other goods that are often sold today via Whatsapp groups, Facebook Timeline posts or local classified platforms like OLX, Jumia Market or Tonaton in Ghana.
The launch of Facebook Marketplace is a very important move by Facebook that makes a lot of sense for the Silicon Valley company. It can grow to become a major revenue generator for Facebook in the US, UK, Australia and New Zealand. However its true significance may be understated while it is limited to these four countries. The really interesting story to watch is how it impacts ecommerce globally, especially in emerging markets. With Mark Zuckerberg’s recent trip to Africa, Facebook’s acquisition of Whatsapp in 2014, and many other initiatives in emerging markets, it appears that Facebook is well-aware of their opportunity far from Menlo Park, California.