SKU’d Thoughts 31: Is Instagram’s shopping feature good for retailers?
Instagram has come a long way since launching as a photo-sharing app in October 2010. It was primarily a social networking app before getting hijacked by retailers who used it to build followings and increase product awareness. Fast-forward to the present, Instagram is not only an awareness-building platform for retailers but a digital storefront as well. In March of this year, Instagram launched Checkout, a feature that allows users to buy directly from a retailer within the app. Shipping and delivery information is sent to the users within the app after each transaction.
Before Checkout, Instagram allowed retailers to tag products within posts that would then direct users to the retailer’s website for purchase. Instagram saw over 100 million users engaging with the shopping tags on a monthly basis, paving the way for Checkout. Adidas attributed a 40% year-over-year increase in online sales to Instagram. The sportswear manufacturer’s CEO, Kasper Rørsted, told analysts during the company’s quarterly earnings call that “Product launches and Instagram’s checkout tool were the two most important things for our online sales business in the first quarter”. Facebook, Instagram’s parent company, has tried to build e-commerce businesses but with varying success so there is little doubt that the company will want to expand Instagram’s e-commerce capabilities if Checkout gains traction.
So, who will Instagram’s beefed-up shopping capabilities benefit?
The over 100 million Instagramers a month who already engage with shopping tags on the app are among the obvious beneficiaries. They can now make a purchase within the app without the added friction of leaving Instagram to complete the transaction on the retailer’s site. The ability to discover multiple brands in a single platform is a godsend for trend-obsessed Instagrammers.
Facebook and Instagram now have a foray into e-commerce and the ability to target ads to users based on in-app purchase patterns. As a pseudonym-heavy platform, Instagram’s user data is a bit shallow but Checkout will allow the company to gain invaluable data on users including but not limited to name, true location, and purchase patterns. Instagram will also collect a fee from the retailer for each completed transaction. This incremental revenue stream, however small, is timely given that Facebook’s revenue growth has been slowing down.
Retailers without a digital-first approach could also benefit. These retailers have been struggling to keep up with the DTC upstarts and Instagram can provide them with the added boost they need around product discoverability. The app allows a retailer like Adidas to compete for the same customer as AllBirds by providing the same direct-to-consumer convenience.
On the other hand, digitally-native brands who rely on customer data to improve customer experience may not be so geeked about Instagram’s push to be an e-commerce platform. Instagram is a major acquisition channel for most brands and before Checkout, purchases were made on the brands’ website so brands had full visibility into customer data. With Checkout, Instagram now owns that valuable customer information and based on Facebook’s past dealings, brands should be wary about information sharing.
Checkout is currently in closed beta in the US with select retailers like Adidas, Outdoor Voices and Warby Parker, so it is too early to gauge traction and scalability. However, one thing is clear: if Instagram becomes even a semi-formidable player in the e-commerce space, brands will have no choice but to engage with the platform.
Cross posted on Medium