Why Social Commerce is Attracting Huge Investments

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The term “social commerce” was rarely discussed until Groupon’s massive 1/2 off coupon they sold for the Gap last August:

Social media provides everybody with a voice. Social media however changed the rules of commercial engagement by discounting, even denigrating the sales pitch; it changed the focus of online marketing from direct advertising to a social review and sharing system. Social commerce ushers in a socially acceptable transactional model by offering a consumer incentive in the form of  a “deal” rather than a blatant ad.  Groupon succeeded by delivering this new local advertising product down to the mom & pop merchant, something no online service accomplished before on a massive scale, including the industry best positioned to do this – the mainstream media.

What’s the linchpin to social commerce success? Groupon has proven that it’s distribution.

Only two years ago, the main channels for local advertisers were mainstream media – newspapers, radio and TV – and PPC on search engines. Channels are on the verge of proliferating; along with social buying systems, add mobile channels like Facebook Deals, and more elaborate check-in associated systems from Yelp and Foursquare, and finally channels being  developed by merchants themselves via branded Facebook pages and self service couponing like Groupon Stores.

These new ad channels are paradigm shifting “revenue multipliers”, analogous to the VCR augmenting the revenue base of motion pictures in the 1980′s (Wall Street financed movie studios and many films were literally produced on video pre-sales) or e-commerce in the mid-90′s. Revenue multipliers attract New New Thing levels of funding, as evidenced by this month’s investments of $1.5 bn into Facebook, and like, $1bn into Groupon. Massive funding is used for building infrastructure. Facebook and Groupon notwhithstanding, we’ll see Google, Yahoo, AOL, mass media, ad agencies and any industry working with SMBs focused on building localized armies to escort businesses into social commerce like it’s the last frontier.

Social commerce’s profound power is in tying the local internet, mobile and media together into an integrated business model.

In the next post, I’ll discuss how social commerce allows anybody to develop a marketing voice, and how the masses will take to social commerce in the same way they adopted social media.