Social Commerce: The Next Wave In Online Shopping

Why Is Social Commerce Scaling Now?

As usual, history offers a guide. In 1997, Six Degrees, arguably the first social media company, debuted 15 years ahead of the first e-commerce company, Boston Computer Exchange. Each platform type has matured during the last 20 to 40 years while social commerce seems to have hit escape velocity only recently. Mass adoption of the Internet and mobile devices propelled both e-commerce and social media. In the US, the correlation between retail e-commerce sales and social media monthly active users (MAUs) has been almost exponential, as shown below.

Social commerce is likely to accelerate the convergence between the two markets. Three paradigm shifts are evolving simultaneously, suggesting that social commerce will continue to stimulate growth in both e-commerce and social media.

In 1994, the first online retail transaction involved a Sting CD that cost $12.48 plus shipping. That transaction catalyzed the global e-commerce market which since has scaled to ~19% of global retail sales, or $4.9 trillion. During the past year, the COVID crisis accelerated the shift from brick-and-mortar retail to online shopping, a shift that surveys suggest will be sustained, as shown below.

Sources: ARK Investment Management LLC, 2021; eMarketer, Ipsos. A survey was conducted in December 2020.

The Opportunity

Implemented correctly, social commerce combines the convenience of online shopping with the network effects of social media, resulting in a powerful growth driver. As a consequence, many social media platforms are likely to adopt e-commerce solutions at the same time that traditional e-commerce sites embrace social features. Based on ARK’s research, as more platforms transition from pureplay to social, the e-commerce market could scale 50% at a compound annual rate, from approximately $390 billion last year to nearly $3 trillion by year-end 2025. In other words, social commerce could increase from roughly 7% to 17% of the $17 trillion projected global e-commerce market by the end of 2025. As is the case now, China is likely to dominate the category, as shown below.

Wrapping up

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