Social Commerce Checks Out

NRP recently caught up with Helen Wong, Partner of Qiming Venture Partners, and Sachin Bhanot, Principal of BCapital in our latest Southeast Asia Connect webinar to dive deeper into social commerce.

Is it a fad or does it check out?

A quick poll of our webinar audience revealed 85% of participants agreed social commerce isn’t simply a fad, but it is here to stay.

Social commerce isn’t new but has often been overlooked as it has been a sector in need of an overhaul/upgrade and is only now being professionally done. So why all the fuss now?

Before we dive into it, let’s set the foundation for what we are actually talking about.

Social commerce is the facilitation of eCommerce transactions on social media platforms via communities and conversation, leveraging “user agents” and/or digital influencers to build customer attraction, trust, and loyalty.

Agents, digital influencers…huh? What happened to that well-trodden proposition: user searches online for the desired product then buys from supplier? Who are these influencers and user agents?

When given a choice, both Sachin and Helen agree that the key influencer isn’t just a frustrated teen but equally likely a bored mum looking to fill her day and earn a bit of money. Rising above the two stereotypes we gave our panel, influencers and agents are simply entrepreneurial individuals looking to generate additional income online. The term encapsulates everyone from a teen to a retiree, from any walk of life.

You might ask, is there really a need for social commerce given the number of online marketplaces available to consumers?

Let’s explore some of social commerce’s business model categories:

Community Buying: consumers connect and group together on platforms to source goods directly from the manufacturer earning exclusive benefits (e.g. user scores/ review ratings and discounts) e.g. Mucho Indonesia.

Agent Elevation: this takes various forms but generally involves empowering consumers as brand agents, using platforms to earn income by reselling products e.g. Fingo in Thailand and Malaysia.

Influencer Buying: social media influencers are matched to brands that are looking for sales channels and allow influencers to monetise their popularity e.g. Ecomobi.

Social commerce is widely seen as improving user engagement relative to traditional retail and eCommerce, which have challenges attracting and engaging users. For manufacturers and brands (sellers) customer acquisition cost (CAC) is reduced, average order value (AOV) increases thanks to community and agent bundle buying, and there is greater brand control via agents and influencers. It is also a great opportunity to amplify a manufacturer’s or brand’s voice if they don’t have the money to spend on broad range of marketing campaigns.

On the flip side, buyers gain an improved user experience and a more engaging buying discovery via information-dense formats such as video. Social sharing platforms can offer greater access and a wider range of quality products, convenience, reliability and trust, and potentially improved transparency when purchasing.

Social commerce in China is huge and is without a doubt setting the scene for global wannabes. Pinduoduo became the PRC’s third largest retailer - via social commerce - in just three years. It listed on the NASDAQ in July 2018, achieving a market capitalisation of ~US$100Bn in less than five years since being founded, and stunning us al!.

Jingling, another superstar, raised $100 million in its Series C round last year, while Xiaohongshu “Little Red Book” is rumored to be raising on a $6Bn valuation.

In Southeast Asia, social commerce is poised to get BIG. Why?

Sachin rightly highlighted that Southeast Asia is three to ten years behind China, but is quickly catching up. While social commerce platforms are not necessarily models that can be copied and pasted from one country to the next, consumer behaviours and pain points are similar across geographies. Southeast Asian social commerce startups can accelerate their growth potentially faster beyond their Chinese peers if they pay attention to the lessons learned elsewhere.

As we noted in our 2019 Southeast Asia Internet Trends Report, Southeast Asia’s mobile-first economies are laying a solid platform for social commerce. Interestingly, Thailand is ranked eighth globally for social media spend per day and ranks in Facebook’s top 10 global markets for social commerce. The Vietnamese love YouTube and are firmly positioned in the top 5 of global daily YouTube viewers, so social media uptake is high. And so on.

In Southeast Asia, a number of social commerce players are raising eyebrows - Mucho, Fingo, Ecomobi, RateS, Super and Evermos, just to name a few.

In just a few years, Ecomobi has already turned over ~$150m in GMV. Meanwhile in Indonesia, Evermos is focusing on bringing Halal and Sharia-compliant products to meet the needs of the world’s largest Muslim population and RateS, Indonesia’s number one reseller app, recently received funding from US rapper and music mogul Jay-Z’s VC firm.

It would be remiss not to mention the impact of COVID-19. McKinsey reports that consumers vaulted five years of digital adoption in the eight weeks of June and July alone. Social commerce has been a clear beneficiary, even though most social and eCommerce providers have experienced challenges during the pandemic, with logistics capabilities stretched beyond imagination, difficulties in sourcing goods and managing high delivery costs at a time of limited availability of resources.  Notwithstanding these challenges, our panel agreed that COVID-19 has accelerated social commerce thanks to the collapse of offline channels, and has arguably created a permanent change in behaviour.

The upshot of all this is that investors are looking very closely at the social commerce opportunity across Southeast Asia, especially now that several fund managers, like Qiming and BCapital, have recently closed large funds. They’re banking on social commerce taking a share of attention and wallet away from weaker online marketplaces and retailers, and becoming a driving force in the next wave of eCommerce alongside offline/online integration.

As we have mentioned previously, while Southeast Asia is a mobile-first region, in countries like Indonesia, according to Sachin Bhanot, 70% of the population is yet to make an eCommerce transaction due to low digital literacy or not trusting online purchasing (yet!). We are starting to see evidence of rapidly changing behaviour, which bodes well.

So - on balance, we concur with investors. Social commerce is not a fad - it’s here to stay. If you’re an investor, it needs to be on your radar screen.

Chris Tran - Partner - North Ridge Partners

Singapore, September 2020