The search giant today launched an app called Inbox that could force retailers to change their e-mail marketing strategies.
The effort, backed by Amazon and Facebook, aims to boost social commerce.
A $250 million investment fund backed by Amazon.com Inc. and Facebook aims to spark innovations in social applications and services, including efforts that could make it easier for online retailers to make money from social networks.
Venture capital firm Kleiner Perkins Caufield & Byers this week announced the launch of the effort, called sFund. Other participants include e-commerce site operator Liberty Media Corp., social game developer Zynga Game Network Inc., cable operator Comcast Corp. and investment bank Allen & Co. LLC. Liberty Media, No. 11 in the Internet Retailer Top 500 Guide, operates such sites as QVC.com, ProFlowers.com, BackCountry.com, BodyBuilding.com and Lockerz.com, a year-old invitation-only site that generates revenue from both e-commerce and advertising. A Liberty spokeswoman says Lockerz.com has backing from sFund.
“The Web is being rebuilt around people, and we’re at a point where any app, web site or device can be designed to be social from the ground up,” says Mark Zuckerberg, Facebook’s CEO. “We’re focused on enabling entrepreneurs to build companies that can disrupt their industries.”
Exactly what the sFund will help get off the ground was unclear, but participants in the effort did give hints by listing projects that have received Kleiner funding during the past year. Not all are directly related to online retail—one project is described as a “social magazine” that works with an iPad—but Kleiner said Lockerz.com creates a “revolutionary new way to shop, play content and connect.” The Lockerz site, designed for consumers between the ages of 13 and 30, offers social networking, games, music and videos. Lokerz also sells designer gear, electronics, accessories and sports equipment.
Another likely beneficiary of the fund’s efforts is Amazon Web Services, the retailer’s unit that provides a web-based computing platform for developers and other companies, including access to computing power and data storage. “Social apps are viral, and when they hit, if often happens suddenly, and then they grow explosively,” says Amazon CEO Jeff Bezos. He adds that the top three companies that develop for Facebook each use Amazon Web Services. Amazon is No. 1 in the Internet Retailer Top 500 Guide. Companies funded by sFund receive free Amazon Web Service for a year.
“The kinds of companies that do use AWS are small mom and pop developers,” says Sucharita Mulpuru, a vice president and principal analyst at Forrester Research Inc. who covers online retailing. “AWS is one of the most profitable divisions of Amazon, so anything to grow that business can help to subsidize Amazon killing big box retailers through Amazon.com’s price and shipping competitiveness.”
But she points out what other observers have often said as Facebook and other social networking companies grew, and phrases such as “social commerce” and “social media” give off as much buzz as a colony of bees: No one has yet proven that social media can significantly fatten the bank accounts of online retailers.
“People have been trying to sell on blogs for years and none of the companies have ever gained any traction,” Mulpuru says. “The challenge is that, fundamentally, the notion of selling to your friends is the Tupperware model—it only works when you guilt your friends into it. With the Internet, it’s that much harder to do because people will just tune you out. People hate being shilled to. Why do you think the ‘do not call’ list is so huge?”
Despite the launch of a social media investment fund backed by major players, Mulpuru says she sees a backlash coming.
“I think that 2011 will be a new trend—the antisocial movement. There are two schools of people in the digital marketing world—those who hype social but haven’t yet found a link to sales, and those that are responsible for profits and losses and don’t have an iota of evidence that any social commerce initiatives drive sales,” she says. “The second group has been silent for the last several years but they will speak with their wallets because the first group keeps trying to get money and the second group has the purse strings.”
Another view came from Augie Ray, a Forrester analyst who studies interactive marketing and social media. While other California-based venture capital funds have focused on social media, the sFund is noteworthy because of the amount of money involved and the companies taking part, he says.
Consumers are showing signs of what he calls “social fatigue,” an attitude of boredom with the social networks that have permeated daily lives for many, and which is similar to the “web fatigue” seen about 10 years ago, he says. “People shrugged and said, ‘Is that all there is?’,” he says.
He is confident, however, that social media will change the way consumers shop. “Social commerce is going to become a big part of the Facebook experience in the next year or two,” he says. “And within a couple of years, one of the major retail chains will announce that they do as much business through Facebook as they do in a store.”
The sFund will invest in entrepreneurs who invent social applications and services, Kleiner Perkins says. The fund will be led by Bing Gordon, a partner at Kleiner, a former chief creative officer at video game developer Electronic Arts Inc. and also a board director for Amazon and Zynga. “Social is just getting started and the opportunities are vast,” he says. “As in the early days of the Internet, the race is on.”