The acquisition will add more than 300 products to L’Oreal’s lineup.
The marketing potential in social networking sites is ginormous. But its future for retailers is anything but clear.
Though relatively new, the Internet concept of “social networking” already has more baggage than a 747. Teens gone wild! Companies firing employees over MySpace content! Predators on the loose! It’s anarchy on the information superhighway!
And anyway, how can someone have 1,129 friends?
Nonetheless, cutting through the noise is the theory that social networking offers retailers a grand new venue for marketing their products and increasing brand awareness-if they can cut through all that noise. To date, the overwhelming response from e-retailing executives and industry experts, after they’ve scanned all baggage, is two basic questions. First, could social networking be another web fad, which launches with fanfare, gains a bandwagon of millions, then soon loses steam, winding up with a small but dedicated user base? And second, is the concept of blending social networking and the branding and marketing efforts of e-retailers even a good idea to begin with?
For the moment, a handful of retailers are experimenting with social networking in an attempt to answer these very questions and capitalize on the venue by getting in on the ground floor. These merchants, willing to take on what many industry observers call a risky proposition, are either setting up a “space” on one of the social networking giants like MySpace or Facebook, acquiring all or part of an existing network, or building a network of their own.
Whatever the approach, these retailers are taking a shot at an unknown marketing method that has gotten lots of attention and generated lots of theories, but so far has unproven results. “We have to listen and watch and think,” says Boris Wertz, COO of Abebooks Inc. “Nobody has a recipe yet, so we plan to figure it out along the way.”
Taking the acquisition route, Abebooks in May bought a 40% interest in 66,000-member social networking site LibraryThing, which launched in September 2005. Abebooks lists more than 80 million new, used, rare and out-of-print books from more than 13,500 booksellers. LibraryThing enables members to, among other things, catalog their personal library of books, the current total being 4.7 million. Members also can create themed groups where users with similar interests can meet; members created 415 such groups during the first week the functionality was offered in late July. The niche network charges members $10 for an annual membership or $25 for a lifetime membership.
Through searching and socializing on LibraryThing, members can find individuals with similar tastes or collections-medieval history, for example. These online relationships can generate interest among like-minded members to purchase online their own copy of a book they read about in another member’s space.
Low-key communications to customers and members drive traffic from one site to the other. And LibraryThing continues its practice of including product links not just to Abebooks but to other e-retailers. These factors help ensure LibraryThing members continue to view it as a true social network, not a kind of concealed marketing tool for a single merchant, network executives say. In the overall social networking arena, industry observers say, many network members have a disdain for commercialization-hence Abebooks’ cautious approach. In the end, LibraryThing gets more traffic and Abebooks gets more shoppers, as well as key information on product and shopping preferences via aggregate user data from LibraryThing.
Abebooks, however, wasn’t really in the market for a social networking site. It was the potential synergy between the two companies, both of which focus more on used and rare as opposed to new books, that made Abe more social. “We did not first sit down and make a strategic decision to invest in social networking. Like many others we simply were watching this whole new space,” Wertz says. “But then LibraryThing came to our attention. We asked the network’s president to make a presentation to our senior management team, and that led to our investment.”
If an e-retailer has a niche and offers great products, a social network can help it gain customers and sales, Wertz contends, and the organic growth rate for social networking sites in general is amazing.
The latest thing
The social networking phenomenon is quickly being embraced by the general Internet public, experiencing wild growth just like most new web-generated activities. Industry leader MySpace grew 230% from 15.6 million unique visitors in May 2005 to 51.4 million in May this year, comScore Networks Inc. reports. MSN Spaces grew 205% from 3.1 million to 9.5 million. And Facebook grew 102% from 6.9 million to 14 million. Other mass audience players include AOL Hometown and Xanga.com. “The popularity of social networking is not expected to wane in the near future,” says Peter Daboll, president and CEO of comScore Media Metrix. “This is a phenomenon we’re seeing not only in the U.S. but around the world.”
As a result, retailers have become interested, seeing the latest web craze as a way to market goods and attract new customers. In addition to keeping a close eye on the general social networks, some retailers have begun thinking about niche networks that appeal to their customer base, as Abebooks is doing. Sensing opportunity in this interest, social network builders are popping up. Communispace.com, for example, builds retailers and brand name manufacturers invitation-only social networks, which the businesses can leverage as large-scale focus groups. Wetpaint Inc., which focuses on its own mass appeal network, is in talks with numerous retailers and marketers to do the same.
What social networking boils down to in the realm of e-commerce is viral marketing-the oldest and one of the best forms there is, says Leslie Ament, director of customer intelligence research at the Aberdeen Group. “Word of mouth is extremely effective because shoppers want to hear information they perceive to be trusted, credible and reliable straight from their peers. Enabling customers to speak with one another is key to driving business growth because they don’t want to hear only corporate marketing messages,” Ament says. “Customers who communicate with one another are more likely to purchase more and to purchase more often.”