The best thing to know in business is when a particular strategy is effective and when it is not effective. It is to know how the first mover advantage differs from the second mover advantage strategically.
That is why the legend Strive Masiyiwa always says that when you see the bandwagon, it’s already too late. That means we should see the bandwagon before it takes off.
When we see the trend when it becomes trendy it becomes oversaturated and unprofitable in business. When we see trends before they become trendy then we shall make good business moves. That is very true with those that trade the stock market, forex and crypto market.
First mover advantage becomes very suitable when you are able to spot a profitable advantage in the market and cease it before every other person sees it. That is before it becomes trendy, you are already reaping the benefits. This is why it is called the first mover advantage.
As the new world has evolved more into an online world and online shopping has been seen as the better way of shopping, entrepreneurs have created solutions around it. The Facebook Shop is one of the interesting ecommerce platforms created to help businesses achieve digital status.
This is the time businesses need to apply the first mover strategy in order to explore the potential of the Facebook Shops to build their businesses.
My interest in this article is to show you how the Facebook shops work and how it makes money. You shall end up understanding the Facebook Shop’s business model. Let’s get started;
How does Facebook Shops Work
The business models of Facebook shops shows how it works to create value in real terms and to generate revenue. The Facebook shops model has two interesting parts that makes it very strategic for the entire business of Facebook Inc.
- Freemium Model.
To have a shop on Facebook you don’t need to make payment for that. You only need to create and design your shop and stock your catalogue with your product.
This is what Facebook said about the shop “Those businesses will be able to create a Facebook Shop for free. They just upload their catalog, choose the products they want to feature, then customize it with a cover image and accent colors. Visitors can then browse, save and order products.”
Visitors in this context are prospects or potential clients, when they visit they will see your products and make purchases.
This freemium model has been an effective model of digital brands such as Google, YouTube, LinkedIn, Twitter etc because it is always a springboard to unlock other values in the business.
- Market Your Shop.
Once you have a shop on Facebook, then you must market the shop before people discover your products. As the third law of value states that the value of a product is determined by the market test when people buy and exchange money for it.
There is already infrastructure for effective digital marketing on Facebook. This will help every shop to explore the opportunity.
You can pay Facebook to promote your shop to gain more visibility or you can choose to do organic marketing. This is why I analyzed in one of my articles why the freemium model is not free but an inroad to unlock value for a business.
We now understand how Facebook shops work, this will lead us to explore how it makes money.
How does Facebook Shops makes money (Facebook shops revenue model)
This is the most important aspect of every business to business executives and entrepreneurs. As entrepreneurs fix market frictions through solutions they also want to generate revenue in order to keep the wheel of the company in motion. To Facebook shops here are the two ways it makes money for the shareholders and entrepreneurs.
- Commission Revenue:
This is the core revenue model of ecommerce platforms like Amazon, Jumia, Alibaba, eBay, Pollstaker etc. Every sale made on the platform will attract a deduction of a fixed rate . That commission is the payment for the management of the platform and marketing activities done for you by the company.
On Facebook Shop, the sales of every product will attract a commission charge. This is how Facebook shops make money. If for instance my shop makes a sales of $100,000, if the commission is 10%, Facebook will earn a commision of $10,000 from such transactions.
- Advert Revenue:
The advert revenue model is the core revenue model of data mining brands like search engine brands and social media brands. Ths made up about 80% of Facebook annual revenue.
The Facebook shop product has the tendency of increasing the ad revenue of Facebook in this way. As more businesses have shops on Facebook, they will need marketing. This will make them run paid advertisements on Facebook. The more the shops, the more the paid advert.
At the end of the day Facebook may earn more from advert than commission as the revenue models of the shop.
This analysis is in two folds, the first one was about; Facebook Shops: Pivoting in Pandemic. Click to read it here
As we have seen, this is the suitable time to benefit from the first mover advantage strategy.