Facebook Tests Out A 'Buy' Button For E-Commerce

Jul.18.14 | About: Facebook (FB)

By George Zack

Facebook Inc. (NASDAQ:FB) is working with a few small and medium-sized enterprises to test its new Buy button. The Buy option embedded on News Feed ads and page posts will allow users to buy a product directly from the website without being redirected to the retailers’ websites. For further ease, Facebook will also provide an option to the users to save their payment details, which can be used for later purchases.

Facebook, with an over 1.2 billion user-base, incorporated the on-site purchasing option through a Pinterest-style Collection feature in 2012. However, it proved to be a failure, and was abandoned in its second phase of testing. A Donate button feature was introduced last year to enable on-site charities by the users.

The social networking service has recently been testing an “Auto-fill With Facebook” feature that automatically fills in users’ payments details when making purchase transactions from third-party applications and websites.

David Marcus, a former PayPal (NASDAQ:EBAY) president, has been hired to help the company make its place in the e-commerce business.

The embedded Buy button will improve conversion rates and provide two significant benefits to users. Firstly, users will be spared from the trouble of re-entering their payment details for every new transaction. Secondly, they will be able to buy from the same blue website-screen without having to check out from the site.

The security concerns of users have been addressed as their debit or credit card information, while purchasing products through Facebook, will not be disclosed to the advertisers. It will also be partnering with a third party that responsible for handling the online payments to keep the transactions transparent and secure.

During the testing phase of the Buy button, Facebook will not charge any transaction fee to the users who make use of this feature. However, once successful, the feature will stream-in huge revenues for the company, either in the form of commission-on-sales, or through higher advertisement fees.

Facebook’s initiative to introduce a Buy button is in line with that of its major competitors, including Twitter Inc. (NYSE:TWTR) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL). Twitter initiated attempts to enter the e-commerce business last year by hiring Nathan Hubbard (Ticketmaster’s ex-CEO) to draft innovative solutions that will allow users to buy directly from tweets. It further partnered with Amazon.com, Inc. (NASDAQ:AMZN) to facilitate users to buy goods from Amazon through hashtags on tweets. Twitter partnered with PayPal to make the credit-card payments smoother. Twitter announced yesterday that it will acquire CardSpring, a San Francisco-based startup, to link the payment-infrastructure to applications, which will allow Twitter users to trade securely.

Facebook stock closed down 1.85% yesterday to $66.41.

Disclosure: No positions.