Is it really coming to this: social commerce = pay-for-share?

April 13, 2011 by George Eberstadt

I now count 6 start-ups offering tools that enable online stores to pay their customers for posting to Facebook about the things they’ve bought.  The flavors and features vary, but pay-for-share is the core mechanism for all of them.

The model that seems to be getting most traction looks like this:

1. Offer the customer a discount for posting news of their purchase to Facebook (and Twitter).

2. Assure the customer that by posting they are also providing a discount to their friends. (With some of these tools, I’ve been unable to figure out how the friends actually get their discount, but that’s probably a failure of my research…)

It’s essential to provide both discounts to maximize sharing.  If the store provides a discount only to the customer, she feels like a shill for promoting the store to her friends just to get a discount for herself.  But if she feels like she is providing her friends with a discount, too, then she can share away to get her own discount guilt-free.

I get the appeal of this model to stores as a way to reach new customers through Facebook, but I don’t get the economics.  Isn’t “paying” your customers to share discount offers with their friends an expensive way to get offer distribution?  Presumably, the customers who sign up are those who plan to use the discount they get for sharing, so the incremental sales / new customer acquisition / many-coupons-expire-unused arguments don’t apply (at least not much).  One store using this tool offers a customer 25% off on their next purchase of $65 or more to share about their purchase on Facebook – so a minimum cost to the store of $16 in lost margin on a future sale.  Say we cut that in half for incremental sales / expired-unused effects.  That’s still an $8 min cost per post.  And the most aggressive estimates I’ve seen of the value of a purchaser-post on Facebook are $2-5.  So that doesn’t work.

On the other hand, if my calcs are wrong, and the economics of pay-for-share really do work, and the model becomes wide-spread, what will this mean for Facebook et al?  Will they have to enforce disclosure rules?  Do paid-for posts harm the community, or only (if discovered) the reputation of the poster?

Hey, if this model proves out, we’ll probably add it as an option in our Social Commerce Suite, too.  But what I’m really hoping is that, in the end, social commerce will be about people sharing with each other just because it’s helpful, not because they’re paid to.