1. As highlighted in our previous newsletters, Social commerce has been prominent in Indonesia, and has increased in relevance due to COVID

While Social Commerce has been quite prominent in SEA, its share has been declining rapidly with the strong growth achieved by formal eCommerce channels over the years.

However this year we see the decline in share of social commerce slowing down, owing to rapid adoption of FB/Insta and other such platforms by offline sellers to arrest decline in offline sales. There are multiple formal social commerce platforms also that have sprung up over the past 1-2 years which are seeing investor interest.

Social Commerce order share

% of total orders, #Mn

2. Although the segment has predominantly been heavy on Fashion and Beauty, FMCG and other long tail categories have seen an upsurge recently

Social commerce has historically been dominated by Fashion category owing to the fragmented nature of supply leading to a wide array of offerings that different sellers try to bring online. Beauty was the 2nd major category that saw presence in the social commerce space.

Post COVID though, sellers from FMCG, Fresh and also other long tail categories have latched on to online channels to keep their business afloat and formal social commerce players focusing on these segments have seen more traction. There is also a case of people between jobs looking at community selling models as a source of income.

The category mix in social commerce is hence expected to be more distributed going forward, with a large cohort of sellers across categories graduating to online channels in the wake of COVID.

Category Mix in Social Commerce

% of total orders

3. There are different types of business models that exist based on level of support provided to sellers & buyers

Social commerce is not a tightly defined term and a lot of different online commerce models fit into its ambit.

The most basic form of social commerce is selling through social media/online messaging platforms like FB/Insta/WhatsApp and some of the innovative models that exist include community based selling, influencer based selling etc which leverage the network of the partner agents/influencers.

While certain platforms provide logistics and payment support, others solely serve as a discovery platform between the buyer and the seller each having its advantages and disadvantages.

Different business models in social commerce

4. An interesting comparison on mind of investors is how the unit economics stack up vs formal eCommerce platforms

Key point to note while comparing unit economics of formal commerce vs informal commerce, are the points of differentiation between the two.

First on an AOV standpoint, community based social commerce platforms would have a higher AOV vs formal eCommerce owing to bulk buying which is done by their agents to sell to their immediate community.

There are other aspects like take-rates which are different for the two, but directionally it is not possible to say one format enjoys a higher take rate than the other. This depends greatly on the operational model employed in each case.

Similarly, the logistics cost would be low for most social commerce platforms as in most cases, last mile delivery is not handled by them and is taken care of by the agent.

However, it is important to note that the formal commerce platforms have a wider range of revenue levers as well and a great deal of operational efficiency owing to the scale at which they operate currently.

Note: For comparison, Revenue/Cost levers mapped based on % contribution to GMV and not absolute figures.

5. While hurdles exist in scaling up operations beyond a point, 2020-21 could see a meaningful uptrend in the social commerce sector

Social commerce platforms at present face couple of hurdles –

First one is on how they can maintain a high level of user experience (both on seller & buyer side) without providing enabler support (logistics, payment etc).

Second and most important one is the potential to scale beyond a particular size and the pace at which they can scale. Their reach tends to be limited to the immediate network of the onboarded agents in each area, which can prove to be a limitation beyond a certain point.

However, these hurdles can be overcome through innovative models. A key advantage for all online platforms at present is the CAC has gone down significantly allowing them to focus their funds/energy on other operational aspects of their business model.

We believe these are interesting times for social commerce platforms and 2020-21 could be a breakthrough period where some strong winners could emerge here.

Do reach out to us for more granular insights or if you would like to discuss further.

Conceptual representation of area coverage of eCommerce models