Social commerce firm Novelo is trying to tap into a base of shoppers not just willing to spend their money online, but via social media. The Brazilian startup provides merchants with virtual ‘storefronts’ on Facebook, meaning shoppers do not have to leave the social network to browse for products or make payments. Here, CTO and co-founder Herval Freire explains why he is bullish about the growth of social commerce.
¤ What makes Novelo different from other social commerce companies?
The Facebook ecosystem changes a lot. What we're doing is evaluating these changes, and every time Facebook launches something, we launch something together with them. When they introduced the Open Graph, we introduced these 'Want', 'Own' and 'Buy' buttons. Every time you click that you want something, it creates a wishlist for you that goes on your ‘Timeline’ and on the ‘Ticker’.
And the other thing, specifically in the Brazilian market, is that our support is personal. It's out there. We have a lot of passionate users, and they do the marketing for us - whereas our competitors try to look big, and it doesn't work.
¤ What is your business model?
We have several user plans, from free to USD99 [a month]. The USD99 one has got a lot of special stuff on it, like personalised store fronts and analytics - every bit of analytical data that Facebook allows us to access, we segment. We've been charging for two months, and 40% of users stay, in our experience so far. The idea is to make 20% to 30% pay. We did try [to take a cut of] transaction fees, but it turns out it's a composite of fees - people already pay through PayPal, for instance - so that was a turn-off.
We already break even, and our revenue expectation for the year is around USD200,000.
¤ Who are your major competitors?
We have one big competitor in the US, called Payvment. It's been there since before Facebook allowed people to do applications. They have around 1 million people using it.
¤ What is the biggest challenge you currently face?
Talent. It's very hard, especially when you don't have any history, any budget, and you have to keep people motivated on stock options and promises - and then you have all these big companies offering people stellar salaries and stock options and everything. And that's probably the common problem everyone's facing. That's why companies like Google and Facebook are acqui-hiring a lot of companies.
What else? I'd say adjusting some things to different cultures. The Americans are very used to paying with credit cards, for instance, and Brazilians are not.
¤ What is the hottest trend in digital media right now?
The tendency right now is for everyone to be on the same social network. That's one thing that's happened no-one thought would be possible two years ago. Orkut is dwindling even in Brazil, so we decided it wouldn't be a good investment. The pages are not well-designed, and it's not like with Facebook. I personally don't put a lot of bets on Google+.
I'm pretty sure physical purchases with Facebook Credits is something Facebook has an eye on. That would be a huge step towards people selling more, because you only have to put your credit card in once, like in the app store. I'm pretty sure they're into it, but there are all these regulations, and all the chargebacks, the fraud... It's probably something they'll do after the IPO.
And the curation thing is starting to catch. Like Pinterest. We're figuring out ways to automatically integrate everything with Pinterest. There was this big trend on blogging, and then microblogging, and then Digg and Reddit, then you had Twitter, and now you have pictures. It allows brands to be visible again.
Evidence that brands make any money from social media, directly or indirectly, is slim on the ground. It’s generally accepted that consumers are influenced by what they read on social media, such as when they ask for product advice from friends, but hard evidence that they will then cough up any cash is hard to come by. This isn’t helped by a dearth of reliable valuations of the social commerce market.
Novelo’s core service lies in Facebook stores, which, worryingly, anecdotal evidence suggests are a flop in terms of direct sales. One business owner likens the idea to trying to sell products to people who are “hanging out in a bar” with their friends. A sceptic might suggest, then, that Novelo’s financial success so far has come about because of brands simply experimenting in the short-term. Freire counters this with the claim that the firm retains 40% of its paying customers - but given it has only begun charging in the last two months, that retention figure will go down if more brands discover store fronts to be an expensive, risky way to generate sales.
The firm does have several points in its favour. Evidently there is brand appetite for social commerce in some form, and Novelo is an early mover in a nascent space. It will, however, need to expand into different forms of social commerce. It is also present in an emerging economy where social brands are currently fighting for dominance, and it understands consumer habits in that market. Finally, its proclaimed willingness to hold customers by the hand is a valuable commodity in a landscape which is constantly shifting, and which few can navigate with confidence. Novelo can certainly make some money in the short-term – but to sustain its business, it must expand its focus beyond gimmicky shop fronts and make use of its other advantages.