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Emerging Markets Can't Quit Facebook

The social network is conquering e-commerce in the developing world.

Like it or not.

Photographer: Bay Ismoyo/AFP

Indonesia, home to roughly 6 percent of Facebook Inc.'s users, isn't happy with the social-media giant. Officials there are even threatening to shut the service down after its latest egregious privacy scandal.

That sounds like an ominous threat -- but it's empty. In Indonesia, as across the developing world, Facebook is no longer just a platform for sharing photos and news. It's becoming perhaps the world's most important channel for small businesses to reach customers. From Asia to Africa, countries are learning that they need Facebook as much as Facebook needs them -- and maybe more so.

People have always bought and sold stuff on Facebook, of course, whether it's offering a couch for sale to the top bidder or joining a Buy and Sell Group devoted to Frankoma pottery. In each case, the goods are displayed, a deal is negotiated, and payments are made through a third-party system or in person. In 2018, 550 million people used the platform to "buy and sell items in local communities."

In fact, in emerging economies such exchanges are becoming a thoroughly mainstream way of doing business. One study found that 30 percent of online sales in Southeast Asia occurred via social network in 2016. In Vietnam, 34 percent of businesses run their online operations entirely through Facebook, and the government recently sent tax demands to 13,500 Facebook retailers. In Thailand, social media accounts for more than half of all e-commerce.

Increasingly, this is a global phenomenon. A recent poll of online shoppers in Kenya, Nigeria and South Africa found that 32 percent of respondents named Facebook groups as their favorite shopping sites, second only to Jumia, Africa's leading platform. Some industries, including secondhand electronics, now do business almost exclusively through Facebook. Merchants receive new inventory, post pictures online, negotiate on Facebook Messenger, and arrange for payment and pickup in person.

All this might appear inefficient. But social commerce solves two key problems in emerging markets. First, it offers a low-cost way for entrepreneurs to sell online. Rather than set up a website -- which can be expensive and burdensome for small merchants -- they simply establish a Facebook page or join a Buy and Sell Group. In countries such as Vietnam and Ghana, where joining the internet is synonymous with joining Facebook and WhatsApp, the network effects far outmatch traditional e-commerce players.

Second, social media provides a solution to the rampant distrust and fraud that inhibits online commerce in developing regions. Rather than buy a mobile phone from a nameless merchant behind a website, consumers can purchase one from someone they know within their social network, or from businesses that can demonstrate social approval via comments and likes.

Social commerce on Facebook emerged mostly by accident, but the company has lately started to formalize it. In 2016, it launched a feature called Marketplace, which allows users to browse a searchable carousel of goods for sale locally (and then to haggle over them via Messenger). So far it's available in 68 countries -- including India, Thailand and the Philippines -- with more rollouts planned in coming months, a company spokesperson told me.

Combined with Facebook's already formidable e-commerce footprint, Marketplace could make it increasingly difficult for developing countries to regulate or threaten the company. The economic disruption, especially for small businesses, would simply be too great -- not to mention the protests. Privacy worries, meanwhile, are less pressing in developing countries where informal, cash-based commerce remains king.

Of course, Facebook's grip on emerging markets may not be permanent. Improved logistics and better digital payment systems could eventually erode its attractiveness for small businesses, in favor of Amazon-style marketplaces. But until then, the social network remains indispensable for emerging-market countries -- whether their governments like it or not. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Adam Minter at aminter@bloomberg.net

    To contact the editor responsible for this story:
    Timothy Lavin at tlavin1@bloomberg.net

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