Facebook's Instagram Is Turning Into an E-Commerce Platform

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For the most part, Facebook (NASDAQ: FB) hasn't been very successful with its efforts over the years to bring e-commerce to its core Facebook platform. There was that "buy" button that the company started testing out in 2014 and subsequently rolled out broadly. It's still available to developers, but you don't hear that much about it anymore. The social network has also created Marketplace, taking on Craigslist in allowing users to post classifieds, although Facebook doesn't process the transaction or have any greater role.

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The company's Instagram photo/video sharing platform, on the other hand, has immense opportunity to expand into e-commerce.

A natural extension of ads

This week, Instagram announced partnerships with BigCommerce and Shopify (NYSE: SHOP) to integrate e-commerce capabilities into the platform. Instagram has been working with both e-commerce platforms over the past year to test out features, and is now moving forward with broader deployments. BigCommerce and Shopify also offer merchants e-commerce integrations with the core Facebook platform.

Shopify is a huge win, since it's a much larger platform than BigCommerce. Shopify powers over 500,000 businesses, mostly small and medium-sized, compared to BigCommerce's roughly 50,000 merchants. The news comes as merchants are currently gearing up for the holiday shopping season. Instagram has already become an important and growing distribution channel for e-commerce, and these integrations remove friction by enabling in-app purchases of physical products (as opposed to those virtual tractors and other digital consumables that people often buy inside of apps these days).

Instagram is now up to 800 million monthly active users (MAUs), including 500 million daily active users (DAUs), continuing its march toward 1 billion users. That massive audience, combined with how well interactive, actionable product ads can blend into feeds on a photo/video sharing service, makes Instagram an incredibly promising e-commerce platform. In contrast, there's still a tendency to disregard ads in the Facebook News Feed as you peruse non-photo/video content.

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Building out e-commerce is a natural extension of the core ad business that both Facebook and Instagram rely on for monetization, and handing off tasks like payment processing and merchant support to third-party platforms like Shopify and BigCommerce relieves Facebook of having to develop similar functionalities, while still earning a cut. It also accelerates adoption among merchants. Instead of having to build up a merchant base on its own, it can tap into large existing merchant bases through Shopify and BigCommerce, and those respective e-commerce platforms will work to help merchants expand multichannel integrations across platforms.

Instagram is just the newest addition to the list.

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Evan Niu, CFA owns shares of Facebook and Shopify. The Motley Fool owns shares of and recommends Facebook and Shopify. The Motley Fool has a disclosure policy.