Coronavirus pandemic has accelerated the growth of the ecommerce industry in Bangladesh. The sector was already on an upward trend even before the pandemic. The pandemic has come as a strong tailwind.
As lockdown and social distancing come into effect and people are forced to stay indoors, online order has become the mainstream way to buy foods and groceries. Amid the widespread fall in demand, the sector is enjoying healthy growth.
A number of online grocery businesses we spoke with in the past few weeks reported a sharp rise in orders from new users who never ordered on their platforms before. The internet usage has exploded and that people are looking up things online, using digital tools and services are some indisputable facts. And I’m positive that some of these behavioral changes will stick around and be lasting consumer trends in the coming days.
The data about Bangladesh ecommerce remains scarce. A recent report by the TBS puts Bangladesh ecommerce at a Tk700 crore monthly and more than Tk8000 crore annual market. Online data platform Statista puts the size of the ecommerce market in Bangladesh at $2077 million in 2020 and predicted the size will reach $3077 million in 2023.
As the discussion around ecommerce and the future of ecommerce continues to grow in Bangladesh, the role of Facebook and the power the social media giant holds in the sector become more and more clear. Facebook remains the single most important player in ecommerce in Bangladesh. The social media giant has been both an enabler and a barrier to the growth of the sector and will continue to dictate the direction of the sector in the coming years.
In fact, while ecommerce has seen enviable growth over the past years, Facebook remains a major challenge for any independent ecommerce platform in Bangladesh. Facebook plays two very critical roles in digital commerce. On the one hand, it has enabled a large number of small digital retailers who run their operations using Facebook. Second, almost every independent ecommerce player uses Facebook for acquiring customers. In most instances, Facebook remains the ultimate owner of the customer interaction for all these players and thus demands. This means if these players stop paying Facebook for customers many of these businesses will suffer a significant decline in demand.
As I mentioned earlier, Facebook has been playing an instrumental role in the growth of online shopping in Bangladesh. The platform has enabled a large number of small digital retailers who sell products using Facebook pages as a medium for reaching out to customers and selling products. These retailers, often run by solo entrepreneurs or/and eventually a small team, housewives, students, and professionals on the side, build an audience first and then sell products.
In many estimates, there are hundreds of thousands of small online retailers in Bangladesh who sell products using Facebook pages. Industry insiders suggest that the total revenue these Facebook-based retailers generate exceeds the total revenue generated by some of the largest ecommerce players combined in Bangladesh.
The second important role Facebook plays is in digital advertising and customer acquisition. Almost all digital businesses, as well as a growing number of non-digital businesses, in Bangladesh, spend on Facebook advertising. In fact, Facebook advertising continues to dominate all ad spending in digital for most businesses. In fact, most ecommerce companies rely on Facebook for customers. Paid advertising on Facebook and other campaigns drive sales.
Apparently, there is no problem with paying for advertising in order to grow and achieve your sales target. But if you are an ecommerce marketplace or an online retailer and you need to rely on a third-party platform and pay that third party to acquire customers, then it is a problem.
Ecommerce marketplace is essentially second-tier aggregators. These companies make money, mostly, out of commission from sellers. There are nuances such as many marketplaces invest in white-label brands and make money out of it. Others get into wholesale selling with the seller of their own marketplaces and make money from there and so. But mostly and if there are some regulatory disciplines, marketplaces make money out of commission. The way they make and maximize this commission is through owning customer interaction thus demand and then making sellers and brands to rely on them for customers. For example, why Unilever would pay Chaldal a commission because Chaldal generates orders for Unilever and so on. As Chaldal continues to drive more and more orders for Unilever, Unilever’s reliance on Chaldal for demand continues to grow to allow Chaldal greater bargaining power to grow its commission. But if Chaldal has to rely on a third party for that same demand acquisition and pay them, it means Chaldal’s power will remain limited.
This applies to small online retailers as well. Small retailers who sell through the Facebook page, work hard to build a follower base and then monetize that follower base by selling products to them. But when Facebook exercises platform power and does not allow these small retailers to reach their followers, it means these small retailers don’t truly own their customer thus demand. It means they will continue to pay Facebook for acquiring demand. This is becoming a challenge for many of these small online retailers as Facebook advertising costs continue to grow which continues to gradually eat into the profit of their business. For many, it is gradually reaching a point of the meaninglessness of running a business.
The scenario is not all bad though. Facebook ads continue to be the cheapest digital ads available. The platform offers superior targeting technology. It still remains cheap to run ads on Facebook. But the problem remains in owning demand. For any business, owning customer interaction is critical for long term sustainability and predictability and profit. For digital businesses, it is more so.
In many ways, Facebook has made starting an online retail business cheap and simple. You create a Facebook page. You build an audience through consistent communication. You sell products to these people. The entire thing has lowered the entry barrier to the market. Anyone with access to the internet and a product that has some demands in the market could open a shop with almost zero investment and go on to have a sizable business. Facebook has also allowed other digital businesses such as ecommerce companies to build an audience and reach their target customers relatively easily.
In the early days, all these were good things. Facebook allowed companies to reach people who liked their pages organically. You did not need to pay anything to Facebook. Simply good engaging contents were enough to reach most of the people who like your page and eventually make sales.
However, the free and organic reach on the platform did not last long. Facebook soon made changes to the platform algorithm to the extent that today organic reach is almost zero for most pages. As a result, customer acquisition cost, which was almost free before, became a huge cost for most companies driving up the acquisition cost and eating into their profits.
These changes, in the Facebook algorithm, have made things complicated for both small digital retailers who entirely run their shop on Facebook as well online commerce companies who have independent platforms but rely on Facebook for customer acquisition.
In fact, while Facebook has enabled a digital commerce boom in Bangladesh, the platform has become a challenge for small and big digital commerce companies. The problem lies in the nature of Facebook’s relationship with these small retailers as well with the users.
The problem for small online retailers is that they don’t own the consumer relationship. Facebook does. Although users like the particular page of a small online retailer, Facebook does not allow the retailers to directly reach the users. It puts itself in the middle as a gatekeeper. Retailers can only reach users that Facebook allows to reach. Facebook is the ultimate aggregator here. Facebook aggregates all the users and it dictates who sees what. As a result, if retailers want to reach customers they need to pay up to Facebook. This has created a complex problem for these small retailers. Since they don’t often have a website or an independent platform, they invariably depend on Facebook for customers and thus in the long run rely on facebook’s dictation for sales.
The scenario is no better for other large ecommerce companies. Most of these companies continue to fall short of becoming a destination platform for online shopping in Bangladesh, which Amazon has done in the US and other large ecommerce players done in other markets.
A destination platform is a go-to site where shoppers go directly when they need to find or buy a product. A destination site is more of an everything store or a dominant player in a niche that gains enough user trust as a reliable platform for particular products. Chaldal has become a destination for groceries in Bangladesh. For most others, the journey appears to be somewhere in the middle. In order to truly become aggregators, ecommerce marketplaces should invest in owning customer interaction.
Similarly, small Facebook retailers should find sustainable growth levers and find ways to own customer interaction so that they can own their customers and control their cost on customer acquisition. These are not easy things to do. And any worth pursuing is never easy either.