Instagram Launches In-App Shopping Experiment

Instagram on Tuesday introduced Checkout on Instagram — an in-app purchasing tool — as a closed beta for consumers in the United States.

Among the 20 participating brands are Adidas, Nike, Burberry, Dior, Huda Beauty, Prada and Michael Kors.

“Users in the U.S. can buy from a majority of these brands starting today, with all of them coming on board over the coming weeks,” said Instagram spokesperson Paige Cohen.

Instagram will continue adding brands to the closed beta, and it plans to expand Checkout beyond the U.S. in the future, she told the E-Commerce Times.

However, it has not yet set a specific date for making Checkout generally available.

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Checkout buttons reportedly will be limited to organic posts from beta participants for now. Ads will not display them.

A new “Orders” section in users’ profiles will let them check order status, cancel an order, initiate a return, or contact the merchant.

Businesses will be able to share featured products through their organic posts and Stories. Consumers also can discover products in the “Search & Explore” section.

“There is no way that this is not going to turn into push ads for customers,” said Trevor White, senior analyst at Nucleus Research.

“It will certainly give Instagram, and thus Facebook, more data about customers and their preferences,” he told the E-Commerce Times, “which I imagine will allow Facebook to further expand its advertising. I imagine they will be the real winners from this.”

Instagram Checkout “follows closely on the heels of Google’s testing shoppable ads in its image search,” noted Eli Finkelshteyn, CEO of Constructor.io.

This “highlights a growing trend. Companies realize that owning the location and medium where users find the products they want is key to getting those users’ dollars,” he told the E-Commerce Times.

“Currently, when [shoppers] find something they want on Google or Instagram, they’ll go straight to Amazon where most already have an account, and payment information stored,” Finkelshteyn pointed out. “With this new shopping functionality shoppers can buy what they want even more easily, without Amazon ever being involved.”

How Instagram In-App Shopping Works

When consumers click on a product picture in a brand’s shopping post, or on any product sticker in that brand’s stories that has a shopping sticker and tag, a “Checkout on Instagram” button appears.

Clicking on the button lets consumers select size, color and other options, and see the price. They then proceed to a payments page within Instagram.

Consumers have to enter their name, email, shipping addresses and billing information the first time they check out. The information is saved for use in future transactions.

Shipment and delivery notifications are provided inside Instagram.

Merchants get only the details necessary to fulfill an order — including the customer’s contact information and address. However, they do not get the customer’s payment information.

Instagram provides merchants information on the sales it generates.

Consumers can opt in to share their email address with sellers for marketing purposes.

Instagram Checkout accepts payments made using various credit and charge cards, as well as PayPal. Payments are processed through PayPal for Partners at no charge.

“Any time you can reduce the friction and steps between the decision to buy and executing on the transaction represents a powerful shift for the consumer,” said John Bruno, VP of product management at Elastic Path.

“Retailers struggle converting on mobile, but with Instagram owning payments — the mobile friction point — conversion will increase,” he told the E-Commerce Times.

Merchants will be able to integrate their current sales platforms or tools — Shopify, BigCommerce, ChannelAdvisor and CommerceHub — with Instagram Checkout.

Instagram reportedly is testing a sellers’ fee with the participants in the beta.

Social Media Profits

“The big problem with social media is, how do you monetize it?” said Michael Jude, program manager at Stratecast/Frost & Sullivan.

“The model that most of the social media companies have glommed onto is that data is valuable,” he told the E-Commerce Times. “Then they screw around with their subscribers, compromising their data, putting out very obscure privacy statements that nobody understands and everybody agrees to just so they can use the site. It’s a morass.”

One legitimate option “is to come up with a way to monetize that data without abusing it, ” Jude suggested. “That’s kinda what Instagram’s doing.”

Users “certainly don’t think of Instagram as an e-commerce product, and have already shown some discomfort whenever Instagram or Facebook blurs the line between influences and paid advertisements,” observed Scott Ings, VP of product at Apptimize.

Instagram Checkout “could be promising as an additional revenue source for Instagram, but there is also the risk of alienating users by causing the brand to be perceived as more commercial than social,” he told the E-Commerce Times.

Further, because customers don’t go to their websites, “it’s possible that brands will find that they are losing out on an opportunity to create longlasting awareness and loyalty,” Ings suggested.

Saving Facebook

Instagram Checkout may help parent company Facebook, which is facing tough times.

Senior executives have been fleeing Facebook. The company was downgraded to hold by Needham & Co. on Monday. Antitrust regulatorshave been breathing down its neck. Several senior high-tech executives have issued public criticisms.

Instagram “has been largely insulated, as Facebook struggles with data and privacy issues,” noted Rebecca Wettemann, vice president of research at Nucleus Research.

“This gives Instagram a clearer path to monetization,” she told the E-Commerce Times.

For Instagram users rely on influencers to tell them what to buy, “integrated shopping reduces friction and accelerates purchases,” Wettemann said.

There’s a continuing exodus of users from Facebook, but that may not be quite as bad as it looks, because “some people leaving Facebook are flocking to Instagram,” Frost’s Jude pointed out.

Instagram has a better security model than Facebook, but “the dynamic is, the more security you have, the less money you make,” he said.

“I don’t see people using [Instagram] as their main source of e-commerce. It lacks the review features that customers value,” said Nucleus’ White.

“The dynamic for Instagram is instant gratification, Jude said. “If you’re aiming at people familiar with technology and who are into instant gratification, what are the odds that they can afford to make these purchases?”