Syracuse UniversitySchool of Information Studies

Introduction to Electronic CommerceIST 642, Spring 2007

Ian MacInnes

Social Shoppingby

Valeria Gallo Stampino

1. Introduction

Social shopping websites have a very short history. Though these types of websites did not appear on the web until only about two years ago, they have quickly spread since then. Because of the novelty of social shopping, it is difficult to offer a stable definition for this phenomenon. Indeed, the concept behind this new breed of companies is still evolving, as companies keep adding features and experimenting in different partnerships with already established companies.

Meanwhile, wikis and blogs provide with a starting point to define social shopping. According to Wikipedia, social shopping is "a method of e-commerce in which consumers shop in a social networking environment" and "... where a large group of users can recommend products to each other and between them work out what to buy and which ones have the most buzz" (2007). The growing number of companies which currently describe themselves as social shopping include Kaboodle, CrowdStorm, This Next, Stylehive, MyPickList, Wists, FiveLimes, Chitika, StyleFeeder, Yahoo’s Shoposphere, and more.

Social shopping--or social commerce--constitutes a hybrid of social networking and e-commerce (Belcher, 2006) where people can become members of the community and maintain a profile associated with a list of friends. In general social shopping "... means creating places where people can collaborate online, get advice from trusted individuals, find goods and services and then purchase them. It shrinks the research and purchasing cycle by creating a single destination powered by the power of many " (Rubel, 2005). Though each social shopping site has a slightly different theme and features, what all sites seem to share is the ability for users to collectively discover, organize and recommend products.

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This paper will explore this new phenomenon of social shopping and will try to identify some of the present challenges for the sustainability of these companies in light of the key determinants of performance for Internet businesses. We will take a closer look at the biggest players in the online social shopping scene and will try to speculate on the overall performance and sustainability of these companies. To evaluate the performance of social shopping websites, we will follow the framework offered by Afuah and Tucci (2003). According to this framework, firm performance will be considered as accounting profits and will be mostly determined by a business model, the environment, and change.

A business model is the first determinant of firm performance, defined as “the method by which a firm builds and uses its resources to offer its customers better value than its competitors and to make money doing so” (Afuah &Tucci, 2003). The business model is a key element for achieving sustainable competitive advantage. The competitive environment in which social shopping firms operate will also be analysed as this has a significant influence on business performance. Existing and potential competitors, suppliers, customers, and potential substitute products will be taken into account, following a classical Five Forces analysis (Porter, 1979). We will finally look closer into specific industry success drivers and will explore how each company is or is not fully exploiting them.

This paper will offer a descriptive and strategic look at a new breed of companies which had not been covered in the literature before. Because of the novelty of the phenomenon, the literature on the topic is scarce and mostly composed of informal studies. Because of the accelerated rate of change within this industry, managers planning to invest in these types of enterprises should follow up closely on new developments that may arise. In fact, this paper will only capture a moment in the evolution of this industry which promises significant transformations.

2. Overview

As mentioned above, there is a large and growing number of companies who define themselves as social shopping platforms. These companies are competing side by side for customer’s attention. In order to better explore social shopping websites business models and to understand their proposal and ability to perform, we will look and contrast four companies: Kaboodle, CrowdStorm, Stylehive, and ThisNext.

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Kaboodle defines itself as "...a fun shopping community where people recommend and discover new things". This company offers tools for the discovery of new products based on other users' recommendations, the ability to recommend and discuss products and brands as well as to create wish lists. Kaboodle features a toolbar which allows users to collect shopping items from different websites. Users can organize these items into collections and share them with other users. This company is presently partnering with eBay as an added service for members of the auction site (Bogatin, 2006). Kaboodle seems to be one of the companies with the largest number of users among social shopping sites and it has also been recognized as the most user friendly (Iskold, 2007).

According to the company’s own statement, Crowdstorm is “a social shopping network that helps you find what to buy by measuring the buzz around products. You can also see recommendations from friends and people you trust". Crowdstorm includes a rating system through which “good” products go to the top of the list, and less appealing ones disappear. The site also measures the “buzz” around a product in terms of how many times it has been viewed, how many bloggers written about it, and how many users have commented on it. This site offers a "buy it on Amazon" and “Buy it on eBay" links which serve to drive traffic to those sites even though not all featured products are actually available for sale at those sites. Other than eBay and Amazon, CrowdStorm does not link to places where users can actually make purchases.

With a similar concept, this California-based company which presents itself as more oriented towards fashion, managed to secure $2.62 million in funding only months after launching its Alpha version in early 2006 (Cashmore, 2006). Self-described as "a global social shopping community, dedicated to discovering and sharing the most exciting products, the stores that sell them, and the people that find

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them." Stylehive also offers a toolbar which allows users to quickly bookmark products while surfing the web. This toolbar features the ability to collect a product description and images from the originating website. Users can also tag products, add them to a wish list, and follow a link to complete a purchase. The company maintains a blog where popular products are reviewed.

ThisNext describes itself as "a shopcasting network where you can recommend, share and discover great products. Similarly to the other sites, products are added and recommended by a community of users by using a browser button. Also, the site allows users to create lists of favourite products which are tagged and searchable. These lists are called “shopcasts” since they intend to broadcast information about products that users are able to blog about. Currently, the site supports Amazon.com, Amazon.com.uk and Commission Junction as affiliate networks.

At a first glance, all four companies seem to have a similar proposal. First, they constitute places for product discovery. The sites showcase a number of products which have been chosen and reviewed by members of the communities. They include toolbars and browser’s buttons to allow users to bookmark product descriptions while they navigate other websites. They all offer registered users the ability to vote and comment on the products posted as well as to tag them and organize them in wish lists and other sorts of lists.

3. Social Shopping Business Models

The four companies combine different models as part of their overall Internet business strategies. In the more basic form, social shopping sites replicate a business-to-consumer brokerage business model, that is, companies that “bring buyers and sellers together and facilitate transactions” (Rappa, 2007). Within this broad scope, the four observed companies present some variations in their business models which will be explained in the following section. In addition to a brokerage model, all four sites incorporate elements of the advertising business model since these companies charge other companies to communicate information about their products to site visitors. In addition, these companies also include elements of the infomediary model (Rappa, 2007), for they sell data collected from site users, including product preferences, to companies that wish to understand a

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market better.

3.1 Components of Social Shopping Business Models

Customer Value

Evaluating customer value offered by social shopping websites is not a simple task, since these types of companies target a mixed group of customers. On one hand, there are the individual consumers who use these websites to discover and share product recommendations. Then, there are the business customers to whom these websites serve as marketing channels to generate buzz about their products. Finally, another group of customers is composed of those companies which pay to place ads on the sites. The presence of a mixed customer base makes it more difficult for these companies to equally offer value to all of them.

So far, the primary customers for the four companies are the individual users, for without them there would be no potential buyers of products nor target viewers for the ads displayed in the sites. To target this group, all four companies offer a platform to both discover products from peer recommendations, and to organize and share them for themselves. In addition, the four companies are constantly trying to create customer value by differentiating from the competitors. Different strategies are currently being employed by the companies, which range from adding extra product features and creating linkages with other firms to expanding their scope and experimenting with connected activities.

The underlying common element of customer value in all social shopping companies is the ability for a lay person to choose which products to review and to have access to a wider variety of product reviews and opinions than those offered by traditional publications. While traditional publications involve an editor or a publisher, in social shopping sites it is the users themselves who choose and decide on the content that is going to be reviewed. Also, the rating system included in many of these sites determines which products should receive more attention. According to users’ rating, some products will appear featured in the site’s homepage while others will be left behind.

In terms of product features, Kaboodle may seem to offer slightly better value for its customers, with the most user friendly interface and a well designed toolbar to collect product descriptions as users navigate other sites (Iskold, 2007). On the other hand, Kaboodle’s

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competitors are constantly adding new features to their sites, which make differentiation via product features only a short term source of competitive advantage. In fact, ThisNext has recently incorporated a recommendation system which suggests products based on users’ purchasing histories. Furthermore, ThisNext’s member profiles include the ability to add an Amazon affiliate ID which allows users to earn money when other users buy products from their lists (Cashmore, August 21, 2006).

Figure 2 – ThisNext’s homepage screenshot.

Scope

There seem to be some differences among the four companies in terms of the market segments that these companies choose to offer their value to. Clearly, StyleHive targets the fashion oriented community, composed of designers, artists, and a general public with more sophisticated shopping habits than the average consumers. Instead, ThisNext, Kaboodle and CrowdStorm target a wider user range.

Another difference in terms of scope is offered by Crowdstorm, which is a UK based company. Being based in the UK differentiates Crowdstorm from the competitors in that there are more European products on this website compared to the other companies, which are all based in North America. In terms of advertisers and business

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alliances, the company’s location would probably have a differentiated impact. However, because of the universality property of the Internet (Afuah & Tucci, 2003), the site does not limit itself to the UK but has the potential to reach users anywhere in the globe.

Figure 2 – Crowdstorm’s homepage screenshot.

Linkages

Another possible form of differentiation comes from association with other companies. For example, Kaboodle has entered into a partnership with eBay (Cashmore, 2006). In this partnership, Kaboodle maintains a new eBay service called MyCollectibles. eBay users can now take advantage of Kaboodle’s social features to maintain, display and share their collections. The major reason for this partnership seems to be to increase and improve eBay’s services to its community. So far, sales are a minor driving force for the partnership since many of the displayed items are actually not available for sale at eBay. Also, ThisNext has established an agreement with MySpace and appears to be moving towards becoming an extension of this site (Schneider, 2006). As mentioned above, it is still early in the development of these companies which are constantly changing in hope of finding a viable business model.

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An additional way in which linkages can help a company differentiate from its competitors is in respect to the linkages within the network of users. In this sense, the larger the web community is, the more valuable its membership is which results in distinguishing one community from the others (Afuah & Tucci, 2007). This is an important factor and will be explored in a separate section later on. For now, the following graphic provides a glimpse of the number of visits the four sites receive. The graphic shows StyleHive in a considerably better position that its competitors in terms of number of visits, followed by Crowdstorm. However, overall traffic seems low for the four companies.

ThisNext.com - Crowdstorm.com - Stylehive.com - Kaboodle.com

The first graph shows the percentage of Internet users who have visited the site. This graph shows that Kaboodle and Stylehive having started their activity earlier than the others had the highest daily reach percentage of all the four in May 2006. In April 2007 ThisNext has increased the number of visitors and together with Kaboodle and Stylehive have almost the same number of visitors, while Crowdstorm seems to be a little behind. It is interesting to see the immediate increase of visitors, especially for the two new sites of ThisNext and Crowstorm, from late September to late December period, which is most likely related to the holiday period.

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ThisNext.com - Crowdstorm.com - Stylehive.com - Kaboodle.com

This second graph shows the percentage of unique pages viewed by the users in each of the sites. We can clearly see that Kaboodle stays in top of the others but is closely followed by Stylehive. This demonstrates that users spend more time browsing Kaboodle.com than the other sites.

Both graphs show that sites which are launched earlier are better positioned. Being the first mover in a market is clearly an advantage, but it is still early in the game and positions may shift around.

Revenue

Experiencing it on first hand we can see that none of the above mentioned sites generates money through subscription fees. They all offer an easy and free registration to their sites and the purpose of the registration is to distinguish users in their network and also to give them the opportunity to create a profile and pages of their own. No any other fees, like maintenance fee for example, are applied.

ThisNext.com and Stylehive.com use a combined revenue model. While they receive fees for marketing agreements with retailers, they also generate revenue from displaying ads and for selling market and trend information from users of the sites (Schneider, 2006). Gordon Gould, CEO and co-founder of ThisNext says on an interview on abc-news about their revenue model as based on generating money from each product sold through their site and also advertising in different levels of marketing for brand marketers. He sees a great opportunity in matching people who have products with their audience and ThisNext provides solutions for marketers to meet Internet users.

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Kaboodle on the other side has signed a deal in August 2006 with eBay’s comparison shopping site Shopping.com. (Tedeschi, 2006) With this agreement Kaboodle displays products that are also on Shopping.com with prices of different sites, and if a user clicks on that product and is directed to the merchant’s site, then Kaboodle gets a share of what the merchant pays to Shopping.com. Kaboodle has also joined eBay to create the new service MyCollectibles (Cashmore, 2006). Another way for Kaboodle to generate revenue is through sponsored offers that you can see at the bottom of the main page. There are also Google ads displayed on the side of the pages which generate money for Kaboodle if a user clicks on them.

Phil Wilkinson, Co-founder in Crowdstorm says that their revenue model will be based on commissions for referrals to merchants or price comparison engines. Generating user traffic toward their site will generate money for Crowdstorm. Another channel for revenue is brand sponsorship, and also general advertising (web2list.com).

According to USA Today, most of the social networking sites rely on revenues coming from advertisement for the major part, but the sales revenue might soon overcome that of the advertisements (Hotovitz, 2006). Several social shopping sites, among them ThisNext.com and Stylehive.com, have received financing by venture capital firms to start their business (Schneider, 2006). The initial financing, and maybe other venture capital funding rounds, will help the social shopping sites to operate until the real money comes from the abovementioned revenue channels.

Figure 3 – Kaboodle’s homepage screenshot.

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Connected Activities

Performing the connected activities that underpin social shopping is a way of offering better value to its customers. The activities chosen should be consistent with the overall firm’s core strategies, should reinforce each other, take advantage of industry success drivers, take advantage of a firm’s distinctive capabilities, and be geared toward making the industry more attractive to the firm (Afuah & Tucci, 2003).

As we saw above, social shopping sites allow users to discover, organize and share products. This constitutes a significant value, but may not be sufficient to achieve sustainability. One type of connected activity that is a natural fit for social shopping sites is the ability for customers to complete the purchasing cycle. In this respect, all four companies are offering at least one link to another website where items can be purchased. However, the system is currently in early stages and could be improved much more. For example, companies could add price comparison and alternative sources from where to buy a product.

Figure 4 – StyleHive’s homepage screenshot.

3.2 Environment

In addition to their choice of business model, the environment is another crucial factor of influence in firm performance. The

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environment includes competitors, suppliers and customers with often conflicting interests.

Threat of EntryClearly, the barriers of entry for social shopping industry are low, which can be seen in the recent emergence of numerous companies of this type.  In addition to social shopping sites, nothing stops traditional social networking sites from entering the industry. Large social networking sites--MySpace, Facebook, Orkbut, etc--are increasingly growing their user base. Users are already networking within these communities and, thus, these places seem like a natural platform for the exchange of ideas about products. One may question the need for users to register in yet more social networking websites that specialize in shopping while they already belong to a much larger community in which this can also be accomplished.

SuppliersSuppliers in this industry include those companies that commercialize the products reviewed in these sites. Because they belong to an array of diverse industry sectors, they are spread out and unable to act as a group in most cases. Though in this respect their bargaining power is low, many of these companies already count with other channels to advertise and commercialize their products which provides them with negotiating power. These companies benefit from traffic to their websites and transactions generated from social shopping websites as long as this is priced accordingly. Smaller companies may be more attracted to pay fees for having their products displayed and linked to via this sites, but only if these sites can guarantee enough of a critical mass.

Buyers As we introduced above, the customers for social shopping sites

include two groups: individual users and companies that use these channels to advertise their products. Though individual users are not charged user fees in any of these sites, they are still a key force in this industry, for without them there would no business. Since the social shopping scene is young, undifferentiated, and has little switching costs, individual consumers have great bargaining power.

RivalryYahoo's version of social shopping, Shoposphere, is the oldest and best established player. For being integrated with Yahoo Shopping, Shoposphere offers a one-stop shop and price comparison, which adds convenience to the user experience. In addition to the four studied companies, many other firms dedicated to social shopping are competing for market share, including StyleFeeder, MyPickList, Wists,

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FiveLimes, Chitika, and more. Rivalry within this industry is clearly high.

SubstitutesFor many users, large search engines such as Google and Yahoo,

may be the "number one" option for product discovery. Even though search engines may not be as efficient for finding products or reviews--as they usually return too many non-relevant hits--they are still well incorporated as the starting point for product discovery and comparison in most people’s searching habits.

Furthermore, niche review sites--such as Cnet for computers and electronics--offer extensive information on specific categories of products, and therefore, they can offer more accurate and detailed reviews compared to a general shopping site.

Finally, deals-focused sites may also appear as substitutes since the new breed of deal-tracking sites also offer social networking features. Through deals-focused sites, users can discover and recommend deals to one another. Some of these companies include Dealplumber, Dealspl.us, Clipfire (Baisel, 2006).

4. Community as a Success Driver

Providing customers with the ability to interact with one another has been recognized as a good strategy to build customer loyalty and generate economic value (Armstrong and Hagel III, 1995). The four companies studied here seem to be well aware of this, since they all emphasize the importance of developing a community and, consequently, use different strategies to acquire and retain users. In order to develop a successful online community, aquiring either a large user base or a very well chosen niche must be accomplished.

The communities formed through social shopping websites try to address a combination of users’ needs. In one sense, they constitute communities of interests for they bring together participants who interact with one another usually around a common interest. For example, Stylehive “is the world's largest social shopping community made of people seeking out the world's most interesting products, the sites that sell them and the people that find them." This statement could be well supported by the other three sites, which express similar interests.

In regards to the community interests, one may wonder whether

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“shopping” is a strong enough common denominator to hold a community together. As mentioned above, users may find niche sites, with focus on specific types of products, more appealing than social shopping sites. Indeed, ‘gardening aficionados’ or ‘wine lovers’ may prefer to spend time in specific online communities dedicated to these matters and make their purchases through them if available, rather than going through a general social shopping site. Consequently, one challenge for social shopping sites in to discover those interests that can be attractive enough to hold a community together. Indeed, one of the four companies is already doing this. Stylehive tries to differentiate somehow from the pack by building its community around fashion and style, conforming “... a place dedicated to discovering "what's hot. right now."

Social shopping websites also constitute communities of transaction because they facilitate the buying and selling of products. ThisNext and Stylehive offer links to complete a purchase at the site where the product was originally retrieved from by the user who posted it. In addition to linking, Kaboodle includes the option to compare prices and to buy a product from a few different sources. Crowdstorm, so far, only facilitates transactions by driving traffic to Amazon and eBay.

Strong online communities are supported by intense loyalty on behalf of their users. In online communities, first-movers are often in advantage over competitors (Armstrong and Hagel III, 1995). Even if social shopping websites could offer attractive features for supporting communities of interests or transactions, it may be difficult for emerging social shopping sites to compete with much larger and already established players such as MySpace, Facebook, Bebo and other large social networking sites. Users are already networking within these communities and, thus, these places seem like a natural platform to exchange ideas about products as well. One may question the need for users to register in yet another social networking websites which specializes in shopping while they already belong to a much larger community in which this can also be accomplished.

Management of the Communities

Management is a particularly important factor for successful online communities. There seems to be some differences among the ways that these four sites manage their communities. In this respect, Kaboodle offers the most social networking features, followed by ThisNext. Kaboodle offers various features which encourage people to interact within the site. For example, it features on the homepage a member’s birthday, ‘Featured Kaboodlers’, ‘Help me choose”, ‘Active

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groups’, as well as ‘Hot Picks’, ‘Popular searches’ and ‘New lists’. All these features contribute to create opportunities for interaction among members. In the member profile section, there are links to friends of each member, the ability to add that member as a friend, and a search link to ‘related’ people.

ThisNext includes a few social networking features for members as well. Members can maintain a profile and a list of recommended products. These products may in turn appear featured on the homepage, which gives members some publicity. However, users can only rate other users’ recommendations; they cannot comment on them. Users do not have networks of friends as in Kaboodle or MySpace. Finally, a link to MySpace is included as well as the ability to quickly export a product description to MySpace.

Stylehive also offers its members the ability to maintain a blog and to have a circle of followers. There is also a Forum which invites people to introduce themselves, post announcements, inform about discounts and deals, and exchange ideas about specific topics such as eco friendly or indy products. The forum seems like a good way to encourage interaction within members. Crowdstorm also features a forum, but this one is not organized by topics. Instead each user can start a new post which appears in a common section. Crowdstorm also offers users the ability to establish themselves in the roles of ‘friends’ and ‘followers’ which encourages interactivity. Users can navigate other users’ profiles and they can send messages to each other.

If social shopping websites manage to sustain strong communities of users, they could offer great value for small businesses and advertisers. Social shopping sites would then be able to serve the brand building efforts of small and large companies. For small companies, these sites serve as channels for raising awareness of their products. Indeed, social shopping has been identified as a form of word-of-mouth marketing (Gordon, 2007). By placing their products in social commerce websites, companies can create "buzz" which may turn into sales. This has been mentioned as a particularly powerful resource for smaller companies which lack the budget to obtain publicity via the expensive traditional advertising channels (McCarthy, 2007).

For larger companies, social shopping sites can be integrated into a bigger marketing strategy which utilizes a variety of channels. In fact, social shopping sites can be exploited by companies as platforms for guerrilla marketing, that is, "programs that use unconventional communication vehicles to create conversation and awareness, breaking through the clutter that diminishes the effectiveness of

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measured media" (Aaker, 2002). The web offers also a platform for amplifying traditional marketing tools such as measured media advertising, by not only multiplying the exposure of the advertising but its impact (Aaker 2002, p.6). Therefore, social shopping sites can be used towards this goal by generating conversations about products.

To summarize, social shopping websites constitute both communities of interest and transaction. The size and cohesion of the online communities associated with each social shopping website will be an influential factor to determine performance. Not only social shopping websites are competing for users with each other but they also have to face competition from the abovementioned traditional social networking sites such as MySpace and Facebook. From the four sites observed, Kaboodle seems to offer the most functionality to encourage socialization. One way or the other, community is a vital component for the survival of social shopping.

5. Analysis

The observation of the four companies found that they all offer a fairly similar basic proposal to their users, which is the ability discover, organize, and share information about products through their websites. All four companies present a similar basic business model. This is a combined model which incorporates elements of the brokerage, advertising and infomediary business models. Within this broad concept, some minor variations were also available.

On one hand, the idea of social shopping websites is well grounded. These sites intend to bring back the social component of traditional offline shopping activities. In fact, shopping is in its core a social activity (McCarthy, 2007). In the traditional sense, shopping involves input from friends, family, experts, celebrities and so on, and it is far from being a solitary act as it is usually in the online world. Also, according to a recent study (Megna, 2006) customers are increasingly using social networking tools--such as instant messaging, social networking sites, and e-mail--to exchange information about products they intend to buy, which may indicate the presence of a growing trend.

In terms of customer value for individual consumers, all four companies promise access to a wider variety of product reviews which are created by peers without any editorial filters. Looking closer into the relevant individual components of the business model, the differences among the four companies are, however, minor. It is evident that the social shopping scene is very crowded and only a few—if any—out of the many social shopping companies will sustain

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themselves. Despite offering a good business concept, our analysis encountered that all four social shopping sites face a serious threat from the industry’s low barriers of entry. Competition is steep and substitutes are abundant. Furthermore, individual consumers are in a powerful position, with plenty of similar options to choose from and low switching costs.

It is imperative for a social shopping website to find ways to differentiate from its competitors. So far, there are only some minor variations in regards to site features among the four companies which could be seen as a means to differentiate one company from the others but these features are easy to replicate by competitors. Therefore, differentiation by product features seems only a good short term strategy.

In terms of differentiation via market segments the companies offer their value to, StyleHive seems to be the only company trying to differentiate with a more fashion oriented approach, while the others target a wider range. This could be a viable strategy to provide StyleHive with some competitive advantage over its competitors. However, capturing such a small niche will also present further challenges.

Another twist on the social shopping business model involves partnering with already established larger Internet companies. Kaboodle is taking advantage of this in a more aggressive way than the other three sites. Kaboodle’s partnership with eBay to create MyCollectibles is an example of possible arrangements. Also, with its agreement with MySpace, ThisNext is another good example of the type of linkages that can be further developed by these companies.

As mentioned above, social shopping sites need to offer more customer value to obtain a competitive advantage over their many competitors. In this respect, social shopping websites could consider the further developments of connected activities. One area that could be a natural fit is to offer customers the ability to complete the purchasing cycle from the same sites and to offer better price comparison and alternative sources from where to buy products. Again, for this strategy to be effective, agreements with other companies are crucial.

In terms of sources of revenue, we will probably witness some changes in the future. So far most sites seem to rely heavily on advertising. However, with such a strong competition and the average low fees for Internet advertising, this exclusive source of revenue seems unstable. In regards to exploiting a commission based revenue

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model for driving sales towards other sites, whether these sites can have a significant impact on sales remains to be seen.

Though social shopping sites have recently sprung a quantity of articles in several industry publications, not all commentaries are optimistic. As one reader noted in a comment to a social shopping article (Social Shopping Faceoff, #12), "the elephant in the room that no one mentions is that traffic moving across the social shopping sites is tiny". This is particularly noticeable compared to epinions or cnet. Another reader posted "I conclude that the term Social Shopping is an oxymoron, a meaningless combination of words that doesn’t represent reality" (Yeager, 2007). More established social networking sites like facebook.com, orkut.com or myspace.com—according to data retrieved from alexa.com—have between 50 to 400 times more visitors than the best of these four social shopping sites we analyzed.

The number of Internet users visiting social shopping sites is somewhat discouraging. In the last three months, the number of users who visited social shopping sites has dropped a 14% (thisnext.com) to 41% (crowdstorm.com), while for the social network sites mentioned above the trend is ascending from 16% (myspace.com) to 64% (facebook.com). In an American Marketing Association (AMA) survey, 47% of consumers responded that they would go to a social networking site to find out and discuss about gifts and 29% said they were willing to buy products on these sites (Horovitz, 2006). Comparing social shopping sites with social networking sites, 29% of the users visiting the latter exceed by several times the whole number of users in the social shopping sites.

Furthermore, the ability for social shopping websites to sustain strong communities of users will be a key determinant of performance. The larger the network the more attractive a social shopping website would be for its own members as well as for potential advertisers and transaction partners. However, our analysis showed that competition for creating sustainable communities is extremely high. Not only are many social shopping sites competing for users but, again, they also have to face already existing social networking sites. In addition, smaller niche communities offer yet more competition since users find them appealing for their greater specificity and expertise. Indeed, and issue to take into account is whether “shopping” offers enough motivation for users to sustain a community after the initial buzz is over.

Finally, other possible strategies for the social shopping sites are mergers and/or acquisitions. A merger of the two types of networks or an acquisition of a social shopping site from a social networking one,

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will increase the number of users and will provide the social networking sites with the shopping feature, which is almost missing in them so far. It will also provide the social networks with the expertise to advertise better and convert more users into possible buyers. Whether the larger social networking sites would buy into this or whether they would develop their own tools remains to be seen.

If social shopping websites manage—by differentiating from the pack or by mergers/acquisitions—to secure enough critical mass, there would be an opportunity to create a sustainable business. The area that may offer more potential for further development is that of services offered to corporate customers. In fact, corporate customers seem to be the sector towards which social shopping sites have more bargaining power. These customers find social shopping sites very attractive as platforms to generate buzz about their products.

All the possible strategies for social shopping sites are very much tied to the ability to count with a large number of users. Even possible affiliate deals with online retailers—by which a retailer pays for sales generated via these sites—need to happen at a large scale to be a significant source of revenue. Some companies experimented with offering a commission to users as means to encourage them to publicize products. In this model, the social shopping site would still receive a fee. However, any variation of this model would still require large amounts of traffic.

Conclusion

This paper examined a new breed of Internet companies that can be identified as “social shopping” websites. In particular, it offered a closer look at four companies: Kaboodle, ThisNext, Crowdstorm, and Stylehive. Our analysis intended to offer an overview of the state of the competition in this industry and to evaluate the position of social shopping sites. Following Michael Porter's (1979) analysis framework, our goal was to measure the strength of competitive forces in order to identify a position for social shopping companies where they could better defend themselves or influence these forces in their favour.

The future of these companies is very unpredictable at this point because of their short history, the novelty of their business model, and the constant changes in the environment. Clearly, the success of social shopping sites is related to the traffic they generate, which depends on the number of users visiting the sites or joining the communities. Indeed, a large community has been identified as a strong factor in developing competitive advantage.

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It is evident from the analysis that the social shopping scene is highly competitive. Already established social networking sites place a serious threat on the success of these new companies. As first movers, these companies possess a significant advantage over emerging companies. However, social shopping websites may have found a well grounded concept that could be particularly attractive to other companies looking to exploit word-of-mouth advertising. As users are conducting more activities online and participating more often in online communities, the concept behind social shopping websites seems promising. If social shopping websites find a way to secure enough critical mass—even by a merger or an acquisition—there may be an opportunity for some of them to achieve sustainability.

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