A shopping scam on Facebook is exposing a larger problem with the social media giant (FB)

SHOPPERS ARE BEING RIPPED OFF BY FAKE E TAILERS THROUGH FACEBOOK ADS

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Consumers who are shopping through Facebook ads are getting ripped off by some fake e-commerce sites, a big problem for a social network that drove more than $1.4 billion in e-commerce sales in 2014, according to BI Intelligence.

These phony merchants are luring customers with stolen photos and steep discounts, reports BuzzFeed News. Customers then reportedly never receive their items or receive one that is vastly different from what was advertised on the site.

At least eight of these sites have connections to ShenZhen Global Egrow E-Commerce Co., a major China-based e-commerce company that recorded more than $200 million in sales in 2014. China has a long and storied history with counterfeit goods, but this problem speaks to a deeper issue with Facebook's ad platform and how it monitors what appears on a user's News Feed.

Facebook users currently see these counterfeit site ads based on their individual likes and interests indicated on their profiles. Users who show an affinity for shopping and fashion are particular targets for these ads.

But Facebook is simply an intermediary between the shoppers and retailers and assumes no responsibility for what happens once a user clicks through to another site. Furthermore, many counterfeit sites post fake contact information and delete negative comments in order to keep the scam running. That in particular poses a problem for Facebook as it tries to legitimize itself in the social commerce market.

Facebook has been aggressively forging relationships with retail businesses through regular updates on its platform and its Messenger app. Facebook Pages, in particular, serves as a profile for businesses and retailers on the social media giant. These Pages contain call-to-action buttons to contact a business and browse websites, as well as two new sections that let businesses publish more detailed information about their products and prices.

So the social media giant has been creating tools for retailers to bring in more partners but has at the same time failed to monitor what the retailers are actually posting.

Facebook drove $1.4 billion in e-commerce revenue in 2014, according to estimates from BI Intelligence, Business Insider's premium research service, based on data from AddShoppers and Internet Retailer. But without stricter monitoring, consumers will continue to fall for these counterfeit schemes. Therefore, Facebook must take control of what retail content appears on the site.

Social commerce has been growing by leaps and bounds as sites such as Facebook, Twitter, and Instagram integrate shopping features into their platforms. 

Cooper Smith, senior research analyst for BI Intelligence, has compiled a detailed report on social media's role in online retail that analyzes whether social media is driving direct sales with the use of embedded "Buy" buttons on social media posts, or referring traffic to retailers' websites and apps. It measures the impact social media has on e-commerce by looking at metrics such as conversion rates, average order value, and revenue generated by shares, likes, and tweets. It also outlines the latest commerce efforts by leading social networks.

SHOPPERS ARE BEING RIPPED OFF BY FAKE E TAILERS THROUGH FACEBOOK ADS

Here are some of the key points from the report:

• Social is driving much bigger increases in retail traffic than any other online channel. Social media increased its share of e-commerce referrals nearly 200% between the first quarters of 2014 and 2015.
• For retailers to maintain these social gains, they will need to pay special attention to mobile, where social engagement with retail content is still limited. Social media users are 35% less likely to share a brand's or retailer's social post on mobile than they are on desktop computers.
• Facebook continues to grow its lead as the dominant social commerce platform. Facebook accounts for 50% of total social referrals and 64% of total social revenue. The site's changing demographics could make older consumers a strong target for retailers leveraging the platform.
• Pinterest is a major social commerce player despite a relatively small user base. The pinning platform drives 16% of social revenue despite an audience 6.5 times smaller than Twitter. New buy and action buttons on retailer posts should make Pinterest an even stronger referral and revenue engine for brands.
• Twitter is losing its influence for mass-market merchants, but it could still have a role to play among sporting and events marketers, especially for location-based promotions. Recently, NFL and NBA teams have used Twitter to sell game tickets and merchandise.
• Instagram doesn't drive significant sales activity for retailers but high-end companies have been leveraging the platform for branding purposes. New Buy buttons on paid posts, as well as increased targeting capabilities, could make the app a more important direct-response driver.

In full, the report:

• Sizes social media's role for retailers compared to other referral sources such as search and email.
• Examines how social media's transition to mobile is impacting the role of different social platforms.
• Looks at how the different social networks stack up in terms of conversion rates, share of social-generated retail sales, and average order value.
• Highlights up-and-coming social commerce players such as Snapchat and Instagram, and how brands are using them for influencer marketing.
• Outlines the latest major commerce moves by Facebook and Twitter, which could help drive up conversion rates from social.

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