The Anatomy of Social Media Markets

Posted on Posted in 2014-2015
by Bernice Halili

Over the years, business on social media platforms has gained an incredible amount of popularity and momentum, so much so that it is now being considered a separate market all its own.

The appeal of social media markets, a form of online shopping, lies in its ease and convenience. Anyone with basic knowledge of computers and access to the Internet can take part in it. Both purchasing and selling are fairly straightforward in this set-up: a seller posts photos and/or descriptions of his or her products online and a buyer can confirm a purchase by simply commenting on the post or accomplishing an order form online. Due to this simplistic approach to supply and demand, it can be assumed that this type of market can only accommodate businesses that are relatively small in scale.

From Multiply to Facebook and Instagram

The days of shopping through the website Multiply may be long gone, but it seems that online shops have found a new platforms for doing business – Facebook and Instagram. Both sellers and buyers prefer these two social media platforms because they offer important features that others simply cannot: wide reach and free service.

This ties in with how the benefits of having an online store have become available to the general public. First of all, it is cheap, if not completely free. Fixed and variable costs of capital and labor incurred by putting up an actual shop and hiring employees are avoided. Likewise, online advertisements constitute relatively small expenses and are only done from time to time. Most importantly, there are no tax obligations involved in the equation. It is precisely because of the low costs of putting up an online business that sellers are able to earn a lot of profit and price their products competitively.

The biggest downside to social media markets, however, is running the risk of doing business with fake sellers or buyers, referred to by veteran shop owners and frequent shoppers as ‘bogus’. Fake sellers can either be those who claim to possess items that they do not actually have or those who lie about the quality of their products. Fake buyers are those who do not push through with their confirmed purchases by not paying for reserved items.

The prevalence of these bogus buyers and sellers makes it a necessity to exercise caution in every online transaction. In order to counter this, most online shops enforce strict policies on non-anonymity, whether through keeping their identities public, in order to gain the trust and confidence of potential buyers, or by keeping the shop’s settings to private, in order to limit its customers to serious buyers only.

Within Our Community: Ateneo Trade

Within the Loyola Schools exists a popular type of social media market known as Ateneo Trade. It is a Facebook group of over 6,000 members, comprised of current students, alumni, and faculty, that aims to “provide the Ateneo community with a free, easily accessible, and safe venue to buy and sell goods with one another.” Members can openly and easily trade items by first posting on the group and then meeting up with interested buyers. Examples of items that are often seen traded on this group are “pre-loved” books and clothing.

In this example, the issue of bogus sellers and buyers is completely eliminated given that the market is limited to a very specific demographic and is moderated through an online platform that requires its users to assume their true and credible identities. Likewise, even non-business owners are able to sell an item or two at any given time. Buyers can also purchase in small quantities. This occurrence mirrors the sachet economy that the Philippines is known for, where buying quickly and informally and subscribing to a “pay-as-you-go” and “hassle-free” model are preferred.

Economic Contribution: Social Media Markets as Grey Markets

Many have claimed that the absence of proper authorization and documentation technically allows social media markets to be classified as grey markets, wherein legal goods, such as food products, clothes, books, and the like, are traded illegally. It is important, however, to consider the benefits that serve as the reasons why most online businesses choose to participate in this “hidden economy” in the first place, despite the risks attached.

In line with its goal of boosting government revenues, the Bureau of Internal Revenue (BIR) has been trying to impose a memorandum requiring online shops and businesses to pay taxes. This pursuit may prove counterproductive with respect to supply-side economics, which dictates that cutting tax rates can actually increase tax collections from firms that are able to produce more goods and in considering the reality that most online businesses only continue to thrive and price their products competitively precisely because there is no tax burden to pass on to the consumers.

Thus, the debate on whether social media markets could cost or benefit the economy continues. As a whole, it has yet to reach its peak. It is still limited in many ways, including the products being made available. While the potential of this market is very exciting, one must also consider what its continued growth could really entail.

References:
https://www.facebook.com/groups/ateneotrade/
http://www.philstar.com/business/2013/08/24/1126961/bir-wants-online-sellers-pay-taxes

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