In the latest news, the President of Indonesia has announced that his country is considering issuing new regulations regarding social commerce, the use of social media for direct online product sales. The main reason behind these potential regulations is the concern over predatory pricing and unfair competition that offline businesses might face.
While specific details about the regulation were not provided, the Indonesian government expressed a desire to separate social media and ecommerce, and explicitly targeted TikTok. The Chinese company is rapidly expanding its presence in the ecommerce world, with Tiktok shops, and is investing billions of dollars to compete with other ecommerce giants, including Amazon.
Until we hear about the details of these regulations, I found two things interesting about this article: what could have triggered Indonesia’s concerns, and TikTok’s response to this announcement.
Is social commerce a threat to offline businesses?
Why would social commerce be a threat to offline businesses? The Indonesian government mentioned that sellers on social media could have an unfair advantage regarding pricing. While it is true that online sellers tend to have lower overhead costs, they also have to pay for shipping, and marketing to drive traffic to their pages. Other advantages of social commerce include the convenience to order remotely, the wider reach of an online presence, or the social validation coming from reviews and users recommendations.
But traditional ecommerce enjoy similar advantages, so why is Indonesia targeting specifically social commerce? It is difficult to tell at this stage, but two factors could be at play: 1 – Traditional Ecommerce is too big to see new heavily impacting regulations and 2 – Customer behavior is changing, with Statista estimating that sales via social media will reach $1.3B in 2023 and over $2B after 2025.
In my opinion, offline channels will need to adapt to this changing environment. Not only do they have the possibility to develop their own online channels, brick and mortar stores still have several advantages over online channels. This includes an immersive in-store shopping experience, no shipping delays or fees, the opportunity to physically engage with products and try them before buying, or the opportunity for social interactions.
Tiktok’s response to Indonesia’s concerns.
The second thing I find interesting is how TikTok responded to these news. According to a Reuters article, “A TikTok Indonesia spokesperson on Monday said that social commerce was important for local sellers and helps connect them with local creators who can direct traffic to their online shops.” This statement highlights some of the positive aspects of social commerce, and it is clear that millions of entrepreneurs can benefit from it. However, I would like to consider a potential misalignment between TikTok’s goals and those of offline sellers. A social commerce platform like TikTok relies on Sellers joining the platforms to generate money off advertising, fees and increased traffic.
It may have little interest in driving traffic from TikTok to retail stores, but would rather capture offline customers and get them to buy on their platform instead. Social commerce can be an important piece of an omnichannel model, but I sometimes wonder about the future of the “Social” part of social commerce. I believe that platforms will keep encouraging customers to interact with each other through comments, reviews, videos or other features). However they may also try to limit interactions between buyers and companies. Amazon restricts communication between customers and its 3rd party sellers, so customers don’t purchase from the brand D2C websites. I think there is a good chance social commerce will follow a similar plan, as platforms will try to maximize revenues from selling fees and advertising.
I am waiting for more details on Indonesia’s plans, but I find it interesting to see that governments started to look at social commerce, and I am curious to see what kind of regulations they may come up with.