Faith Merino's The Deal

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Social is the future of e-commerce

Online marketplaces have used feedback ratings for years, but social will take it to the next level

Innovation series by Faith Merino
February 14, 2011 | Comments
Short URL: http://vator.tv/n/16fd

If you plan to buy or sell anything on eBay in the near future, you stand a pretty decent chance of getting scammed—particularly if you’re a seller.  The latest scam involves buying an item, paying for it, and then complaining to eBay that the item was somehow defective or low-quality.  The company will immediately issue a refund on the agreement that the buyer returns the item (the buyer has to send eBay a tracking number to prove they’re returning the item) and the seller is ordered to return the money.  But then lo and behold, the seller gets the package in the mail, opens it, and…no item (or there’s some kind of cheap stand-in).

Online marketplaces like eBay and Amazon (the Amazon Marketplace) started out with a great idea: lots of people have stuff, and lots of other people want stuff, so let’s bring them together online.  But the Internet is a big place and such ventures have been notoriously undermined by fraud.  PayPal, which was acquired by eBay in 2002, lost millions in its early years due to fraud. 

But the online marketplace is too inviting—too cheap—to abandon.  Why buy a new paperback on Amazon for $13 when you can get a used copy on the Amazon marketplace for fifty cents?  

Could social media be the answer?  Peter Thiel mentioned in his keynote address at Vator Splash September that when he and his colleagues started PayPal, they just assumed that fraud wouldn’t be an issue since exchanges would be made between friends.  That isn’t really the way it played out, but it wasn’t a bad idea.  Could social media sites like Facebook make people more accountable for their online activities?

Social commerce is a rising movement, but it generally refers to collective buying platforms like Groupon and LivingSocial, which focus on connecting consumers in big numbers with local merchants.  But some are looking at social commerce as a matter of buying and selling between friends on Facebook.

That was Fredrick Nijm’s idea when he created Addoway in 2009.  The concept behind Addoway is to reduce fraud and make the marketplace experience more secure for buyers and sellers by allowing them to buy/sell from friends.

The obvious glitch in the business model is the fact that if your friends aren’t selling anything, you’re back at square one: making deals with strangers. 

But in truth, social has so many more dimensions than just: “I know this person ergo this person is my friend.”  Addoway focuses on the prospect of using social histories to make buyers and sellers more accountable.  To that end, he’s looking at partnering with online reputation/influence businesses to allow buyers and sellers to see what kind of Web reputation the other has.  Has this person been on Facebook for several years?  How many friends does he/she have?  Have other people complained about this person before?

It’s the same thing that eBay and Amazon have tried to do with their seller ratings.  If a buyer/seller has received 98% positive feedback, then the idea is that they’re generally trustworthy.  But that doesn’t help if you’re a seller and you’re dealing with a buyer who has no history or feedback rating on the marketplace. 

“We started Addoway because we both got scammed on eBay,” said Nijm, referring to co-founder Anthony Saia.  “I still test out the eBay marketplace every once in a while and get scammed all the time by buyers who complain to eBay that I sold them a bad product and then get their refund but never return the item.”  He added: “It’s going to be a while before all 600 million Facebook members are on Addoway, but we’re trying to promote the transparency aspect.  When you’re on the site and you’re looking for a seller, you can see the seller’s information, where they’re located, where they’re selling.”

When I spoke with CMEA principal Sumeet Jain back in December, he predicted that social commerce would explode this year.  Think Blippy, Netflix, and other social recommendation platforms: the idea of shopping based on the recommendations and buying histories of friends is catching on.  It’s no secret that consumers are more likely to try out a new product if their friends have tried it out.  Addoway is just taking that a step further and introducing the actual exchange into the equation.

Nijm summed it up nicely: “We want to come as close as we can to making buyers and sellers more confident.”

Image source: domainmagnate.com


Related companies, investors and entrepreneurs

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Addoway
Startup/Business
Description: Through our integration with Facebook's Social Graph, we recommend merchants your friends have purchased from in the past and merchants t...
44118
Fredrick Nijm
CEO & Co-founder,
Addoway
Bio: Fredrick has held management positions inside growing companies, including an integral role as a Market Manager for a Fortune 500 company...
Bio: Sumeet joined CMEA Capital in 2008 as a Principal in the firm's Technology group. Prior to CMEA, Sumeet was with Goldman, Sachs & Co....

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