Facebook launched Marketplace in 2016 as a way for users to buy and sell items locally. Marketplace allows users to post items for sale, search for items they want to buy, and communicate with other users to arrange transactions. There are a few key reasons why Facebook likely decided to create Marketplace.
To Enable Local Commerce
One of the main goals of Marketplace is to facilitate local peer-to-peer commerce. Facebook recognized that many of its users were already using Facebook groups and pages to buy and sell items locally. However, these transactions were often disorganized and chaotic. Marketplace provides a streamlined platform specifically designed for local shopping. Sellers can easily post items using their Facebook accounts, while buyers can search and filter listings using location and other criteria. By creating a centralized local marketplace, Facebook has made it easier for its users to conduct commerce. This provides value to users and gives them another reason to keep using the Facebook platform.
To Compete with Craigslist
At the time Facebook launched Marketplace, Craigslist was the dominant platform for local classifieds and peer-to-peer transactions in many regions. However, Craigslist’s barebones design and lack of mobile friendly features left an opportunity for competition. With Marketplace, Facebook saw a chance to use its superior user experience and existing user base to gain market share in local buying/selling. Facebook likely aimed to leverage its social graph to provide better discovery, communication, and payments between buyers and sellers. If users engaged with Marketplace for transactions, Facebook could take a bite out of Craigslist’s dominance while also reducing the need for users to leave Facebook’s app.
Advantages Facebook Had Over Craigslist
- Established user accounts
- Stronger identity/profile features
- Superior mobile apps
- Integrated payments
- Social graph for discovery
To Strengthen Its Commerce Offerings
Prior to Marketplace, Facebook’s commerce capabilities were limited. It had ad units and Pages that enabled businesses to market goods, but no first-party transactional tools. With Marketplace and Messenger payments, Facebook could start building a broader commerce ecosystem. This not only opened a new line of business, but also strengthened the value proposition of Facebook to retail marketers. The more users engage with buying on Facebook, the more attractive it becomes for brands and retailers to market on the platform. Marketplace gave Facebook commerce capabilities that could complement its existing advertising strengths.
Other Facebook Commerce Offerings
- Storefronts on Pages
- Shopping features on Instagram
- Checkout on Instagram
- Facebook Pay
- Shops
To Further Monetize Its Platform
As with most new products at Facebook, a revenue opportunity likely factored into the decision as well. Facebook has tremendous reach, but needs to continue finding new ways to monetize that reach in order to justify its valuation. At the time Marketplace launched, Facebook was starting to max out the number of ads it could show without degrading the user experience. Marketplace offered a new revenue stream through facilitation of local commerce. Facebook charges no fee to buyers and sellers, but can monetize Marketplace in a few key ways:
- Collecting transaction/sales data to improve ad targeting
- Showing related advertisements within Marketplace
- Potential future opportunity to take a transaction fee for payments
Even if each transaction facilitated on Marketplace didn’t directly generate revenue, the associated data and increased engagement still benefited Facebook’s ad business. Marketplace strengthened Facebook’s commerce capabilities and gave the company another monetization lever beyond advertising.
Facebook Annual Revenue
| Year | Revenue (Billions) |
|---|---|
| 2016 (Marketplace Launch) | $27.6 |
| 2017 | $40.6 |
| 2018 | $55.8 |
| 2019 | $70.7 |
| 2020 | $85.9 |
To Keep Users Engaged on Facebook
When Marketplace launched in 2016, Facebook was trying to find ways to continue growing its monthly active users (MAUs) in mature markets like the US and Canada. User growth in some markets was stagnating. Marketplace provided an entirely new activity for users to engage in without leaving the Facebook app. Users could shift from passively scrolling content to actively browsing listings and communicating with sellers. This gave people, especially those not highly interested in the social networking aspects, a new reason to keep checking Facebook. Even if someone wasn’t interested in posting updates or looking at friends’ activities, they may still find value in Marketplace for shopping. More time spent across Facebook’s family of apps directly translated to more ad revenue opportunities.
Facebook Monthly Active Users at Marketplace Launch
| Year | MAUs (Millions) |
|---|---|
| 2016 Q3 (at launch) | 1,790 |
Conclusion
Facebook launched Marketplace in 2016 primarily to facilitate local peer-to-peer commerce, take on Craigslist, strengthen its commerce capabilities, and give users another engaging activity. While not directly revenue-generating, Marketplace provides data and indirect monetization opportunities. It has given Facebook a strong classifieds product where it can continue gaining share from Craigslist. Four years after launch, Marketplace is estimated to facilitate over $5 billion in annual transactions1 – showing that the feature is providing real value and engagement. Marketplace has become a core part of the Facebook experience and local shopping infrastructure for millions of people.
Sources
- TechCrunch: “Facebook Marketplace has more than 1B visitors a month,” Feb 24, 2021.