State of Conversational Commerce & Why Messengers Evolve into Online Marketplaces

With 2.18 billion active users around the globe, messaging apps are now bigger than social networks. And while many retail companies are giving up on social commerce as we know it, chat commerce continues to flourish. It all started with WeChat, the Chinese monster of an app, which processed $3 trillion in payment transactions back in 2016 and has almost entirely replaced business websites and mobile wallets in the country. The introduction of Facebook, Kik, and Telegram bot development platforms has given rise to messenger commerce and automated customer service in western countries, too. Today, everyone from Domino’s Pizza to Uber invests in lightweight AI assistants that navigate customers through online catalogs, process payments and personalize brand-to-consumer communication. Where is the conversational commerce headed & does the future of messaging apps really lie in online shopping?

How did Messenger Commerce come about?

Before we dive into the fascinating world of AI bots, voice assistants, and mobile payments, it’s worth mentioning that mCommerce is now the most lucrative mobile app category and boasts higher user engagement rates (+54% from last year) than gaming apps.

But it’s not all rainbows and unicorns for shopping apps, either.

Although 70% of US customers download at least one app per month and spend over 5 hours daily on mobile devices, only a handful of apps, including Facebook, YouTube, Facebook Messenger and Amazon (which is the #1 app 35% of Millennials can’t live without) see steady growth.

Forward-thinking retailers and e-commerce brands had no other choice but to adapt to rapidly changing consumer behavior and try to reach their audience through their favorite communication channels – that is, social networks and messaging applications.

That’s how social commerce came into prominence – and most companies thought that would be it. Recent studies, however, show that only 6.5% of consumers are satisfied with social commerce shopping experience – simply because companies that sell goods through social platforms often lack knowledge, experience, and tools to set up a fully-fledged online store on Facebook, Pinterest, or Instagram and enable one-click payments.

What makes chat commerce different?

First and foremost, one needs to understand what conversational commerce really is. According to Chris Messina, co-founder of Molly and former Uber and Google employee, the term refers to any form of commerce facilitated by language interfaces. Unlike traditional e-commerce which comes down to adding items to a cart, conversational commerce closely resembles human-to-human interactions and is thus a social activity – and “social” is what actually makes shopping fun.

Chat commerce is by no means limited to AI bots running inside messaging applications; after all, 39 million Americans now have smart speakers like Amazon Echo and Google Home – and these can get you a ride with Uber and order a pizza from your local Domino’s location.

What Makes Messengers a Perfect E-commerce Platform?

• Messenger commerce has a lower barrier to entry. Popular messaging applications, including WeChat, Facebook Messenger, WhatsApp, Viber, Telegram, and Line have over 4 billion users combined. According to VentureBeat, 66% of consumers have used a messaging app to communicate with a brand at least once. Another study suggests that 9 out of 10 customers would like to communicate with businesses via messengers. All in all, the market is ripe for innovation – and it’s up to e-commerce businesses to unlock it;
• Artificial Intelligence is getting better at speech recognition. Although we’ve seen several high-profile bot flops over the last couple of years (these include Microsoft’s racist Twitter bot Tay and Facebook’s Bob and Alice who invented their own language), with proper training, AI algorithms can be really good at natural language processing (NLP). The accuracy of transcription software, for instance, has increased by 5% since 2016. Alexa, Siri, and Cortana work pretty well under ideal circumstances. AI bots can handle up to 80% of tier 1 customer support questions. It’s no wonder Gartner believes 25% of customer service operations will be handled by virtual assistants in just two years!
• WeChat is living proof there’s more to messengers than chit-chat. Since its launch in early 2011, WeChat (which is run by Tencent) has become a Swiss Army app. At first, it replaced e-mails and voice calls as a primary business communication tool. Then, Tencent launched a mini-program platform; it currently hosts over 580 thousand stripped-down mobile apps, including games, which run inside the messaging app and save users the trouble of downloading applications on the App Store or third-party Android stores. However, WeChat’s most successful business endeavors are mobile payments and AI chatbots. Today, over 300 million customers use WeChat to pay for groceries, restaurant bills, and taxi rides – and most of them don’t even have credit cards! Bots is another story; as said earlier, chatbots have largely replaced websites in the country, and now more than 10 million companies use WeChat as the primary customer communication channel. Although most WeChat bots are not particularly intelligent, they connect users to a customer support specialist once they run out of answers – and that’s what a good bot should do;
• mCommerce is the only way to monetize messaging applications. Besides millions of users and hours spent on the app daily, what do successful messengers have in common? That’s right, they bring little to no money to their developers! Facebook Messenger and WhatsApp, the biggest messaging applications out there, aren’t likely to generate significant revenue till 2022. Telegram largely remains a non-profit project. Viber is monetized through ads and sticker packages and makes around $3.3 million annually – which is only a small fraction of what Rakuten paid for it. Considering the fact it costs anything between $300 thousand and $1.5 million to create a basic messaging app which supports text messages, voice calls, and file sharing, messenger companies need to monetize their products somehow – and mobile commerce might be a good option.

Messaging Apps: What does the Future Hold?

With 90% of mobile time spent on messaging applications, it’s safe to say chat apps are the future of social networking. What about mobile commerce then?

In order to outpace Amazon (or at least keep up with the e-commerce tycoon!), more retail and e-commerce companies will start interacting with customers on messaging platforms. According to an Oracle survey, 80% of European and South African retail and e-commerce companies are planning to do so in the near future – and the rest of the world is likely to follow their example.

Chatbots will most likely remain the key conversational commerce tool. Between 2017 and 2023, the global chatbot market will be growing at a CAGR of 24.3% and reach $1.23 billion in five years.

As of now, messaging apps are inhabited by liner chatbots which streamline content delivery and handle routine customer questions. Bots which are capable of understanding human emotions and possess a hint of personality are still few. Some of the early examples of successful chat commerce solutions include Sephora’s keyword-triggered Kik bot, eBay’s ShopBot virtual shopping assistant, Aerie’s This or That bot, etc.

According to IBM, chatbot developers will soon move towards designing conversational experiences first. Combined with the advancements in NLP, the new approach to bot development is bound to change mobile and desktop commerce – and it’s only a matter of time until more retailers jump on the chat commerce bandwagon.