Hancheng Cao is the co-author of a research paper, "You Recommend, I Buy: How and Why People Engage in Instant Messaging Based Social Commerce." A third-year PhD student in the Computer Science Department at Stanford University, Cao’s research interests are in computational social science, human-computer interaction and natural language processing, with a special focus on collaboration between people. In this episode, he shared his findings on the rationale behind the success of IM-based social commerce, its impact on consumers' purchasing decisions and relationships.
1:30 Introduction of Hancheng and his research area
4:15 How does human interact with the platform and the platform benefit from the user interaction?
5:58 How does IM based social commerce improve user experience?
12:00 IM based social commerce model's impact on the consumer decision-making process?
17:25 What are the key success factors of China's IM based social commerce growth?
20:51 What can be done better to improve the current IM based social commerce model?
Below is a transcript of the podcast:
Hi, this is Ada and you're listening to the China ecommerce podcast, a podcast that brings you insights from the most innovative and a competitive commerce landscape in the world. With us today, we have Hancheng from the computer science department of Stanford University. He recently co-authored a research paper about the instant messaging based social commerce model. One of the most common questions I got asked about social commerce is how exactly the social interactivity work, and why and how would the people engage under such model. With all the question marks I have in mind, for the first time I found an expert in computer science. He did a deep dive in all these topics I want to hear. Welcome Hancheng!
Hello, Ada. Thanks for having me here.
So Hancheng, can you give us a little bit background of yourself?
My name is Han Cheng, and I'm now a third year PhD student in computer science at Stanford University. And my interest is in computational social science. Basically, the idea is to use data and other qualitative methods to understand human behavior and society scale. The particular research field that I am interested in is collaboration behavior. Social commerce is a collaboration behavior enabled by technology. That’s the reason why I grow super interested in and co-authored some papers in that topic.
I would like to ask you a very basic question to open the conversation. What are the fundamental differences between the instant messaging-based model and the traditional e-commerce model?
That's a very good question. I often got people ask me about these questions. The idea of IM based social commerce or instant messaging platform based social commerce is that the commerce is completely based on IM platforms, such as WeChat and WhatsApp. The idea is that the platform leverages such IM based platforms to do the marketing and people also shop on such platforms. Let me give you a very concrete example on what IM based commerce is. For example, I'm going to buy some apples and I know that there's a good source of apples where I can purchase apples. And what I will do is that I searched for those apples and look for the product information related to that from the social commerce and I'll post that information within WeChat and other kinds of IM platforms. In this way, other friends on IM platforms, such as my family members and my co-workers will notice that there's such apples that is available. And quite often, I'll persuade them to do so because I sometimes get incentives from the social commerce platforms. I will get some discount if I persuade my family members to buy together with me. The key idea is to leverage the social ties of ordinary people to do shopping and marketing.
So that’s how consumers would engage with each other through the IM. But how would the consumer engage with the app? Because I think the interaction not just happen between humans but also happen between the app, and how does the app benefit from it?
To explain this issue better, I guess it would be good to get more details on how instant messaging apps work. With the instant messaging apps such as WeChat or WhatsApp, the idea is that it provides communication in an informal and instant way. You can chat with your friends and you can also create groups with your family members and with your co-workers, and you post what you saw and share instantly. That’s how the idea behind IM is. The IM based commerce is actually something built on top of that. The idea is that you already have the social networks there, you already have your friends, and your co-workers who are also using the IM platforms. So in this way, when you post something related to commerce within that platforms, the other people will get noticed about the products you post, and they're very likely to trust what you present to them, because you know each other in real life, and that is definitely very different from a traditional commerce.
You talked about user experience and this actually sit at the core of how this model works - the instant messaging model would improve the user experience, both on the product side, and on the time side? Can you elaborate a little bit more?
That is the core of my research, I got interested in social commerce, especially IM based social commerce, because I personally use it and I find it very different from what my experience on traditional Commerce is. We characterize the difference between social commerce, IM based social commerce in particular with traditional commerce in two ways, as you said, product wise and time wise.
What I mean by product wise, we are meaning that we are purchasing something that is very different from what we purchase in traditional commerce. I'm not saying that I am buying very different categories of products, I'm still buying, fruits or vegetables or other kinds of electronics. But what I buy from them in terms of the characteristics is very different. The first big difference is that what I purchased on IM based commerce, it tends to be cheaper and more cost efficient. I'm also quite likely to buy some products that is coming from less well-known brands, instead of those very big brands. From the interviews with IM based commerce users and some data analysis, the IM based social commerce model is like bridging the gap between the customers and the sources, it doesn't need too much marketing resources. Because in real life, like ordinary people, you do not need to pay them so much compared with big brands or celebrities. Under such business model, it saves lots of money in terms of this marketing behavior. It turns out that the products are cheaper.
On the other hand, the products have to be more decentralized. Coming from less well-known brands, this is strongly related to how we buy and purchase the products. What happens is that I get some recommendations from my family members or friends, and I tend to trust them. And they're the people who have actually experienced that product. Under scenario, I would find the recommendation helpful and useful. Because of the word of mouth, and my trust of my friends, I start to use the products as well. So this is very different from the scenario where on traditional commerce, I get recommendations through algorithms, and they're like just giving you big name products.
I would also like to talk about the timelines on the shopping behavior on IM commerce. What we find in the research is that we can buy products in a very ubiquitous way. Just think of how your purchase on traditional e commerce. It's more likely you know that you want to buy, so you log on to Amazon or other platforms and you look for specific products you want, or you may just like click the recommendations from algorithms. Whereas, IM based ecommerce is embedded in WeChat, or WhatsApp. WeChat is the app that you would check pretty often, Whenever you have time, if you're waiting for the elevator, or you're seeing the streets, you have nothing to do, you have to get your phone out and check your WeChat. This is what is happening for IM based commerce. The economic behavior and the social behavior become very embedded. Whenever you check your phone, you may get some information related to products, you may get some recommendation from your friends. When you are messaging with others, you'll get notice about there are things that you might be interested in purchasing. So that behavior or the shopping experience is becoming informal and also ubiquitous.
Well at end of the day, there has to be a decision-making process when it comes to purchasing. Because you don't just experience and share, you want to create transaction. So how does the IM based social commerce bring changes to people's social interaction, social connections, and how the purchase decision making process is made?
This is another research question we are trying to uncovering our research. We are looking at the decision making process user experience on IM based commerce. There are two ways of making a decision when people are trying to make some purchases through IM based commerce.
The first is you get passive recommendation from your friends. Under such scenario, you get recommendation from your friends, and sometimes you just discover that you're interested in a particular kind of products, because quite often, those products are quite cheap. On the other hand, they are like daily necessities, some fruits and vegetables. There is strong tie that exists IM based platforms. You are very likely to trust your friends, if your friends think like this is a good product, and you're likely persuaded into buying that, especially given that the expense is not so high. That is the first mode of making decision. Basically, you are not particularly in shopping mode, you're just on WeChat, and you get some recommendations, which happens to be of interest to you. So that's what we call passive receiving recommendation decision making process.
In the traditional shopping mode, you sometimes have in mind what you want to buy. In the IM based model, you are not interacting with machines or interacting with algorithms. You are interacting with your friends and real people. What happens is like when sometimes you want to look for particular products, people would ask in the chat for recommendations on particular products. In our interviews, there is a particular participant say that he was looking for a suitcase, and he didn't really know which suitcase to buy. Because there are thousands of different kinds of suitcases. He got really confused and turned to his friends and asked for recommendation, and his friends would recommend different kinds of products to him. And quite often they have used the products or have some experiences or feelings towards different kinds of products.
Another key factor is in a group chat and you're interacting with friends on social networks, there is the phenomenon like birds of a feather flock together. Your friends have very similar interests, and they have very similar economic status as you. They would definitely not recommend something that they find that’s not well suited to your economic status or aesthetic taste. In this case, when people know what they they're looking for, they tend to use the IM platforms to consult friends to get some recommendations. By the end of the day, they make a decision based on the list of products experienced and recommended by their friends. This is like how the second mode of decision-making process work.
I can associate it with my daily life too. It has become a pretty major way of me shopping as well, I would buy through recommendations from my friends and family. And that's why I think people have seen the IM based social commerce model experienced tremendous growth in China. Why do you think it works? And what are the key advantages of being in China? Will it work elsewhere in other parts of the world? And if not, what are the key factors that's currently lacking in other markets?
I’ve been thinking and wondering that as well. Chinese people definitely experience lots of WeChat commerce related activities that are going on. The business model is very successful in China. We have been really experiencing a hard time trying to find a direct counterpart of WeChat based commerce in the United States and in other parts of the world. What we see here is that we gradually discovered that this might have something to do with like the environment and the technology foundation of IM based commerce. In China, the IM based commerce, or WeChat, is becoming ubiquitous, as long as you have a smartphone, the first app you like to install is very likely to be WeChat.
But this is not the case in the United States or in other parts of the world. Because in other parts of the world, you have different kinds of social media, you have WhatsApp, Instagram, Facebook, and they serve different purposes. Compared to China, there's not a systematic or established ecosystem of WeChat. So that is the reason why we haven't yet seen giants in IM based commerce established in other parts of the world. We do know that currently, this business model is growing in other parts of the world as well. We know there has been some startups that leverage WhatsApp, which is like the Chinese version of WeChat. People have been experiencing social commerce on that which seems to be pretty successful. Also the IM culture in other parts of the world may not be that well established like China does. That is why we haven't yet seen like, tremendous growth of that in in different countries, but it's very likely to grow in the next few years.
That's good to hear. Because people have been asking me whether this model can be duplicated in another market. I don’t think it’s going to look exactly like how it is in China, because consumer behaviors are very different in other market. There are definitely things or like little elements that they can learn or integrate into the current more established model. OK, my last question is from a product designs perspective, what needs to be improved? What do you envision a better version of IM based social commerce model?
We need to first understand what the existing problem is. Most of the them, it seems to work pretty well under such business model. Sometimes it does have some problems. Your friends who are doing commerce or marketing and recommending products to you, they benefit from the financial incentives. Although it works well most of the time, if people want to make more money out of their friends, it will definitely become problematic. Under such model, it really depends on the trust of your friend to buy your products. But if your friend just wants to earn more money, then the social relationship gets hurt. This is definitely not something we want to see, even from the business model perspective, because this means if you break that social relationship, you may not earn it back within a short time. From a long-term perspective, this is not sustainable. Because the model is built upon social relationships.
There's definitely space that we need to do to build a better social commerce environment. This includes a community building. This is on one hand, where people get to know what the sweet spot should be where everybody could experience on IM based commerce. On the other hand, from like a product design perspective, what we envision is that there could probably be a better combination of algorithms and human decision-making process to track if you are sending too many way too many advertisements to your friends. Yeah, or the relationship rates or perhaps an algorithm, or something could handle that and provides feedbacks to that user and asking him to not to do that. So that could be something that future generations of products could leverage. In terms of the business model, it turned out to be very successful, and it attracted so many users and it turns out to be an experience that most people enjoy, because it embeds social and economic life. But on the other hand, we do see like there are problematic moments and future generation of products they should definitely take into consideration such ethical issues happening under such business models.
Thank you so much for a very thorough explanation of the IM based social commerce model. You answered a lot of questions of why social interaction works under such model. It's easier to understand but for people elsewhere, it's a little bit hard to grasp the idea. The model has experienced great success here in China. But we want the good lessons we learnt here in China can be applied to other market to help other startups and ventures to grow business data can capture a larger consumer base as well.