Thinking | 25 August 2020

Social media and shopping converge: buyer beware

By John Gray and Tamara Charlwood

‘Facebook Shops’ is the most visible example of the next ‘big thing’ in e-commerce. It lets retailers create an online store on Facebook and Instagram for free. Social media platforms are developing into market places in their own right, rather than simply serving as billboards that lead to external shopping websites[1]. In this article, we consider the legal issues for retailers hoping to take advantage of the new convergence of ‘social’ and ‘shopping’.

Evolution of e-commerce

Put simply, when e-commerce first emerged in the late 20th century, retailers had the option to sell their goods at online marketplaces like Amazon and eBay, or to build their own branded websites. These custom websites were better for maintaining customer relationships, but were relatively expensive and complex, due to the technical challenges of seamlessly stitching together marketing, inventory management, payments and fulfilment into one single, bespoke digital asset. The subsequent emergence of specialist e-commerce platforms like Shopify and eShopWorld provided a single outsourced solution that made having your own branded website simpler and cheaper.

Advertising on social media platforms like Facebook and Instagram is nothing new. The migration of brand advertising from TV to social media provided retailers with unprecedented access to highly engaged and targeted customer segments. With the pandemic giving fresh impetus for shoppers to go online, the opportunity to present your store to the global audience of a social media platform within the platform itself – for free, no less – seems too good for retailers to pass up, especially for the small to medium retailers that Facebook is targeting.

Risks

Social media marketplaces will allow platforms to extend their vast data repositories from the social domain to the business domain. Because the platform will not only provide a digital storefront for retailers, but also handle their online marketing, payment and fulfilment (and may even offer loyalty programs), the platform will better be able to see the world from the retailers’ perspectives – in fact, it will have visibility of almost every aspect of a retailer’s customer-facing operations. The platform will gain insights into products, markets and customers. This has a number of business and legal implications.

First, retailers that outsource their entire online operations to a platform risk losing their customer relationships. In its scale and variety, the data able to be collected about individual customers can be used to create exceptionally strong relationships, building customer loyalty, supporting customer retention and ultimately lowering the cost of doing business. Naturally, any retailer would wish to have sole use of the data that are collected about its customers.

Secondly, aggregated sales data can provide a source of highly specific and valuable insights that retailers would want to be free to exploit to drive sales growth and product innovation. Conversely, in the wrong hands, these insights can provide a springboard for competitive offerings. Retailers will want to be sure that any insights based on the extensive sales data that a platform collects are not used to develop competing products, either by retailers in the same industry or by the platform itself.

The law is complicated when it comes to the ownership and use of pure data. If it is confidential, information can be protected from unauthorised use and disclosure. But who is entitled to be given this protection? Should customer data and sales data be treated as the confidential information of the retailer or of the platform hosting the online store? There is no universal legal principle that answers this question, so it is a matter that needs to be addressed in the agreement the retailer signs with the social media platform.

In particular, the platform agreement should address:

  • the types of customer and sales information that the platform may keep, and the measures the platform has in place to protect that information;
  • how the platform may use the customer and sales information – for example, may the platform share the information with the retailer’s competitors or use it to develop products that compete with the retailer’s own products?; and
  • what access the retailer may have to insights gleaned from analysis of the customer and sales information.

A third issue is that retailers will need to exercise control over a platform’s use of marketing collateral. This could also be achieved through appropriate provisions in the platform agreement. In this regard, the platform agreement should:

  • strictly control the platform’s use of the retailer’s registered trade marks, so that the trade mark registrations are not vulnerable to removal;
  • restrict the platform from developing similar brands, and provide that goodwill accruing from use of the retailer’s brands belongs to the retailer; and
  • prohibit any modification by the platform of product imagery or descriptions that the retailer provides, to help to ensure that products are not misrepresented and their features are not misdescribed on the platform, which may otherwise give rise to claims by consumers against the retailer under the Australian Consumer Law.

A final issue is regulatory risk. As with other countries, the law of Australia regulates the collection and use of data. Data about a particular customer will likely include personal information. If a retailer is subject to the Privacy Act 1988[2], it cannot avoid its privacy obligations by outsourcing customer-facing activities to external service providers. This is why outsourcing agreements typically include strict privacy clauses that govern the service provider’s storage and use of personal information. For retailers, getting a global social media platform to agree to industry-standard clauses will be challenging, to say the least.

Additionally, Australian privacy law requires that organisations collecting personal information have a privacy policy, and that such policies deal with a range of matters, including how and for what purposes the personal information is collected, and whether the personal information is likely to be disclosed overseas. Retailers will need to review and understand, as much as this is possible, the data handling practices of the relevant social media platform and consider whether to update their own privacy policies.

Retailers in particular industries will need to consider any industry-specific regulation of data handling. For financial service providers regulated by the Australian Prudential Regulatory Authority, this includes APRA’s prudential standard CPS234, which deems data provided to a service provider to be an information asset that must be protected.

For retailers, it will be a difficult task to get a global social media platform to agree to modify its platform agreement to include appropriate clauses addressing the issues outlined above. The Australian Competition and Consumer Commission’s digital platforms inquiry report has emphasised the market power of the platforms. Most retailers will lack the bargaining power to ensure their contractual concerns are addressed.

The takeaways

The convergence of ‘social’ and ‘shopping’ is an exciting development for retailers, combining all the benefits of social media – such as automated campaign creation and highly targeted audiences – with a single integrated online sales solution.

But as the old retailing maxim says, ‘buyer beware’. Before embracing this new phase of the e-commerce revolution, retailers should think carefully about the business and legal risks and closely scrutinise the contractual terms offered by the social media platforms.

[1] As other examples, you now can shop from the photos on your Instagram feed, Google searches now have a shopping tab and YouTube’s Shoppable ads allows you to scroll products instead of comments as you watch a video. Even livestreaming has gone beyond advertising into shopping, such as the Chinese farmers now selling 90% of their produce through Taobao.

[2] That is, where the retailer’s annual turnover exceeds $3 million and it has an Australian link.

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