Facebook Gifts: Old Idea Revisited and it will Bring Revenue

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Written by Digital Surgeons,
• 6 min read

I’ve been waiting for this day. I think the whole world has been waiting for this. Facebook “Real” Gifts are finally here! This is a game changer for the world of meaningless gift buying. It also has the potential to be a huge revenue generator for everyone involved.

It’s called social commerce.

  Everyone has been buzzing about social commerce since flash sale, deal-a-day, group buying and coupon sharing businesses came about a few years ago. Deal-a-day sites like Woot were quickly acquired (Amazon) for their share-ability, Groupon IPO’d and countless competitors and copycats entered the market like Living Social and Fab.

  The only thing social about these businesses is the fact that the value they were giving users is shareable.

  Meanwhile, other businesses were trying to figure out ways to leverage social purchasing data by either creating anonymous buying networks or through recommendation engines like Hunch or Gifts.

  Hunch.com is really interesting because they used an array of data including taste questions and analyzed that against your social data (likes, reviews, check-ins, networks, etc) to come up with predictions. Ebay saw this potential and acquired Hunch.com for around $80 million. The problem with Hunch and Ebay is that neither have the user engagement of Facebook.

  Gifts.com and Facebook Gifts are very similar. Gifts.com lets users Facebook connect to authenticate. It scans your profile and tells you who has a birthday coming up. Then it looks at those people and makes product recommendations based off of social data and general data that you can add. The data is then analyzed and matched against merchants that have been accepted into the system. From there it is a pay-per-click program that sends the user to a product landing page similar to Google Adwords.

It’s all about the Data.

  What is interesting about all of the above-mentioned businesses is that they all rely on Facebook. Facebook brings value with it’s large user base, ease of sharing ala the like button, and data points pulled from the open graph.

  It makes sense that one day Facebook would eventually claim the space and reign as king.

  I believe that day is here and I am going to breakdown the possibilities from a product standpoint and also offer potential revenue predictions.

Gift Giving on Facebook is natural.

  Do you remember the virtual gift giving that was prominent in the earlier days of Facebook? One of Facebook’s very first revenue generators was virtual gift transactions. Users were willing to spend real money on virtual gifts. Gifts that were nothing more than an animated birthday cake or beer mug. When Facebook opened their platform to developers in 2007 other widely popular virtual gifting applications came out like Zach Allia’s “Free Gifts”, which launched and had over 1 million users overnight.

  It’s also very natural to wish someone a Happy Birthday on Facebook because Facebook so graciously reminds us to. Everyday Facebook walls are flooded with “Happy Birthdays” from friends and family all over the world. Birthday reminders are more prominent now that Apple allows you to sync Facebook with the iPhone; displaying friends’ birthdays on your phone’s calendar. You no longer have to log on to Facebook to be reminded of your friends’ and families’ birthdays.

Facebook Gifts Could Work Like this.

  Facebook sees all. They know when your birthday is. That’s an obvious one. So are holidays. Facebook can also read and understand status updates like “It’s a boy”, “I just graduated”, “I just got a job” or when you switch your relationship status to “Engaged” or “Married” and so on. Once it recognizes that something special just happened in your life, it can prompt other users connected to you to buy you a gift.

  Here is where it gets interesting. Facebook has immense data about you. They could easily recommend gifts of all shapes and sizes with precision. For example, Facebook could recommend something as large as a travel or vacation package based on locations you’ve previously liked, check-in at, mentioned, or taken a picture of. These gift suggestions can also be based on time of year, personality traits, interest indicators (i.e. extreme sports, relaxing, luxury, etc), proximity and more.

  Facebook could also make recommendations that can filter by price, general popularity, date “liked”, or category (food & beverage, apparel, health, beauty, travel, even auto).

  Imagine you could buy a car through Facebook!

It All Comes Down To Revenue

  Dozens of opinions articles seem to be released daily about Facebook. Half of these articles are saying that Facebook’s revenue models are decelerating and the other half predicts a bright future for Facebook. Half say downgrade and it’s a $15 stock way overvalued and the other half say upgrade and set price targets at $30+ per share. I’m on the side of $30+.

  Here is my reasoning behind Facebook’s valuation when it was in the teens a few weeks ago: “Invest In Facebook: It’s a Good Bet

  Below are some calculations that could happen revenue-wise without knowing for sure exactly how Facebook is going to be handling the transactions or product.

  Note: I decided not to model out any cost per click (CPC) revenue because it seems like Facebook will handle the transaction in the network unlike the Gifts.com model, which passes the traffic through to the advertisers site.

  If 1 percent of Facebook’s 950 million active users purchase gifts for an average total of $30 in transactions each year and Facebook takes a 10% commission on the transaction they would make an additional $28.5 million a year in revenue. That could cover some technology costs.

  Take that same percentage of users and sales and make the total yearly transaction $1,000 and Facebook just put another $950M a year on their balance sheets.

  If 5% of the user base did $1,000 in yearly transactions, Facebook would earn an additional $4.75 billion.

  The calculations I used in my revenue projections are reasonable and I would go as far as saying that they are low. According to the National Retail Federation, the average American spent $700+ in the 2011 holiday season. That number does not account for birthdays, other holidays, special moments and no reason gift spending. Another thing to keep in mind is that in 2010 Facebook had over 50 million users with incomes in excess of $100,000 per year.

Final Thoughts

  In summary, Facebook did a very good thing going back into the gifts business. Gifts are social and that is the very core of their business. If they get the Gifts product right, they should reap huge rewards and revenue from it. Likewise all the businesses and brands that have like buttons beside their products will reap the benefit of the sales. Facebook users that have been clicking those like buttons should also start to get better gifts. Surely mainstream usage of a “want” button will be the next logical addition to the open graph.