Plans for Facebook Gifts
When Facebook reports its fourth-quarter earnings today, investors will be hyper-focused on how much progress the social network is making on mobile. The rapid shift to mobile has, of course, been the key part of the Facebook story since the company went public in May. First mobile was a giant problem; then CEO Mark Zuckerberg artfully reframed the problem as a giant opportunity.
And that opportunity extends to Facebook Gifts, which Facebook rolled out to all U.S. users near the end of the fourth quarter. Of all the products that Facebook unveiled in late 2012 — and there were many as the company amped up its efforts to make more money off its billion-plus users — Gifts is one of the biggies, certainly in terms of potential. Facebook, after all, is almost entirely an ad play; roughly 85 percent of its sales come from ads, the bulk of which are those small display ads that fill the right side of every Facebook page. While the debate about how effective those ads are rages on — there is evidence in both camps — one thing Wall Street would like to see is what it calls a diversified revenue stream.
That’s where Gifts comes in. Facebook rolled out Gifts in stages, starting in September with a smattering of offerings from more than 100 retail partners, including BabyGap, Brookstone, and Dean & Deluca. The December launch to all U.S. members is also when it started letting people send friends bottles of wine, which seemed like a savvy addition to the gift lineup. The way it works is simple. Facebook, already the world’s largest birthday calendar, shows you a selection of gifts that you can send to your friends on a birthday or, say, an anniversary. The hope, of course, is that you’ll impulsively send gifts for all sorts of occasions — what head of Facebook Gifts Lee Linden calls “in-the-moment gifting.” Linden oversees a team that works with each merchant and, using data from behavior on Facebook, decides which products will work best. Since Gifts only just launched widely, Facebook isn’t going to break out any of the financials on its earnings statement. And, for sure, the money so far will be small. Michael Pachter, an analyst with Wedbush Securities, figures eventually this could be a $1 billion business for Facebook, but it’ll take awhile, as I spelled out in this piece.
In the fall, Linden told me that most gifts are under $40, but that people on average were spending around $25 for a gift. Facebook takes a cut of each sale, but Linden said it varies with each partner. Facebook Gifts grew out of its acquisition of Karma, a mobile social gifting company Linden co-founded and, not surprisingly, he sees all this “in-the-moment gifting” evolving into a powerful mobile opportunity for Facebook. Sure, it’s early, but Facebook has had a full quarter in which at least a portion of its users have been able to send gifts both from their desktops and through Facebook’s mobile apps. So I hope Zuckerberg or one of his lieutenants drop some clues. How many people sent gifts over the holidays? What sorts of gifts are working best? Are there power gifters? Tell us what percentage of people who looked at a gift actually ended up sending one? The reason this is important — aside from the revenue — is that it’s a measure of how comfortable Facebook users are giving the company their credit cards. Pachter figures Facebook has 10 million to 15 million cards on file, but almost all have come from people who play Zynga games and buy virtual goods. If Facebook Gifts is doing well, then that credit card number is climbing, which is critical should Facebook branch out into other areas where having credit cards on file is helpful. And if users are willing to share their credit cards with Facebook, let’s hope Zuckerberg is willing to share those details with his investors later today.[source:cnet]