Dave Edwards, product manager, iProspect
Facebook launched Facebook Gifts on Thursday 27 September in an aim to increase revenue for the company, which has been under constant pressure since its IPO to monetise the abundance of users they have on the social network.
Facebook Gifts allows a user to select an actual, real life product for a friend and then have that gift delivered to them. Once the ‘gifter’ has chosen the product, and paid, the recipient receives a message notifying them of the incoming gift. The recipient can then see an image of their gift wrapped up in their timeline. If the gift is a digital product (voucher, etc) then the recipient receives this straight away – if the product is physical, then it is wrapped in a Facebook branded bag and sent by the manufacturer.
This new service ties in nicely with the amount of data Facebook has on users, as this will be able to more accurately recommend gifts for people than competitors such as Amazon. It will also create further incremental data points to Facebook to enhance its algorithms on recommendation engines for ecommerce in general.
This alone could be spun off as a side project for ecommerce sites that use the Facebook Open Graph. It is also interesting timing for Facebook to move into this arena, as Amazon has recently been distracted from its main ecommerce activities by the Kindle, which it continues to try to get into as many hands as possible.
In terms of financials it is a clear potential cash cow; if half of Facebook’s 995m users buy two products a year at a cost of $10 a product, and Facebook takes a 10% fee, then you could be looking at incremental revenues of $995m per annum – a 20% increase per quarter compared to Facebook’s Q2 2012 revenue.
This revenue would also translate into a healthy profit margin, as it appears the manufacturer would remain saddled with the logistics of delivery and shipping.
This does not even begin to take into account the potential revenue from advertising products that could be linked to Facebook’s gifting platform. For example, there would be plenty of appetite for advertisers to have their products displayed in a top three list per user on their birthday, and this could be easily productised through Facebook’s self-serve advertising platform.
Imagine, for example, that Facebook supplies a list of recommended video games for your Playstation junkie friend – if you are EA, having your newest release at the top of that list would be a great way to help people who may not otherwise know what to get.
All in all, this is a great move from Facebook and it will be interesting to see what the user reaction and uptake is. As of 12:06pm (GMT) 28 September 2012 the Facebook shares were up 1.62% to $20.65 through pre-market trading, and we will be keeping an eye on the ticker for the rest of the day. I doubt, however, that this product alone will create the inflation investors are looking for as a lot of trade press sentiment places Facebook’s value at roughly $15-$18 (before announcement of Facebook gifting) – so even with the above example of additional revenue a realistic valuation of Facebook’s shares would be around $19.8.