Facebook upgraded its iPhone and iPad
mobile app this week by adding the ability to send physical gifts like cookies,
chocolates, T-shirts, sunglasses and umbrellas to friends on the social
network.
This expansion of the nascent Facebook
Gifts program didn't receive a lot of fanfare during a busy news week, and the
Menlo Park company even seemed to play down the announcement.
But considering how Wall Street is
pressuring Facebook to prove it can make money from its rapidly growing base of
smartphone and tablet users, analysts believe the move could eventually become
a key mobile revenue generator - as long as Facebook doesn't fumble the
opportunity.
"It's a very smart move," said
Larry Chiagouris, a professor of marketing at Pace University in New York.
"Everybody's trying to monetize mobile. This may be the way that Facebook
does it."
The company began slowly rolling out its
Facebook Gifts app on Sept. 27, but only to members in the United States who
logged in through the website. Last week, the company added the ability to
donate to a charity.
On Monday, Facebook updated its primary iOS
6 app to allow iPhone and iPad users to send gifts, although again only in the
United States, which represents less than a third of its 1 billion members
worldwide. Gifts was only one of three mobile app enhancements, behind upgrades
to its messaging and photo-sharing tools.
Upstaged by storm
Facebook may have been upstaged by
Superstorm Sandy - the weather forced postponement of a Nov. 1 Facebook Gifts
announcement in New York. The event is now scheduled for Thursday, with
Facebook expected to introduce new retail partners.
Even so, this month was already too late
for Facebook to truly cash in on this year's lucrative holiday shopping season,
since big retailers usually need to start ramping up for such promotions during
the summer, said Jay Dettling, executive vice president of North American
Services for the e-commerce and digital marketing firm Acquity Group. But
Facebook appears to be taking the slow road with Gifts anyway, having learned
from quickly introducing e-commerce flops like Facebook Beacon, a
shop-and-share program that instantly angered members and drew a class-action
lawsuit when it was introduced in 2007.
Facebook could be easing members into a
more comfortable level of trust, starting with small, inexpensive
"impulse" gifts that "don't require a lot of planning or a lot
of research," Chiagouris said.
"Small-ticket apparel items, like
scarves and gloves, can be a big hit for Christmas," he said. "Little
by little, they'll be more comfortable doing it for bigger ticket items."
Real-world gifts
With Gifts, Facebook members can send
friends within their network a real-world gift or gift card, not just a virtual
gift like a cow or an energy credit that provides much of social-game developer
Zynga's revenue.
Members may now see a Gifts link with a
small gift box icon on a friend's profile page, or in the Events section when a
friend has a birthday.
The link brings up a list of gifts, ranging
from inexpensive $5 smiley-face cookies and $12 beer-bottle mustaches to $114
sleepwear and a $132 sock-of-the-month-club subscription. The app generates a
different list for each friend.
The app sends a message to the receiver,
who can in some cases choose a different gift. The gift receiver has to accept
and fills in a shipping address.
It's the same process developed by Karma, a
social gift-giving mobile app startup that Facebook bought for about $80
million on May 18. The acquisition became an afterthought because of the bigger
news of that day, Facebook's debut as a publicly traded company.
The app also has the possibility of tapping
into a huge database of Facebook activity to suggest what members would like as
gifts by their status posts, hobbies or "Likes."
Facebook gets a cut of each transaction,
but the percentage depends on the revenue-sharing deals with each Gifts
partner.
"They're not going to make a lot of
money on any one item in the beginning, but as they get more critical mass,
they'll be in a position to demand a larger percentage of the action from the
retailer," Chiagouris said.
Learning as it goes
And even in the early stages, the company
can learn a lot about what works, what doesn't and what information it can
provide to retailers, Dettling said.
"They're still finding their
way," he said. "If this is introduced in the right way, where it is
very simple to use and intuitive, both for the gift giver and the gift
receiver, I think they'll have something very scalable."
In a research note, analysts for brokerage
firm Sterne Agee said they found that 45 percent of 750 Facebook users they
surveyed showed a willingness to use Gifts, which they think "is still a
large percentage given it is still a test."
The heaviest users were 18- to
29-year-olds, although Gifts had more appeal to those ages 30 to 44.
Still, Sterne Agee said Gifts showed more
promise than another Facebook experiment that offers members the ability to pay
to promote one of their wall posts, another ad product designed to work well on
both desktop and mobile screens.
Some observers have speculated Facebook
Gifts could put other social gift-giving startups like Wrapp and Giftly out of
business. But Facebook is still far from proving it can provide the right
package of Gifts for its members.
C.J. MacDonald, co-founder of San Francisco
startup Gyft, believes social gifting will become a huge market. His company,
which launched at the TechCrunch Disrupt conference in September, offers a way
to make physical gift cards electronic and to also send them instantly to
Facebook friends.
MacDonald sees enough promise in a $100
billion annual gift card market, which "even in a down economy almost
doubled."
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