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Facebook digital gifts worth around $15m/year January 23, 2008

Posted by jeremyliew in 3423228, digital goods, facebook, gifts, virtual goods.
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Although Facebook has primarily focused its monetization efforts on advertising, it has also experimented with digital goods. There are three typical use cases for digital goods; (i) increased functionality (ii) self expression and (iii) communication. Facebook’s Gifts fall into the third category, whereby a particular communication is emphasized because a gift has a price associated with it, thereby creating some scarcity value.

Facebook creates a certain fixed number of each type of gift. When the number remaining for any particular gift drops below 100,000, Facebook displays the number left. The most common size runs are 100,000 and 1,000,000 but they range as high as 10,000,000 and as low as 15,000.

We noted the number of available gifts of each type over a seven week period to be able to better understand the sales rate of digital gifts. Excluding free gifts, we found that the average number of sales per week for a gift was 846. Since there were 322 gifts available for sale when we completed our last survey (Jan 8th), that implies that Facebook is selling just over 270k digital gifts per week. At $1 per gift, that implies an annual run rate of just under $15m. Facebook sometimes allows users to pre pay for gifts at a discount if you buy multiple gifts, so this number may be slightly lower.

The top four fastest selling gifts were the only four free gifts, all sponsored by an advertiser. On average these gifts were given at a rate of over 150k/week. This is a rate almost 200x faster than the regular Facebook gifts and speaks to the penny gap.

Holiday themed gifts (e.g. Santa hat, eggnog, Happy New Year!) dominated the list of top selling paid gifts, averaging 4,755 sales per week. Romantic gifts (e.g. “Be Mine” cookie, chocolates in a box) also sell better than average. This reinforces the use case of communication as these gifts all have a clear communication overtone, relative to gifts without a clear message (e.g. an espresso bean, a beach ball or a lemon).

WordPress doesn’t let me upload excel spreadsheets, so a .pdf is available below.

Facebook gifts analysis

I suspect that as we see more social games emerge on Facebook we will see digital goods that take advantage of the other two use cases, increased functionality and self expression.

NOTE: I updated this estimate in September 2008 and concluded that Facebook was on a run rate to sell $35M in digital gifts.

Comments»

1. surya - January 23, 2008

users get a free gift credit when they sign up. you have to back that out of the quantity “sold” to get to the true number of actually paid for.

2. noah - January 23, 2008

good stuff. i wonder how many gifts are purchased due to users getting a free credit by signing up. i would assume a high portion at 200k new users a day.

3. Surya - January 23, 2008

have you accounted for free gifts? members are given a credit (at least i was) for their first purchase. that should be backed out.

4. jeremyliew - January 23, 2008

Surya and Noah, you are right of course, but I don’t think that there is any way to back out which are the initial gift credit and which are paid. Can you think of one?

5. 26econ.com » Intangible gifts - January 24, 2008

[...] Venture Partners has an interesting blog post about the value of “digital gifts” sold on Facebook. For those who don’t know, [...]

6. Czy Facebook zarabia $15 milionów na wirtualnych prezentach? at AntyWeb - January 24, 2008

[...] Lightspeed Venture Partners Blog odkrył (lub też zauważył), że na Facebook wirtualne prezenty, które są sprzedawane numeruje się według pewnej zależności, która pozwala w przybliżeniu doliczyć się ile prezentów sprzedawana jest w ciągu dnia/tygodnia. [...]

7. Dave McClure - January 24, 2008

jeremy: you might be able to sample some # of public (non-anonymous / non-private) gifts, and try to determine whether they were given by someone who joined relatively recently or someone who’s been around for awhile (is your FB join / new member date public? i seem to remember you can triangulate on that somewhere).

while this probably isn’t very scientific / empirical, you might be able to make a decent guess as to what % of gifts are free (if given earlier in someone’s FB lifecyle) vs paid (if given later in someone’s FB lifecycle, after they expended their initial free credits).

as a random guess, i’d say gifts given in the first 90-180 days are probably free; those given after are probably paid.

- dave

(ps – i’m frequently in error making small change, so please don’t trust my math any further than you can throw me ;)

8. Chris - January 25, 2008

Hi Jeremy,

Thank you and others for putting this article and report together. My partner and I have a digital gifts application on Facebook that’s doing well. This is helpful for gauging revenue when charging for gifts. Currently, we’re monetizing through ads. We’re still bullish on gifts in general even though there is a decline in usage of Facebook gift apps.

shahar figelman - May 18, 2010

hi chris
do you still have the digital gifts app in FB?
are you still doing well?

thanks
shahar

9. surya - January 27, 2008

hmm…how about this:
survey with two questions:
1) how many people have used their free gift
2) how many people have ever paid for a gift

since facebook’s growth statistics are pretty out there, you should be able to use the % of redeemed free gifts as a (very imperfect) proxy for number of free gifts. doesn’t take into account the delay between signing up and redeeming gift, but using sampling methodology, it’d be way too imperfect to estimate that.

this would at least get you to a ballpark $ number. and question #2 can serve as a check to see if the numbers are even closer.

10. Three use cases for virtual goods « Lightspeed Venture Partners Blog - January 28, 2008

[...] media, social networks, virtual goods, virtual worlds. trackback Last week I estimated that Facebook is doing up to $15m in revenue per year from its digital gifts business. I noted that there are three use cases for digital goods. I thought that it might be useful to go [...]

11. kara - January 31, 2008

Do you have age statistics on the people that have purchased these gifts? im sure kids without credit cards have less access to use these features.

12. It’s the Thought that Counts? Gifting in a Virtual World « The Reader - January 31, 2008

[...] of sending them. On the other hand, I was never convinced enough to actually spend real money. By some estimates, however, Facebook is currently selling them at a rate of about 270,000 gifts per week — [...]

13. Goodbye Atoms, Hello Bits « Virtual Goods Insider - February 18, 2008

[...] Facebook Gifts was a massive flop. But, that just hasn’t been the case. By some estimates, Facebook has earned $15 million in virtual gift revenue since the launch of Facebook Gifts. That is not an insignificant percentage of Facebook’s [...]

14. Epic Change Blog » Gettin’ Mashed - March 16, 2008

[...] It’s estimated that Facebook’s digital $1 gifts are worth around $15m per year. [...]

15. Cash Gifting - Cash gifting or Bust (TOCS) on Squidoo - May 4, 2008

Cash Gifting – Cash gifting or Bust (TOCS) on Squidoo…

Pages About EGDT… Categories: Fooddate Entry (6) Activity Fooddate: 04. 30. 08 Fast Food Entry# 006 Fooddate: 04. 29. 08 Fast Food Entry# 005 Fooddate: 04. 24. 08 Fast Food Entry# 004 They’ re on to me! (Fooddate: 04. 23. 08 Fast Food Entry# 003) Foodd…

16. Creative Isn’t an Adjective » Blog Archive » Waffles Are Pancakes With Syrup Traps - June 11, 2008

[...] did mine when I first heard) that virtual items was a $1.5 billion dollar industry in 2007.  That Facebook may have made close to $15 million selling images.  That this is good for everyone involved in the process from the site owner to the designer to [...]

17. Creative Isn’t an Adjective: The Viximo Blog » Blog Archive » Why Viximo Is Better For Creatives - June 24, 2008

[...] Dogster, and HotOrNot.  All have done extremely well with their stores, including Facebook which was estimated to sell over $15 million dollars of virtual gifts in their first year. [...]

18. Michael Leis » Blog Archive » Get maximum brand lift from widgets - July 20, 2008

[...] as an overall trend, but it’s $15 million a year if you’re Facebook (report by Light speed ventures). Balloons, care bears, images of drinks… if it sheds a sliver of light on [...]

19. Facebook selling digital gifts at a $35m run rate « Lightspeed Venture Partners Blog - September 2, 2008

[...] goods, facebook, gifts, virtual goods. trackback In January of this year, we estimated that Facebook was selling digital gifts worth $15m per year. We based this estimate on an analysis of the number of each gift available each week over a 7 week [...]

20. Inside Facebook » Facebook Selling Virtual Gifts at $30-40 Million/Year Rate - September 2, 2008

[...] virtual goods store in recent months. Compared to the $15 million/year run rate he estimated earlier this year, Facebook’s digital goods business has appeared to double to between $30-40 million/year at [...]

21. Facebook’s virtual gifts may make more than $40 million this year » VentureBeat - September 2, 2008

[...] in January, Jeremy Liew of Lightspeed Venture Partners analyzed the company’s gift sales and concluded that they would yield $15 million this year. Today, he’s revising that revenue number to be [...]

22. Facebook’s Secret Gold Mine « Virtual Goods Insider - September 3, 2008

[...] In January, Jeremy Liew at Lightspped Venture Partners estimated that Facebook was generating $15 million annually in virtual gifting revenue. Today, Jeremy posted an update to that initial analysis which suggests that Facebook is selling [...]

23. All Facebook » Will Virtual Gifts Become a Billion Dollar Business? - September 3, 2008

[...] exactly, nobody has really been totally clear. Yesterday Jeremy Liew of Lightspeed Venture Partners released an analysis done by the company which suggested that Facebook could generate up to $43 million this year alone [...]

24. Robert Tolmach - September 5, 2008

$35 million a year on virtual gifts!
Now, the dollars you spend to send virtual gifts can also make the world a better place.

A new nonprofit app on facebook, Changing The Present, makes it easy. Your dollar goes to the nonprofit you choose, and the picture your friend receives shows what you helped accomplish.

THEN: send a picture of a cupcake
NOW: help feed a hungry child

THEN: send a picture of lips
NOW: help fund cleft palate surgery for a child’s smile

THEN: send a picture of a flower
NOW: help preserve acres of the rainforest

You can choose from among more than a thousand $1 donation gifts from hundreds of leading nonprofits.

Imagine the impact we can make together as this new kind of gift catches on!

Please help spread the word.

Here’s the app:

http://www.new.facebook.com/apps/application.php?id=2551062524

25. Dubai Gift Experiences - October 2, 2008

Simply, motivation for micropayments are different between services. In the SL and Cyworld model, the motivations are built on very sound logic. People like to buy stuff for themselves that makes them look cool. Since online identity is primarily about the representation of self, people will pay to differentiate themselves. In Facebook, you’re buying a gift for someone else, so you’re getting that one-time rush. This rush is great, but it doesn’t last. It is actually a completely different value proposition. And sure, if you give out a lot of gifts, you get to make an identity statement about how generous you are – but I worry that it will be interpreted as “I’m someone with lots of dollars to waste.”

And that gets us to the crux of the problem – the price of Facebook gifts. The price of Facebook gifts are one dollar, an arbitrary amount set by FB. What else on the internet costs a dollar? For one, an iTunes song costs a dollar. A Flickr membership costs two of these dollars a month. A ringtone costs two of these dollars. The comparison? All of these goods hold actual value. Facebook gifts do not hold the same value as these goods.

And this is what gets us to rationality. Yes, we tried to throw away the rational-consumer model of economics a long time ago, especially in the luxury and incidental goods category. However, people are used to getting value for their dollars. Facebook, by setting the price of these gifts at the ridiculously high price of a dollar, is stetting itself up to severely limit the growth of this product. And why? People rationally want value for their money. They want things. They want more than a one-time rush. And to that extent, I would expect to see interest in a system like gifts peak early, and then tail off rapidly. People will get tired of giving gifts, especially when the price is one dollar. College students are smarter than Facebook is giving them credit.

26. victorantos - December 7, 2008

That’s Incredible!

Why should I buy such a gift?! I don’t understand…

27. Trellist Wire » Get maximum brand lift from widgets: Virtual gifts - May 12, 2009

[...] as an overall trend, but it’s $15 million a year if you’re Facebook (report by Lightspeed ventures). Balloons, care bears, images of drinks… if it sheds a sliver of light on someone’s [...]

28. The Social Network Business Plan « Kitten’s Thoughts - August 26, 2009

[...] Secondly, Facebook doesn’t rely solely on advertising. Facebook gifts are actually a significant and overlooked source of revenue. Now that developers can charge in the apps they build on top of [...]

29. amit shafrir - December 2, 2009

any update on this for 2009? how much $$$ was FB making off ov virtual gifts in 2009 ?

jeremyliew - December 3, 2009

I updated this in Nov 2008 but haven’t update it this year.

30. Social networks making money through giving presents - March 19, 2010

[...] from the Valley, wrote an extensive post about this matter. Now Lightspeed Ventures discovered a good flow of Facebook cash: those corny digital [...]

31. Will Virtual Gifts Become a Billion Dollar Business? - AllFacebook - April 10, 2012

[...] exactly, nobody has really been totally clear. Yesterday Jeremy Liew of Lightspeed Venture Partners released an analysis done by the company which suggested that Facebook could generate up to $43 million this year alone [...]


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