Facebook selling digital gifts at a $35m run rate September 2, 2008
Posted by jeremyliew in business models, digital 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 period.
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.). For those items where less than 100,000 remain, we can track how many gifts had been sold in the preceding week by subtracting the number remaining from the number remaining the previous week.
We updated the analysis this month and found that Facebook has dramatically increased its sales rate of digital gifts. As before, we tracked the number of digital gifts available of each type (where data was available). We ordered the items by bestselling (as defined by Facebook) and, because data is sparse, we divided the list into groups of 20, took the average of each group of 20 items and applied that sales rate to all items in each group.
Once we excluded the free gifts, the averages looked like this:
By multiplying each average by 20 and adding the totals we came up with virtual gift sales of between 390,000 and 600,000 per week, with an average of around 470,000 across the three weeks.
The vast majority of facebook gifts are bought from the first screen of gifts in the directory – almost 80% of the total sales come from the group of the first 20 gifts. This points to the self reinforcing nature of popularity (the crowdiness of crowds rather than the wisdom of crowds) when popularity data is made public.
We need to take into account seasonality. In most retail environments, something like 40% of sales occur in the last 8 weeks of the year. Judging from the high number of holiday themed gifts over the holiday period last year, the same seems to be true of Facebook:
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.
If we apply this assumption to our weekly average sales numbers, we multiply by 73.3 (instead of 52) to get to an estimate of annual sales. Using this estimate we get a range of between 28,500,000 and 43,500,000 in annual Facebook gift sales, with an average around 34,500,000.
Unfortunately however, as only one item in the first 20 had “number left” data available each week (Bear Hug), this also makes our estimate prone to significant error. Bear Hug was consistently around 6 or 7 among the most popular gifts, behind most of the birthday gifts, so hopefully it approximates the average popularity of the top 20. Applying 25% uncertainty to the average of the top 20 bestselling gifts creates a similar range of between 28,000,000 and 42,000,000.
In both cases, these estimates are double the number that we estimated at the beginning of the year which was around 15,000,000 digital gifts. That estimate was based on data drawn during the holidays and may have been high on a run rate basis.
Given that Zuckerberg has estimated that Facebook will do between $300-$350 million in revenue this year, digital goods constitutes a meaningful secondary revenue stream for the company.
[…] I updated this estimate in September 2008 and concluded that Facebook was on a run rate to sell $35M in digital gifts. Possibly related posts: (automatically generated)The Digital Dish, August 8 […]
jeremy,
great analysis! Very insightful stuff. I would love to see more.
It seems that now US guys start to love virtual gifts like Asians
Jeremy –
Amazing how the first screen is generating such a large percentage of the sales. Thanks for providing this research, would love to have a look at the data.
[…] the conclusion Jeremiy Liew over at Lightspeed VP came to after logging inventory levels in Facebook’s virtual goods store in recent months. Compared […]
Very interesting analysis, Jeremy. Would love to see the data.
Hey Jeremey, excellent story.
I’m one of the people that has to buy everyone a digital gift or the other for their birthday – but I take advantage of Facebook’s wholesale deals. I can’t recall the exact price just now, but I think it was 10 gifts for 5 dollars, or maybe even a better deal…. Are you basing your numbers above as a dollar-a-gift?
Can you please send me a copy of the data?
I am more than interested to see that great data. How do you exclude the free gifts?
[…] Facebook Selling Digital Gifts at a $35m run rate: The vast majority of facebook gifts are bought from the first screen of gifts in the directory – almost 80% of the total sales come from the group of the first 20 gifts. This points to the self reinforcing nature of popularity (the crowdiness of crowds rather than the wisdom of crowds) when popularity data is made public. […]
great analysis. i would love to see the data. how did you handle the revenue per gift given that they upsell you 10 gift credits for $5.00 when your account is out of credits? i would love to see the data.
@ Mahmoud and @Gregg, I did not correct for people buying bulk gifts at a discount – this would reduce the revenue estimates but not the number of gifts estimates
@ Tobias, we manually removed the free gifts from the count
@ Jeremy- I think I asked you this last time, but how do you exclude the free gift credit that you receive upon signing-up?
You can use the credit to “buy” a paid gift, and it would show up reducing the available count. So it would seem like it was paid for, when really they used their free credit. With FB’s amazing growth, there are a lot of free credits out there, I would think inflating the number. Or are these the gifts you backed out? And how?
Jeremy,
Great research & article. I have always maintained that facebook could almost operate based solely on the income from the gifts. This data gives us some closer scrutiny to the potential cash generated from the gift feature. Please email me the data.
Cheers!
hi jeremy – i’d love to see the data you worked from. thanks!
[…] a novelty so much as it is a secondary revenue stream. Lightspeed Venture Partners estimates that the social network’s digital goods business is worth about $35 million a year. Not bad for a business built on virtual corn dogs, cans of whoop-ass and toilet paper. Print […]
[…] Liew over at Lightspeed Ventures has done some extensive facebook gifts number crunching and calculating to determine how much revenue facebook generates from these virtual gifts. […]
Jeremy,
Interesting analysis. The real value though isn’t in the revenue derived from the sales of the gifts. As you know from our discussions, the real value is in having the credit cards on file. If you link the cards on file to advertising inventory, conversions increase on average 15X (based on our experience running our purchase-enabled advertising network). That creates a real opportunity for FB to increase their effective CPMs, which is really what they need.
Very cool stuff. I would love to see the data…
[…] Facebook’s Virtual-Gift Windfall Lightspeed Venture Partners has done the math on Facebook’s digital gifts–those little images of everything from hugging teddy bears to sushi to boxer shorts that sell for a buck apiece–and says that it thinks Facebook is making around $35 million a year from them. Fascinating. And scary. Betcha the guy who invented the Pet Rock didn’t do nearly so well. Read more at: Lightspeed Venture Partners […]
[…] images that Facebook labels as $1-or-less digital gifts to share with friends? According to Lightspeed Venture Partners, the network was selling them at a rate of $15 million worth per year as of January 2008. And in a […]
[…] Lightspeed Venture Partners reports that in 2008, Facebook is estimated to rake $35 million in cash from digital gift sales […]
@ Surya, you did ask last time about if the first free facebook gift is backed out, and unfortunately the answer is no, it isn’t. I don’t think there is really any good way to do that, but I’d be open to your suggestions
Hi Jeremy,
Great post, w/ a deftly executed analysis. I’d love to see the data if it’s not too much trouble,
Thanks!
Jeremy, would love to get my hands on this data if it’s still available. Thank you.
Well done on the research.
People are idiots for paying a dollar for what is essentially clip art. Facebook deserve to be raking it in if people are willing to pay for it.
[…] vend à +/- 1$ sur la plateforme afin que vous puissiez les offrir à vos amis ? D’après Lightspeed Venture Partners, le réseau social, qui a estimé réaliser un chiffre d’affaire annuel de +15 millions de $ […]
[…] gift sales and concluded that they would yield $15 million this year. Today, he’s revising that revenue number to be between $28 million and $43 million. Facebook has seen a great increase […]
Thanks for the analysis Jeremy. Very insightful. I’d love to see the data itself. We here at Offerpal Media are big believers in the power of virtual goods to generate real revenue, for obvious reasons.
Hi Jeremy – great analysis! Would love to play with the data. Thanks.
@Jeremy- The only thing i can think of is sampling: what percent of members use their free gift credit, and of those that do, how many days does it take them to redeem it? I suppose we could then take that figure and back it out of your figures.
But with 100MM+ members, that could be a rather sizable chunk of the size of the market– large enough to cut the figure in half? Not sure.
As a former packaged goods guy who saw first hand the impact that coupons and freebies have on sales, I have no doubt that this has increased the market. Though unlike toothpaste, I’m not sure that this is likely to lead to a sustained market vs short-term free redemption…
But I think this is still the best analysis I’ve seen to date and I’m glad you did it. I’m a fan of the blog– keep the posts coming!
@jeremy- if you can send the data over, I’ll try and model a few scenarios to discount for the free intro credit.
Tree Planter is an application created for the Arbor Day Foundation to help restore U.S. National Forests. When a person purchases a digital gift for $1 on Facebook using Tree Planter, an actual tree is planted in a U.S. National Forest to honor the recipient.
http://www.beatreeplanter.com
So far over 40,000 trees have been shared as gifts by Facebook friends from all over the planet. This is simply a great example of how social marketing can be used to make a significant impact in the virtual world.
Thanks for investigating digital goods and providing this interesting analysis. Please share the additional data learned from this research.
Hi Jeremy. I would like to see the date – kindly email it to me?
Thank you!
john
[…] images that Facebook labels as $1-or-less digital gifts to share with friends? According to Lightspeed Venture Partners, the network was selling them at a rate of $15 million worth per year as of January 2008. And in a […]
[…] “gifts” virtuels de Facebook rapportent plus de 35 millions de dollars par an ! Wouah […]
[…] “gifts” virtuels de Facebook rapportent plus de 35 millions de dollars par an ! Wouah […]
[…] Facebook creates virtual currency This analysis suggests that Facebook’s virtual goods are creating virtual goods as currency upwards in the $35 million range, yet we must remember it’s only worth as much as what people buy it […]
[…] mashable, leggo che i regali virtuali su Facebook genererebbero, secondo una stima, circa 35 milioni di dollari l’anno sull’intero fatturato di oltre 300 milioni. […]
That’s a lot of money. In my opinion FB is still in its nfancy generating money. Once it gets on to the road, FB will be one of the biggest money maker online. Sure!!
[…] Lightspeed hay una detallada estadística sobre la venta de regalos en Facebook escrita por […]
[…] images that Facebook labels as $1-or-less digital gifts to share with friends? According to Lightspeed Venture Partners, the network was selling them at a rate of $15 million worth per year as of January 2008. And in a […]
Hi John
This is a great article.
Please send me the data.
[…] Facebook selling digital gifts at a $35m run rate In January of this year, we estimated that Facebook was selling digital gifts worth $15m per year. We based this […] […]
digital goods are a briliant idea, never heard about it till todays, in this form i mean, it’s just brilliant!
Hi Jeremy,
great analysis – it is a puzzle to me why Facebook still has not put a proper micro payment system in place for appdevs. Based on your data its clear that FB users individually do spend (small) amount of money so there should be a real opportunity for FB user generated revenue to complement the mostly ad-driven models.
I’d appreciate a copy of the data.
[…] most current estimated run rate is $35 million, more than double their January […]
Jeremy,
It was great to meet and chat a couple of months ago. Hope all is well. This is a pretty cool study; I’d love to play with the spreadsheet.
Thanks,
Ben
great post and analysis. would love to see the data. thx.
[…] about how many have sold, allowing venture capital firm Lightspeed to make an educated guess: about $35 million a year! […]
Interesting!
Could I possibly have the data as well?
Thanks,
Hanisha
[…] a thorough analysis, Jeremy Liew of Lightspeed Venture Partners (LVP) has estimated the number of Facebook Gifts sold. […]
[…] Güterkonzepten. Wie ertragreich genau, dazu gibt es jetzt eine neue aktuelle Untersuchung auf dem Blog von Lightspeed Venture Partners – trotz der gleich erläuterten Einschränkung die bisher beste Analyse dieser […]
Great post with insightful analysis. Could I get the data if it’s not too much trouble and late.
Thanks in advance. Jeremy.
Mark
Hi Jeremy
Would be great to get the detailed analysis on this FB gifting usage and potential revenues.
Thanks in advance!
hi jeremy
very cool .
i would love to have the analysis data
thanks jeremy
[…] a thorough analysis, Jeremy Liew of Lightspeed Venture Partners (LVP) has estimated the number of Facebook Gifts sold. […]
looks like virtual items sales dun just work in east asia, but slowly in US social networking market too.. i will love to get a copy of the data too. thanks, jeremy!
Hi Jeremy,
I’m very interested to see the analysis. Your January analysis caught my eye as well. Good stuff!
Thanks,
[…] Before we start on the metrics, I have to go kudos to the guys at Lightspeed Venture Partners. […]
Hi Jeremy,
Thanks for sharing your analytical process and the resulting analysis. Your analysis shows the power of the almighty dollar 🙂
I am very interested in seeing the data, please forward.
[…] become more popular since McClure made that comment. Facebook itself is selling digital gifts at a reported $35 million run rate. And apps like (Lil) Green Patch and Hatching Eggs rely on virtual gifts as […]
[…] Facebook se rémunère par exemple sur la publicité (prestation outsourcée auprès de Microsoft, avec un tarif au CPM de 0,30 €), le sponsoring par de grands groupes – qui semble être la source la plus efficace et plus probable de revenus pour l’avenir (ex. Nike, Victoria’s secret,… qui payent jusqu’à 300.000 $ pour une présence de 3 mois sur le site… et les tarifs grimpent, grimpent, grimpent !), et les cadeaux virtuels que les utilisateurs peuvent offrir à leurs amis (vendus au tarif de 1 $, ils constituent une source de revenus que l’on estime à environ 35 millions de dollars / an – source). […]
[…] Facebook se rémunère par exemple sur la publicité (prestation outsourcée auprès de Microsoft, avec un tarif au CPM de 0,30 €), le sponsoring par de grands groupes – qui semble être la source la plus efficace et plus probable de revenus pour l’avenir (ex. Nike, Victoria’s secret,… qui payent jusqu’à 300.000 $ pour une présence de 3 mois sur le site… et les tarifs grimpent, grimpent, grimpent !), et les cadeaux virtuels que les utilisateurs peuvent offrir à leurs amis (vendus au tarif de 1 $, ils constituent une source de revenus que l’on estime à environ 35 millions de dollars / an – source). […]
[…] Lightspeed Ventures thinks Facebook will make about $35 million from its virtaul gift store. That’s about 10% of its projected revenue for 2008, estimated at $300m to $350m. For Facebook, these are gifts that keep on giving. The more users who are willing to pay $1 to send digital valentines, birthday or holiday greetings, the more Facebook is able to collect users’ credit card information and create ”digital wallets.” […]
[…] in the billions range, and this trend will increasingly be making its way West. Facebook makes tens of millions of dollars in virtual goods with huge profit margins as projected by Lightspeed Venture […]
jeremy, thanks for thegood work – would you please email me your facebook gift data directly?
[…] Frasca, chief executive, quoted me statistics on Facebook making $35m a year on members sending virtual gifts back and forth. Gaia Online and IMVU were selling $1m a month of […]
[…] [1],[2],[3],[4],[5],[6],[7],[8],[9],[10],[11],[12],[13],[14],[15],[16],[17],[18],[19],[20], * [MHO] oraz własnych obliczeń (patrz punkt nowe zdjęcia/dziennie na […]
Jeremy, interesting analysis – would you please email me your Facebook gift data directly? I’ve also heard from a large advertiser that the FB column display ads (small graphics + text) are enormously effective at this time – probably due to their novelty and targeting. Any data on the total for this relatively new format for bottom line FB rev? BTW we (Podaddies) are placing videos into FB Apps for branded advertisers if you ever want data on that. http://twurl.nl/cu2cbe
[…] as the next big business model in 2007. Recently, Jeremy Liew of Lightspeed Venture Partners estimated that Facebook has dramatically increased its sales rate of digital gifts. I attended the Virtual Goods Summit 2008 last week, and learnt that USA is considered to be an […]
[…] Capito questo si capisce anche perché le tortine da compleanno da 1$ su Facebook abbiano prodotto 35 milioni di dollari. […]
[…] Light Speed Ventures facebook selling digital gifts at a 35m run rate […]
[…] suggest Facebook already earns about $3 million per month selling the virtual […]
[…] worldwide users, but one venture capital firm estimates that gifts could be worth as much as $35 million per year. After Facebook’s switch to a point system, however, we might have to reassess those […]
[…] Get ready for this: Some estimates claim that Facebook’s virtual gifts are on track for a $35 million run rate. When you consider that these gifts are more useless than temporary henna tattoos, and often […]
[…] in digital goods, facebook, gifts, virtual goods. trackback In September, I estimated that Facebook’s digital goods sales were on a $35m revenue run rate. Silicon Alley Insider quotes an anonymous insider to say: Facebook’s revenue this year will […]
I’d love to see the underlying data. Thanks!
I would love to get the data that supports this, I cannot believe so many people are doing this.
Thanks
“Confused”
Would love to check out this data. Thanx!
[…] estimate of the worldwide market for real-money trading of virtual goods was around $2 billion. Lightspeed Venture Partners’ blog recently estimated that Facebook is currently selling virtual gifts — such as digital hugging teddy bears — at an […]
[…] estimates of sales from third parties are generally very positive (anywhere from $35 million to upwards of $50 million), but the accuracy of these numbers is complicated by lack of public data […]
[…] and 1,000,000 but they range as high as 10,000,000 and as low as 15,000.),” wrote Liew on his blog. “For those items where less than 100,000 remain, we can track how many gifts had been sold […]
[…] goods will also see strong growth. Jeremy Liew of Lightspeed Venture Partners estimates that Facebook is generating virtual goods sales at a clip of $35MM per year. That’s pretty good – and I expect that virtual worlds platforms can benefit from similar […]
This is interesting..! I would love to see more info on this!
Thanks
[…] estimates of sales from third parties are generally very positive (anywhere from $35 million to upwards of $50 million), but the accuracy of these numbers is complicated by lack of public data […]
[…] in digital goods, facebook, gifts, virtual goods. trackback Last September I estimated that Facebook is doing around $35m in digital goods sales. In November anonymous insiders suggested that it was closer to $50-60m in digital goods sales. […]
[…] a recent analysis of Facebook, it was estimated that between 28,500,000 to 43,500,000 virtual gift sales are made […]
[…] September I estimated that Facebook is doing around $35m in digital goods sales. In November anonymous insiders suggested that it was closer to $50-60m in digital goods sales. […]
[…] a joke, think again. With hi5 recently offering their own variety at a cost, Facebook pulling in an estimated $35M annually from them, and a new site dedicated to virtual drinks, virtual economies appear to be […]
[…] a joke, think again. With hi5 recently offering their own variety at a cost, Facebook pulling in an estimated $35M annually from them, and a new site dedicated to virtual drinks, virtual economies appear to be […]
Jeremy,
great stuff indeed. thanks for the post.
would love for you to send me the data directly so i could have a look at it.
thanks,
[…] a joke, think again. With hi5 recently offering their own variety at a cost, Facebook pulling in an estimated $35M annually from them, and a new site dedicated to virtual drinks, virtual economies appear to be […]
[…] a joke, think again. With hi5 recently offering their own variety at a cost, Facebook pulling in an estimated $35M annually from them, and a new site dedicated to virtual drinks, virtual economies appear to be […]
[…] January, Jeremy Liew of Lightspeed Venture Partners concludedthat in 2008, Facebook made between US$28 and $43 million from these gift purchases alone (about 10% […]
HI. Loved your post! Could you send me the data please?
Hey! great info, very interesting. Would love to have the data please. Thanks!
very interesting, will you please email it to me….thanks!
that is crazy, hire an artist like 300 bucks and make thousands 🙂 the power of INTERNET
[…] social objects less valuable, hence virtual gifts on Facebook seem like spam – though they’re still selling, proving that even social value alone has a dollar sign – whereas in Second Life they seem more […]
Hi Jeremy,
Would be very interested to see the data. Can u kindly email me? Thanks very much.
[…] virtual gifts business — estimated last year at $35 million annual run rate — isn’t nearly enough to support the company by itself. But the company is smart to […]
Howdy!
Could you email me this data?!
Thanks,
Court.
Very interesting. I hear Twitter is trying to find a revenue model.
Hi – this analysis seems to be pretty insightful – I am doing an analysis where this data will be extremely helpful.
Will be great if you can email it to me at denagpal@rediffmail.com
[…] perplexed. Thanks..but what’s the point, I thought. A year later, it’s now a $35m industry on Facebook, and I still don’t have my head wrapped around virtual gifts. Back in Feb, the WSJ ran an […]
it’s funny and interesting, people are interested in electronic gifts than real.
nice estimation..
as now i’m writing my bachelors thesis about virtual goods and especially about facebook gifts, i’d be thankful to get insight into the whole data.
thanks, steffen
I think 90% of gifts for children which born in 1970 to 1980. It is 2009, you are kidding man, in 2009 these kinds of gifts making fun.
Interesting post and interesting comments. Thanks
[…] total number of users that have entered their credit card information on the site, there have been public estimates on the total revenue being generated by Facebook through virtual goods. If those estimates were […]
Hello,
Great analysis. Would be greatful if you could send me the data directly as well..
[…] understands very well the amount of money flowing into virtual goods, both from their own virtual goods, as well as the money machine created by their gaming partners like Zynga, SGN, and the like (who […]
I think 90% of gifts for children which born in 1970 to 1980. It is 2009, you are kidding man, in 2009 these kinds of gifts making fun.
Interesting post and interesting comments. Thanks
[…] цифровые подарки дать друг другу с каждым годом. О $ 35 млн. быть более […]
nice report in facebook applications
[…] gift shop has been growing since they were projected to have a $35 million annual run rate back in 2008, there’s no doubt that the company could easily be selling tens of millions of dollars in […]
[…] gift shop has been growing since they were projected to have a $35 million annual run rate back in 2008, there’s no doubt that the company could easily be selling tens of millions of dollars in […]
I read your post. Its interesting and very nice to read. thanks.
[…] Several months earlier, venture capital firm Lightspeed Venture Partners had estimated that Facebook was making as much as $35 million a year on the Gift Shop from transaction revenues and brand […]
Very interesting and illonatong tesrarch/article. I would like to have Facebook consider some of my photos of roses, orchids and irises AS some of the digital gifts that are the subject of your article but do not have any names or contact information for this inquiry; could you suggest possible sources of such informaation? Searches of Google have not yielded any results thus far.
Thank you ver much.
Doug Verley
[…] Facebook selling digital gifts at a $35m run rate @ Lightspeed Venture Partners […]
[…] total number of users that have entered their credit card information on the site, there have been public estimates on the total revenue being generated by Facebook through virtual goods. If those estimates were […]