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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.

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.