Facebook selling digital gifts at a $35m run rate September 2, 2008Posted by jeremyliew in business models, digital goods, facebook, gifts, virtual goods.
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.
People like to have fun. Who would have thunk it? July 16, 2008Posted by jeremyliew in apps, facebook, iphone.
1 comment so far
There has been much handwringing about how silly facebook apps are, and how it would be so much better if they were more useful. But Facebook users have voted with their mouse buttons, as the O’Reilly report in May showed:
According to a Medialets survey, it seems that iPhone users have voted in exactly the same way, with almost half iPhone apps being games or entertainment:
Girls (and boys) just want to have fun.
Top Friends still missing after 5 days; marks change in Facebook’s approach to app developers July 1, 2008Posted by jeremyliew in apps, facebook.
1 comment so far
Inside Facebook has an interesting post about Facebook’s evolving approach to platform management. Justin notes that Slide’s Top Friends app has now been suspended for the platform for 5 days, the most serious punishment for any app so far. He notes that while initially Facebook tried to control app developer behavior with rules, it is now singling out ‘bad actors’ for direct punishment, as much to be a symbol to other developers as to punish the infringing app.
Earlier in the year, Facebook responded to abuse by outlawing the tool being abused (for example, in the case of forced invites). This would be akin to outlawing something like assault rifles that almost everyone agrees are harmful to society. However, in more complex cases, outlawing the tool at hand is not necessarily what’s best for the system. For example, removing APIs that access profile data from the Platform altogether because of one application’s privacy concerns would hurt the overall Platform economy significantly: many developers and users would be negatively impacted. This would be somewhat like outlawing kitchen knives because they were once used in a crime. Instead of removing knives from society, the better solution would be to hire a district attorney and set up a court system and bill of rights: news of verdicts and sentences would deter many future cases. Of course, that’s a very expensive proposition, and sufficient accountability must be enforced for stakeholders to have faith in the system.
As he summarizes:
Facebook’s approach to platform governance is becoming decreasingly dependent on algorithms and increasingly based on policy-enforcement.
This is the same approach that Myspace has followed since inception. This change in approach is an important sea change for app developers as it makes direct relationships with Facebook more important than previously. This will likely benefit the larger app developers over the smaller ones so ong as they are acting in a way that Facebook likes.