Facebook Gifts: potent new revenue stream, or dud?
Last week, Facebook launched its latest initiative designed to prove that the world's largest social network can make money, and lots of it.
Facebook Gifts, as the name implies, allows Facebook users to purchase gifts for their friends, family members and colleagues without leaving their favorite social network.
Based on technology developed by Karma, the gifting app Facebook purchased earlier this year, gifts currently available include Starbucks gift cards, sweets and teddy bears -- typical gift fare.
A bet on f-commerce
Facebook's Gifts offering is a bet that there's a place for commerce on the world's largest social network. And if there is, Gifts could represent an important first step in exploiting the opportunity. Based on the fact that Facebook is at least trying to make money, investors sent the company's shares up several percent on Friday.
But just how big is the f-commerce opportunity? Numerous retailers have tried to launch Facebook storefronts and there appear to be more examples of disappointment than reasons to believe. Obviously, Facebook has the ability to tightly integrate the commerce experience into the fabric of its social network, something retailers can't do, but even then, it's questionable as to whether the Facebook environment is conducive to commerce.
Online consumers are increasingly sophisticated and many are highly sensitive to price. Coupled with the fact that Facebook trust ranking is quite low, there are plenty of reasons to bet against the company as it seeks to more aggressively pursue commerce opportunities.
Gifts: a catch-22 for Facebook?
The stakes are high for Facebook. The company is under pressure from Wall Street to prove that it can monetize its massive audience at much greater levels, and if Facebook can't make an effort like Gifts pay off, it will suggest that commerce is an avenue for which Facebook's opportunity was overestimated.
But Gifts also creates an interesting catch-22 for Facebook. If Gifts is successful, it could, in theory, result in lower f-commerce investments by retailers. After all, if Facebook is effectively competing with you, why would you spend money to drive your Facebook fans to a Facebook storefront or your ecommerce website? Your fans really belong to Facebook, and by almost every measure, Facebook has more tools for selling to them on its social network. Facebook, not surprisingly, isn't planning to become the next Amazon, so it's soliciting partnership inquiries from companies interested in selling gifts. But there's arguably only so much room here.
If Gifts is not all that successful, retailers may have another reconsider their f-commerce investments. If Facebook, with full control over the user experience on its social network, can't get users to buy into f-commerce, how many retailers will realistically believe they can do better?