A billion dollar business? Guess not. Despite lofty projections for Facebook Gifts from analysts, reporters, and me, a new report picks apart public statements from the company to suggest it earned a maximum of $1 million in Q4 2012 revenue on Gifts, and maybe a lot less. Sure, it’s early days, but Facebook may need to look elsewhere for a bottom line game changer.
Facebook launched the ability for friends to buy each other real-world Gifts in September, though it wasn’t rolled out to all U.S. users until December. That means it certainly didn’t get all of Q4 to rake in ecommerce cash. Still, it was the Christmas season, and Facebook hawked Gifts in the Birthdays sidebar and at the top of the mobile feed, plus with a big call-out to buy last-minute holiday presents.
The social network has kept the performance of Gifts close to the chest, and tried to calm hype about it. On the Q4 earnings call, CEO Mark Zuckerberg said:
“I do want to temper near-term expectations a little bit on revenue coming from other areas like Gifts or Graph Search…Payments and other revenue also included around $5 million from sources outside of games primarily user promoted posts and to a lesser extent from our new Gifts product. While we remain excited about the long-term potential of commerce on Facebook, current revenue from user promoted posts and Gifts is very small, and we expect 2013 contributions from these initiatives to remain very small given current run rates.”
Now thanks to competitive analysis research from Aggregift, another social gifting site, we have a better idea of what “very small” current revenue for Facebook Gifts actually looks like. Now keep in mind that Aggregift is a competitor to Facebook Gifts, but their data looks solid. I gave Facebook the chance to dispute the numbers but it ended up declining to comment
You can check out the full research report here, but essentially, of the $5 million in Q4 2012 revenue that Facebook ascribed to Promoted Posts and Gifts, a minimum of $4 million came from Promoted Posts alone. That’s because Facebook said 200,000 new Pages used them in Q4, posting an average of 4 at a minimum of $5 per post, totaling up to at least $4 million from Promoted Posts in Q4.
That’s a conservative estimate as large Pages must pay much more to show their posts to more fans in the news feed. Facebook also said 70% of Pages that use Promoted Posts become repeat customers and it already had 300,000 buyers of these ads in Q3. If just 17% of those Pages bought the average number in Q3, it would leave $0 in revenue from Gifts.
But using the bare minimum numbers for Promoted Posts, Facebook could have earned a maximum of $1 million for Gifts. At the end of November Facebook said the average amount spent per Gifts purchase was $25. While Facebook has not disclosed its revenue cut, this research uses 15% as a ballpark figure.
That means Facebook could have sold a maximum of just 267,000 Gifts in Q4. The revenue and total sales numbers are likely a lot lower. If existing Promoted Post customers bought them again, and any Pages paid more than the $5 minimum, it would quickly whittle down Facebook’s Q4 Gift revenue from $1 million to zero.
The dealbreaker statistic is that at most, just 0.16% of Facebook’s U.S. users bought a Gift in Q4. Estimates like my now overzealous-sounding $1 billion in yearly Gifts revenue are predicated on Facebook averaging as much as one gift sale per user per year. Facebook has to find a way to make Gifts mainstream.
The somewhat disappointing stats confirm Mark Zuckerberg’s statements and might further dash hopes for Gifts to become a meaningful money-maker for the social network. They also explain why it’s been injecting new call outs to purchase them and discounts to lure in new buyers.
Last week Inside Facebook reported that Facebook appears to be scanning status updates for words about new jobs, pregnancies, and child births, and encouraging the author’s friends to buy them Gifts. Then yesterday, CNET reported that Facebook is offering some users up to $4 off a Gifts purchase of $5 or more. Meanwhile it’s launched the Facebook Gifts Card, a slice of plastic that can be loaded up with credits to physical stores like The Olive Garden and Target.
With time as Facebook learns more about commerce, Gifts could become a more natural and frequently used part of the social network. But right now, pushing so hard to get people to give Gifts instead of saying Happy Birthday or congrats on the new job feels a bit smarmy. If it’s not making hundreds of millions of dollars on Gifts, it might not be worth putting money before friends.