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Wednesday, November 28, 2012

How Much Facebook Might Make Through Gifts

Facebook's Gifts product can be lucrative for the data it can offer to Facebook. But whether it can be a moneymaker for the company remains a mystery.

Facebook has not offered any estimates of revenue through Gifts. But a thought experiment, with a back of the envelope calculation, yields some rough answers.

The company says it has 186 million users in the United States and Canada. About 168 million of them are in the United States, according to Socialbakers,  a Czech analytics company. Right now, Gifts is available only to users in this country.

Let's say 5 percent of them buy a gift on Facebook this year for one of their Facebook friends. That's almost 8.5 million people. If Facebook is correct in saying they spend an average of $25, that's a bit more than $200 million.

Facebook gets a cut of that. Let's take the high end of industry standard commission: 15 percent. That would generate about $30 million in revenue for Facebook, a fraction of th e $5 billion in revenue that the company is projected to generate this year.

Brian Blau, an analyst for Gartner, said: “Given the program only started recently, and it's only available to a limited number of Facebook users, it's difficult to say exactly how users are reacting.”

Could it expand worldwide and make more money? Possibly. To date, most of its revenue comes from advertising in North America, even though the vast majority of its users are abroad. The problem is, some of its largest and fastest-growing markets are countries like Brazil and India, emerging economies where the average user is less likely to spend $25 on a gift.

Gift giving has not been an easy market to crack for any of the Web giants. Amazon certainly has a rich history of purchases for its customers, but it doesn't offer an easy way to figure out what to buy for whom. Apple's iTunes allows customers to buy gifts for friends. But as I found out last weekend, Apple bizarrely limi ts people to giving within the same country. (So much for globalization.)

Facebook has a rich record of its users' friends all over the world and knows important gift-giving occasions â€" birthdays, graduations and the like. But it doesn't quite know â€" not yet, anyway â€" what to buy for whom. As it compiles more of its users' likes and wants, it is likely to get better at recommending the right gifts for the right people.

It could, of course, hasten that process by buying Pinterest. Now that would tell the clueless husband instantly what his wife really wants.