Facebook Exchanges Dollars for Virtual Credits, Eyes Expanding Virtual Gifts Revenues

For as long as gifts have been available for purchase in the Facebook Gift Shop, users have been able to send virtual gifts to their friends for $1 each.  Now that Facebook is making millions of dollars a month on direct virtual gift sales, the company has decided to change the way it sells gifts to increase its pricing flexibility.

Starting this weekend, Facebook converted gift shop dollars to “credits.” From now on, Facebook virtual gifts will be priced in credits: gifts that were previously priced at $1 are now priced at 100 credits, but new gifts will be priced differently.  Facebook writes,

One hundred credits can be bought for $1; we’re making this change without raising or lowering prices on existing gifts. The new system means we can introduce a wider variety of gifts, allowing you greater freedom in expressing appreciation for your friends, just like in the real world. It also makes gift pricing more accessible to people around the world, no matter what their home currency might be.

Many will remain available for free – Facebook says that “a limited number of virtual gifts for free to represent sponsors or special occasions.”  However, expect to see the the proportion of non-sponsored free gifts promoted in the shop to decrease with time. Sponsored gifts will still likely represent a valuable part of the growth of this revenue stream for the company.

The Future of Virtual Gifts on Facebook

The people at Facebook think about Facebook as a market for the exchange of social capital.  In that sense, nearly every interaction on the site is either a “gift” or exchange of some kind.  Introducing variable pricing on explicit “virtual gifts” makes them a more flexible currency for trade in the social capital markets.

This should allow more users to give and receive more value on Facebook over time. This means more users will be more engaged with Facebook over time, which is a good thing for the greater ecosystem in the long run. (That is, assuming variable “worth” of virtual goods can be differentiated by Facebook users.  That will probably take some time, but Facebook will certainly try hard to “educate” the marketplace in a variety of ways by designing subtle signals into the gift delivery experience.)

It’s possible that some developers could feel some competitive pressures from an expanded and more sophisticated virtual gifting infrastructure owned and operated by the Platform on which they depend. The challenge for application developers will always be creating markets for the exchange of social capital that are too deeply vertical for Facebook to play in just by adding another item to their store. It’s unlikely that Facebook is going to “take on” a given vertical aggressively any time soon for obvious reasons.

Facebook is going to offer up a payment platform to developers someday (the beta program was announced a year ago), which should make it easier for developers to process virtual goods sales themselves. This should be a good thing for everyone, since it doesn’t make sense for app developers to build duplicative infrastructure, and Facebook will open up another revenue stream by charging service fees for the commerce infrastructure it will provide.

As for Facebook itself, as virtual gifting on Facebook matures, flexible pricing will allow the company to capture a greater portion of the market’s demand at more efficient prices, which should lead to significant revenue increases. Facebook’s direct gift sales efforts could even reach 9 figures on the top line in 2009 (ok, perhaps that’s a bit aggressive). The bottom line? Both users and advertisers should expect to see more robust ways to spend their money on Facebook Gifts in the coming months.

Facebook Marketing

Mediabistro Event

Facebook Marketing

Starting January 13, work with the group marketing manager of social media at Microsoft/BingAds to grow your business on Facebook! In this course, you’ll learn how to set up your company page, understand Facebook best practices, and execute a monthly content strategy. Register now!

 

Leave a Reply

27 Responses to “Facebook Exchanges Dollars for Virtual Credits, Eyes Expanding Virtual Gifts Revenues”

  1. Gerhard says:

    Oh, the gift application is still going strong? I’m a bit surprised as I haven’t seen a single gift-message in my social group since the redesign. After all, the apps are now so well hidden on the last tab in the profile, I guess most people just don’t see the point anymore …

  2. Zach Allia says:

    interesting… hopefully this means that the payment system actually on the way

  3. jonny says:

    Virtual goods market is becoming popular day by day.

  4. Facebook Looks For More Non-Advertising Revenues : VCsAndAngels - Venture Capital / VCs, Angel Investors, Startup News, Etc says:

    [...] this past weekend, the social network doubled down on one of its quirkiest revenue streams: Facebook gifts. They are those icons that sometimes pop up in your News Feed. Users give them to [...]

  5. In bid for international money, Facebook takes gifts off dollar standard » VentureBeat says:

    [...] This revenue could get into the nine figures next year, Justin Smith of the blog Inside Facebook calculates, based on various estimates he tells me he’s heard. Smith is the head product manager at [...]

  6. Thoughts From The Cake Scraps » Blog Archive » Virtual Goods And How I Don’t Get Them says:

    [...] exist on (to my knowledge).  To be fair, while I might not think that they are common, Facebook is counting on it for revenue and not in small amounts.  It is estimated at $30 to $40 Million a [...]

  7. Michael Cayley says:

    Would love to be in the room for that “market for social capital” conversation.

    Perhaps you can help by putting the ideas at http://www.socialcapitalvalueadd.com into broader circulation.

    I chased a business plan for developing a digital currency standard in China that is still doable.

    There is business in this for sure.

    Perhaps more altruism? http://socialcapitalvalueadd.com/2008/07/28/signal-of-altruistic-type-and-corporate-motivations/

  8. Benjamin Joffe says:

    This year Tencent in China will make 1 bln USD, mostly from digital goods, and close to 500 million USD in profit. The company stock market valuation is close to 15 billion USD on the HK stock exchange. Here is an article we wrote about their result for 1H08.
    http://www.plus8star.com/?p=137

  9. Inside Facebook » Facebook, Eager to Grow its Gifting Platform, Launches Birthday Notification Service says:

    [...] two weeks ago, Facebook revamped its virtual currency system used for purchasing Facebook gifts. While they may appear minor at first, the changes enabled a more flexible pricing model designed [...]

  10. Ben Fremer says:

    This is still like pennies to the dollar on what they could make.

  11. Ben Fremer says:

    Some of their other initiatives may pay-off longer term, though, too. Especially if they beat Google in the Connect-Wars and can leverage some Microsoft-ad-platform partnership mojo.

    There are other ways, too, but I’m not telling. :P

  12. Facebook Pushing Birthday Virtual Gifts on Profile Pages says:

    [...] move comes after Facebook revamped its gift store in early November, moving to a virtual credits system to more easily allow for variably priced inventory. Since then, Facebook has increased promotion of [...]

  13. Facebook Considering Virtual Currency System? says:

    [...] virtual currency, however, could make a lot of sense for Facebook, especially given the recent “virtual credits” system that was introduced in Facebook’s own virtual gifting sys…. In this scenario, users would buy blocks of Facebook virtual currency directly, and then be able [...]

  14. Facebook Experimenting With Virtual Currency Gifting in the Feed says:

    [...] was only a few months ago that Facebook converted its gifting currency from real dollars to virtual credits in an effort to lay the groundwork for the expansion of its virtual gifting business. Now, Facebook [...]

  15. Facebook to Adjust Exchange Rate for Facebook Credits says:

    [...] migrating to a credit-based currency system last fall, Facebook has been testing a variety of initiatives with its virtual currency, including credit [...]

  16. Facebook Trends Series #4: Monetization says:

    [...] of currency set to expand on Facebook: Facebook credits and cold, hard cash. Months after Facebook playing around with gift credits and launching a candy coated beta test, Facebook announced last week that it will [...]

  17. Confirmed: Facebook Expanding Gift Shop to Include Virtual and Physical Goods from Developers Tonight says:

    [...] covered the evolution of Facebook’s virtual gifts extensively on Inside Facebook over the last couple of years, but [...]

  18. SiteProNews: Webmaster News & Resources » Blog Archive » Facebook Expanding Gift Shop to Include Virtual and Physical Goods from Developers says:

    [...] covered the evolution of Facebook’s virtual gifts extensively on Inside Facebook over the last couple of years, but [...]

  19. Facebook Expanding Gift Shop to Include Virtual and Physical Goods from Developers | Search Engine Optimization says:

    [...] covered the evolution of Facebook’s virtual gifts extensively on Inside Facebook over the last couple of years, but [...]

  20. Facebook Expanding Gift Shop to Include Virtual and Physical Goods from Developers | Msn Yahoo Google says:

    [...] 2.0, Zdnet News, facebook, facebook virtual gift shop, gift shop, google news We’ve covered the evolution of Facebook’s virtual gifts extensively on Inside Facebook over the last couple of years, but [...]

  21. A Running Summary of Facebook’s Virtual Currency Tests says:

    [...] 1. Facebook Exchanges Dollars for Credits [...]

  22. Facebook Expanding Gift Shop to Include Virtual and Physical Goods from Developers | The IT Chronicle says:

    [...] covered the evolution of Facebook’s virtual gifts extensively on Inside Facebook over the last couple of years, but [...]

  23. Facebook Expanding Gift Shop to Include Virtual and Physical Goods from Developers - Programming Blog says:

    [...] covered the evolution of Facebook’s virtual gifts extensively on Inside Facebook over the last couple of years, but [...]

  24. Facebook Payment Platform « Digital Communication by Edouard says:

    [...] Facebook Exchanges Dollars for Virtual Credits, Eyes Expanding Virtual Gifts Revenues [...]

  25. Facebook Expands Virtual Goods Business with Licensed Music and Sports Gifts says:

    [...] businesses, it has been steadily rolling out more features over the last year, including its own virtual currency, designed to lay the groundwork for Facebook’s future e-commerce [...]

  26. IFB: Facebook is Building a New Payment Operations Team says:

    [...] big part of payments, its Credits virtual currency, launched more than a year ago and the company began testing it with third party applications starting last [...]

  27. Louise Forsaker says:

    I made a purchase in one game using FB $$ over the week end.Today when the game loaded,what was purchased was GONE!One thing if it was game $$,but it was MY money.Please fix this by either replacing the lost item or refunding my FB $ ASAP.
    This was a gravel for Happy Aquarium,black/gold.
    Sincerely,
    Louise Forsaker

Get the latest news in your inbox
interested in advertising with inside facebook?

Social Media Jobs
of the Day

Assistant Editor

8 Inc.
New York, NY

Copywriter & Editor

GlobeOne
Santa Monica, CA

Director of Marketing & Communications

Neumans' Kitchen
New York, NY

Social Community Manager

VISIT FLORIDA
Tallahassee, FL

Editorial Director

Phoenix House
New York, NY

Featured Company

Join leading companies like this one and recruit from the nation's top media job seekers on the Mediabistro Job Board. Every job post comes with our satisfaction guarantee. Learn More
 

Our Sponsors

Mediabistro A division of Prometheus Global Media home | site map | advertising/sponsorships | careers | contact us | help courses | browse jobs | freelancers | content | member benefits | reprints & permissions terms of use | privacy policy Copyright © 2014 Mediabistro Inc. call (212) 389-2000 or email us