GO
Loading...

With a Billion Birthdays on File, Facebook Adds a Gift Store

Somini Sengupta
Tuesday, 27 Nov 2012 | 11:42 PM ET

Facebook is already privy to its users' e-mail addresses, wedding pictures and political beliefs. Now the company is nudging them to share a bit more: credit card numbers and offline addresses.

David Paul Morris | Bloomberg | Getty Images

The nudge comes from a new Facebook service called Gifts. It allows Facebook users — only in the United States for now — to buy presents for their friends on the social network. On offer are items as varied as spices from Dean & DeLuca, pajamas from BabyGap and subscriptions to Hulu Plus, the video service. This week Facebook added iTunes gift cards.

The gift service is part of an aggressive moneymaking push aimed at pleasing Facebook's investors after the company's dismal stock market debut. Facebook has stepped up mobile advertising and is starting to customize the marketing messages it shows to users based on their Web browsing outside Facebook.

(Read More: Facebook to Users: Check-In and Get Free WiFi)

Those efforts seem to have brought some relief to Wall Street. Analysts issued more bullish projections for the company in recent days, and the stock was up 49 percent from its lowest point, closing Tuesday at $26.15, although that is still well below the initial offering price of $38. The share price has been buoyed in part by the fact that a wave of insider lockup periods expired without a flood of shares hitting the market.

To power the Gifts service, Facebook rented a warehouse in South Dakota and created its own software to track inventory and shipping. It will not say how much it earns from each purchase made through Gifts, though merchants that have a similar arrangement with Amazon.com give it a roughly 15 percent cut of sales.

If it catches on, the service would give Facebook a toehold in the more than $200 billion e-commerce market. Much more important, it would let the company accumulate a new stream of valuable personal data and use it to refine targeted advertisements, its bread and butter. The company said it did not now use data collected through Gifts for advertising purposes, but could not rule it out in the future.

"The hard part for Facebook was aggregating a billion users. Now it's more about how to monetize those users without scaring them away," said Colin Sebastian, an analyst with Robert W. Baird.

He added: "Gifts should also contribute more to Facebook's treasure trove of user data, which has the benefit of a virtuous cycle, driving more personalization of the site, leading to better and more targeted ads, which improves overall monetization."

Facebook already collects credit card information from users who play social games on its site. But they are a limited constituency, and a wider audience may be persuaded to buy a gift when Facebook reminds them that a friend is expecting a baby or a cousin is approaching her 40th birthday.

(Read More: Andreessen: I'm Bullish on Facebook, Mobile Tech)

The Gifts service, which grew out of Facebook's acquisition of a mobile application called Karma, was introduced in September and expanded earlier this month on the eve of the holiday shopping season.

Magnolia Bakery, based in New York, was among Facebook's early partners for Gifts. Its vice president for public relations, Sara Gramling, said the company had sold roughly 200 packages of treats since then. She counted it as a marketing success. The bakery, which gained fame thanks to "Sex and the City," had only recently begun shipping its goods. "It was a great opportunity to expand our network," she said.

Magnolia Bakery isn't exactly catering to the masses. A half-dozen cupcakes cost $35, plus about $12 for shipping. Facebook, Ms. Gramling said, takes care of the billing. The bakery is eyeing Facebook's global reach, too, as it opens outlets internationally, especially in the Middle East.

One of the appeals of Facebook Gifts is the ease of making a purchase. Facebook users are nudged to buy a gift (a gift-box icon pops up) for Facebook friends on their birthdays. They are offered a vast menu to choose from: beer glasses, cake pops, quilts, marshmallows, magazine subscriptions and donations to charity. They are asked to choose a greeting card. Then they are asked for credit card details. Facebook says it stores that credit card information, unless users remove it after making a purchase.

(Read More: Mark Cuban Takes Issue With Facebook)

Facebook has declined to say how many users have bought gifts, only that among those who have, the average purchase is $25.

The company's latest foray into online commerce steps into territory dominated by Web rivals like Amazon and Apple . Both companies have far more information about shopping behavior and stored credit card numbers — important for repeat and impulse purchases. Apple is considered the leader when it comes to credit cards; it said in June that it had 400 million on file. PayPal, a division of eBay, has 117 million users, all with stored payment information, and eBay itself has an additional 108 million customers, some of whom have stored payment data. Amazon, which has 180 million customers, will not say how many have allowed the company to keep their credit card numbers.

Only Facebook, of course, knows its users' acquaintances, along with when they might be compelled to spend money on them, like on their birthdays and wedding anniversaries.

"I would expect Facebook to use this holiday season as their litmus test, to better understand how consumers feel about giving gifts from within a social context," said Brian Blau, an analyst at Gartner.

(Read More: How Yahoo Could Do a Deal With Facebook)

Commerce has eluded Facebook in the past. Several brands tried to open stores on the Facebook platform but did not gain much traction. A Facebook spokesman, Jonathan Thaw, declined to say how many of its one billion users make purchases on the site.

Because it is easy to access from Facebook's mobile apps, Gifts also offers the company a new way to make money from the growing ranks of its users who log in to Facebook on their cellphones. Right now, the company's only moneymaker on mobile phones are advertisements. And that too is limited. In its third-quarter earnings report, the company said 14 percent of its advertising revenue came from ads on cellphones.

Hjalmar Winbladh, who has created a mobile gift certificate application, Wrapp, described gift-giving as a more palatable way to make money on mobile phones. His company offers users the chance to give gift certificates to their friends — entirely free — and it offers retail brands the chance to draw new customers into their stores to spend those gift certificates.

"It's better than advertisements," Mr. Winbladh said. "It's not intrusive. It's actually a gift card from a friend, based on his or her notion about you, and your friend probably knows better what you like than an algorithm."

On Facebook, of course, the gifts you buy for a friend will help refine the algorithm. Over time, Facebook says, the gift recommendations will only get better.

Perhaps one day Facebook will tell you exactly what to get your spouse for Christmas.

Featured

Contact Technology

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More
  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.