Retail Refugees

What is a virtual gift?
Thursday, December 11, 2008,
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I saw this explanation of virtual gifts on Wired today.  As an avid Facebooker I often see these “gifts” and wonder what they really mean in terms of revenues, cost, and the actual process of selling.  Apparently, as dumb as I imagined them to be, there is a significant business behind them and large brands are catching on…

According to Wired,,, “Virtual gifts are sort of a head scratcher. They aren’t a very risky or costly investment for social networks and yet it’s difficult to imagine users paying any amount of money for something that doesn’t really exist, especially in a recession and when it won’t raise your street cred.

Hi5 is the latest to join Facebook in the virtual gift-giving business, where users can purchases tiny images for around a dollar that appear on a friend’s profile. MySpace has also annouced that it will be opening up its own shop very soon. While everyone jumping on board seems natural enough to maintain a competitive edge, is there really a future in this additional pay-for-pixel source of revenue for social networks?

Facebook, one of the first to launch and popularize virtual gifts back in February of 2007, says it doesn’t matter. They aren’t really focused on a bottom line.“Yes some revenue is obviously generated by these but I think it would be wrong to consider virtual gifts as a huge part of our revenue goal here at the company,” said Facebook spokesman Matt Hicks.

Unconfirmed estimates of sales from third parties are generally very positive (anywhere from $35 million to upwards of $50 million), but the accuracy of these numbers is complicated by lack of public data on the types of gifts offered (free, $1, and those sponsored by advertisers).

One thing is for sure: over 60 million of these “gifts” have been given.  “The pixels themselves don’t cost anything, but I think the reason they’ve been effective is that it ties into a deep psychological value,” said Mike Trigg, VP of marketing for hi5, who says he thinks paying a dollar makes the sentiment all the more meaningful.

“The fact that there’s a price associated with these new gifts that we’re launching sort of just amplifies that message,” he said. He thinks less expensive forms of entertainment are compelling during an economic downturn.

Facebook currently has 391 gifts in its shop, a mix of those that cost $1 (equivalent to about 100 credits under a new pricing model) and free items, many of which are sponsored by advertisers so they are paid for in advance.  Sponsored gifts have been pretty popular: around Cyber Monday there was a Dell laptop and a Sephora bag.  Sierra Mist is offering free gifts that it encourages you to “re-gift” as part of its latest ad campaign. After the election, The New York Times sponsored a free virtual newspaper with the headline ”Obama Wins,” which in the first day was given more than 220,000 times.

“The main goal is to provide something of value,”  said Hicks. “It’s not just a message to your friend.”

Do you really see any value in these “virtual gifts”?  Feel free to comment…


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I think if there was real value in virtual gifts, there wouldn’t have sprung up a “Free Gifts” application on Facebook pretty instantaneously with the creation of the Gifts application. I think, however, the idea of gifting something of real value — like say a PayPal credit that you could use anywhere — could work. It’s sort of like a modern day Traveler’s Cheque you can use anywhere without fear that the retailer will be bankrupt by the time you go to redeem it.

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