There has been significant talk about Facebook’s revenue future. Two weeks ago Facebook introduced gift cards consumers can use at retailers like Target and restaurants like Olive Garden (see here and here).
Facebook’s CFO, David Ebersman said during the quarterly earnings call in the same week that the long-term potential revenue will remain small for the immediate future. But the potential is interesting and that is where I want to focus for a few minutes.
Here is a screenshot I took from Facebook in December:
This screenshot was taken on December 23rd – just days before Christmas. At this point, it was too late to order a gift online and have it shipped by Christmas. If you wanted needed to buy a gift you had to go into the store, battling crowds, and hoping inventory was available. Or you could turn to gift cards. You could turn to online gift cards. I would imagine well over 50 percent of gift cards are bought within two days of actually gifting the gift card. And I wouldn’t be surprised if it was as high as 75 percent within a 24 hours of actually giving the present to the gift recipient.
An ad like this with the correct timing can become highly relevant. Add to that the behavior of Facebook’s installed base of users. Some 400M users access Facebook everyday. Facebook is also a major platform for birthday wishes, well wishes, and general positive reinforcements when someone is feeling down. I think lower denomination gift cards in the $5 to $10 range could grow into high volume transaction items on the Facebook platform – especially if timed and placed well.
The essential worry of Wall Street analysts and investors is that these streams of revenue will not materialize quickly enough and sufficiently enough before users inevitably move from Facebook to the next big thing.
I’ve talked a lot about curation in the past. This is simply one form of curation. An extension of curation. Facebook is curating a user experience that (presumably) has relevancy to the end user. There is significant digital ink spilled on the large volume of information Facebook knows about you. But what they know about you also has a time component – and this receives little attention.
Approaching gift card sales as they did in the few days leading up to Christmas, Facebook is clearly seeking to take advantage of impulse purchase dynamics. To date, e-commerce platforms like eBay and Amazon have been successful at being the online clearinghouse for impulse purchases. Arguably they’ve expanded these impulse purchases well beyond what was ever available in the store because of the ability to exponentially and infinitely expand the digital shelf space.
Take for example this screenshot taken from Amazon:
This comes from the Amazon page for the Cuisinart DLC-105 Pro Classi 7-Cup Food Processor in White. I literally selected this page at random. I typed in Cuisinart and picked one of the first Cuisinart food processors listed. Almost every Amazon page is designed in this way. Below the initial item, you will find the item bundled with one or two other related (and popular) items. Then you see a series of other items purchased by those who also bought the main item featured on the page. In this case there are 11 pages of items consumers also purchased. In many ways this is equivalent to the checkout aisle of the brick and mortar store. Right before you finalize your purchase the retailer puts other things in front of you that you might also want. In the case of digital retailing, the retailer knows a lot about you and also has essentially unlimited shelf space so they can put highly relevant and nearly unlimited choice before you. Just like with Brick and Mortar stores, these “impulse purchases” are designed to increase margin for the retailer.
Facebook has additional information not commonly available to other retailers – even other digital retailers. Facebook knows two unique things. They potentially know about the intended gift recipient and I think they’ll get even better at identifying the gift recipient. For events like birthdays, they also know the relevant timing. Presumably these two things will enable them to more effectively provide you timely and appropriate offers. Gift cards make sense, but they are just a start.
Facebook’s past is built upon a connection platform, but Facebook’s future will be defined by its ability to curate a meaningful and relevant experience. This experience could be a much larger and more involved retail experience than just gift cards.
