News Column

Facebook's New Profit Stream Has a Bow on It

Sept. 28, 2012

By Jon Swartz

Facebook CEO Mark Zuckerberg

Facebook is hoping social gift-giving will be a revenue gift that keeps on giving.

On Thursday, the social-networking giant unwrapped Facebook Gifts, a new service that eventually will let its more than 950 million members send gifts from their profiles. Starbucks, Magnolia Bakery and 1-800-Flowers are among Facebook's 100 launch partners.

Facebook's online commerce move comes as Wall Street grows restless for increased revenue from the social network, which faces slackening advertising sales. In particular, online gift-giving could prop up Facebook's renewed push for mobile revenue.

Gifts, which will be available through Facebook's site and an Android app, is being pushed out randomly to a small slice of Facebook users in the U.S. An iPhone app is expected within weeks.

"It's a good signal that they are experimenting with ways to monetize their user base," says Wedbush Securities analyst Michael Pachter. But Facebook's ease in allowing friends to send gift cards has strong rivalry from the likes of, he points out.

The service is the result of Facebook's May acquisition of Karma, a social-gift company, for an undisclosed amount.

"It is the heart and soul of Karma reimagined within Facebook," says Lee Linden, head of product for Gifts.

Investors have put pressure on Facebook to ramp up revenue. Shares of Facebook have been sliced by more than half following its IPO this year. Facebook stock traded 1.5% lower at $20.32 on Thursday but rebounded 1.2% to $20.56 in after-hours trading following the news. That's down from a 52-week high of $45.

Facebook's foray into social commerce has been long expected. The company last week said it would begin charging businesses for promoting Offers deals on the site. The deals, similar to those offered by Groupon, would allow the social network to take 40% to 50% of a merchant's deal offer.

"I don't think it's a big business yet, but it will be," says Pachter, adding that Facebook doesn't have to pay the high marketing expenses that Groupon does to get its Offers in front of people.

Last month, eMarketer revised downward its revenue forecast for Facebook by $1 billion for 2012, saying marketers continue to question the effectiveness of ads on the social network.

The researcher forecasts that Google will beat out Facebook in display advertising this year.

Source: Copyright USA TODAY 2012

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