Will Gifts Micropayments Bring Macroprofits to Facebook?

In the February of last year Facebook launched its marketplace for virtual gifts where anyone could purchase a gift for $1 or several at a time with a small discount and send such gifts to friends on Facebook. This has been fun but there were obvious limitations given the fixed $1 price and free gifts options available only.

Late last week Facebook switched to micropayments and opened the marketplace to gifts priced under the standard $1 amount by switching gifts prices from dollars to credits. From now on the gifts in the marketplace are priced in gift credits where every credit point equals a cent but a user has to buy gift credits in advance of any purchase for $1, $5 or $10.

The motivation for Facebook here is obvious: once a user buys some credits (and why bother buying $1 worth of credits to buy one gift when you can buy at least $5 and use the remaining balance to buy four more gifts in the future - or even more than four given the fact that there may eventually arrive gifts priced under $1) a remainder will be generated for user to spend later, after the particular purchase is made. Of course this remainder may entice users to buy more gifts even when normally they could think that buying a gift for this or that particular person is not actually necessary. But when you have the money on your account anyway, why don’t you use it to make a pleasant surprise to someone you don’ really care about all that much but are not entirely indifferent?

Besides, if new gifts are introduced priced under $1 (for 10 credits, for example) it can lead to more users buying virtual gifts simply because they have become cheaper. This could generate an additional revenue stream from people who never even considered buying virtual gifts because they thought that paying a dollar for something that did not even exist was not reasonable - and chances are they will change their mind once the virtual gifts are priced at as low as ¢10.

I think that using both factors Facebook may significantly increase the number of virtual gifts sold in the marketplace during the upcoming holiday season. We definitely should not underestimate the market for virtual gifts and the importance of this revenue stream for Facebook. Eric Eldon over at VentureBeat has some very impressive estimates on the revenues that Facebook generates in the gifts marketplace. He mentions that this year Facebook will generate at the very least $30 to $40 million and next year the revenue may reach nine figures number even.

The next important step for Facebook should be allowing the developers to charge for Facebook applications they develop - this could grow into yet another revenue stream that will be much more predictable than advertising. Besides, when was the last time Facebook served anything decent as an ad and lured you into clicking it? To me this finally sounds like a business strategy for Facebook with diversified revenues that could finally add some substance to the enormous valuation of Facebook.