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Real gifts sold on Facebook as site taps commerce potential

The Facebook logo is shown at Facebook headquarters in Palo Alto, California May 26, 2010. REUTERS/Robert Galbraith
The Facebook logo is shown at Facebook headquarters in Palo Alto, California May 26, 2010. REUTERS/Robert Galbraith

By Gerry Shih

MENLO PARK, California (Reuters) - Facebook Inc is taking a small step toward becoming an e-commerce platform by launching a feature for users to buy and send real gifts worth as much as hundreds of dollars.

As of Thursday, users can purchase and ship products from more than a hundred "Facebook Gifts" vendors with a few clicks on the company's website. The products include eyeglasses by Warby Parker, Starbucks coffee, and pastries from New York-based Magnolia Bakery.

Coming four months after Facebook's troubled initial public offering, the feature marks the company's attempt to unlock a potentially significant new revenue stream.

Although it has sought to diversify its income sources, Facebook still relies heavily on display advertising. During the second quarter, more than 80 percent of its revenue of $1.18 billion came from ads while roughly 15 percent came from game-maker Zynga Inc.

Facebook, which can store credit card data for users, will make money by taking a cut of each gift transaction. The amount varies based on the individual deals it has struck with vendor partners, the company said without disclosing specifics.

The world's No. 1 social network, boasting nearly 1 billion user accounts, has long viewed commercial transactions as a massive opportunity for the platform. But marketing researchers have found that consumers have been slow to make purchases on the website because many treat it as a place to chat and post messages rather than go shopping.

Facebook hopes to change that by getting users used to the idea of giving small gifts as part of their social routine.

"People already use Facebook to communicate with their friends and share all of their life moments," said Lee Linden, a Facebook product manager heading the Gifts feature.

"Gifting is just a natural extension of that behavior. It makes a lot of sense for us not to just say 'Happy Birthday' but to send a gift, not just say 'I love you' but send some flowers."

Current gifts cost $5 up to several hundred dollars for a Jambox stereo by Aliph Inc, said Linden, who joined the company in May. His previous start-up, Karma, was acquired by Facebook in a deal announced on the day of Facebook's high-profile IPO.

Facebook had experimented with a "virtual" gift-exchange feature years ago, but shut it down in 2010. The original gifts were no more than digital trinkets, cartoon images of flower bouquets, teddy bears and even women's underwear.

Linden said Facebook now aims to provide effortless shopping and shipping of real goods. Users are alerted when their packages are shipped and received, and every package comes with a customizable card stamped with a Facebook logo.

Recipients who do not like their gifts can discreetly swap colors or sizes for no charge.

"We think we can make an end-to-end way to buy a product that is very seamless," Linden said. "We take care in the photos, in the packaging, in everything."

The service will be initially available to a random group of U.S. users logging into Facebook through its website and an Android app. An iPhone app is still in development, Linden said.

(Reporting by Gerry Shih; Editing by Richard Chang)

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