Facebook Unwraps Gift Service Where Virtual Friends Can Exchange Real Gifts

By Alexandra Burlacu | Sep 29, 2012 10:20 AM EDT

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The social networking giant unwrapped Facebook Gifts, a new service that allows members to exchange gifts between profiles, on Sept. 27. Facebook's 100 launch partners include Starbucks, 1-800-Flowers, and Magnolia Bakery.

Facebook Gifts is the company's latest test to see whether its more than 950 million users are willing to spend money on the social network. The gifts range from coffee or cupcakes to flowers, or even sunglasses, but it remains to be seen whether the new feature will make money for the company.

As expected, part of the proceeds from each transaction will go to Facebook. A company spokesman declined to reveal how much Facebook would get from a transaction, but said that each partner company had a different revenue-sharing agreement.

How It Works

The social networking site is already a reliable ally in reminding users when it is time to send birthday wishes to their contacts. Now, Facebook aims to allow users to send a gift as well. Those who want to send a gift can pay for it with a credit card, while recipients will have to provide their offline addresses to have the gift delivered to them. The new service will roll out gradually, starting on Thursday, in a few U.S. cities.

"You can post your gift to your friend's timeline or send it privately," Facebook explained. "Your friend can then unwrap a preview of the gift and it will show up on their doorstep a few days later."

Let's Talk Money

Facebook draws most of its money from selling advertisements on its network, but commercial transactions account for a small slice of revenue. In recent months, however, the social networking giant has sought to diversify its revenue sources in an effort to counter its slumping share price on Wall Street.

The gift-giving application announced on Thursday is the result of Facebook's acquisition last May of a San Francisco start-up firm called Karma. Cupcakes from Magnolia Bakery will cost users $35, while a box of pears, apples, and plums from Frog Hollow Farms will cost $54. Users can also choose to send eyeglasses from New York-based Warby Parker, which offers eight styles of nonprescription sunglasses for $95 each.

This is a new thing for companies as well. For Warby Parker, for instance, this is the first time it has tried selling products directly through Facebook.

"If we see a lot of uptake with Facebook Gifts and a lot of engagement from consumers from using the Facebook platform, then we would feel more comfortable building a real storefront and allowing people to transact using Facebook," said Dave Bilboa, one of the company's co-chief executives, as cited by the New York Times.

Maybe Karma Will Help

Meanwhile, this is not Facebook's first attempt of this kind. The company launched a virtual gift feature on the site several years ago, but removed it back in 2010. That feature was more limited, however, as it only allowed users to buy cartoon images of a few items such as flowers.

With the acquisition of Karma, Facebook is trying once again to monetize naturally occurring behavior on its network, this time in a manner that feels more natural than other Facebook advertisements such as "sponsored stories."

Facebook is launching the new service across mobile and desktop. Facebook Gifts will be available on Android devices, and an iOS app is expected in the coming weeks, as the company is increasingly catering to its mobile users. More than half of Facebook's hundreds of millions of active monthly users access the site through mobile devices.