Virtual gifts are sort of a head scratcher. They aren't a very risky or costly investment for social networks and yet it’s difficult to imagine users paying any amount of money for something that doesn’t really exist, especially in a recession and when it won't raise your street cred in WoW.
But apparently they are popular, and more social networks are catching on.
Hi5 is the latest to join Facebook in the virtual gift-giving business, where users can purchases tiny images for around a dollar that appear on a friend's profile. MySpace has also announced that it will be opening up its own shop very soon. While everyone jumping on board seems natural enough to maintain a competitive edge, is there really a future in this additional pay-for-pixel source of revenue for social networks?
Facebook, one of the first to launch and popularize virtual gifts back in February of 2007, says it doesn't matter. They aren't really focused on a bottom line.
“Yes some revenue is obviously generated by these but I think it would be wrong to consider virtual gifts as a huge part of our revenue goal here at the company,” said Facebook spokesman Matt Hicks.
Unconfirmed estimates of sales from third parties are generally very positive (anywhere from $35 million to upwards of $50 million), but the accuracy of these numbers is complicated by lack of public data on the types of gifts offered (free, $1, and those sponsored by advertisers).
One thing is for sure: over 60 million of these "gifts" have been given.
Hi5 recently announced that it would be offering 36 gifts available as of
Friday with an international cultural focus (a logical strategy as the site is more popular outside of the U.S.) with items like a Mexican “Rosca”
cake and Chinese steamed pork bun. They are also wrapped in a virtual box.
It will also establish a virtual currency (hi5 Coins) to facilitate payments for future products, something virtual worlds like
Second Life have done but competitors like Facebook and MySpace have yet to incorporate.
“The pixels themselves don’t cost anything, but I think the reason they’ve been effective is that it ties into a deep psychological value,” said Mike Trigg, VP of marketing for hi5, who says he thinks paying a dollar makes the sentiment all the more meaningful.
“The fact that there’s a price associated with these new gifts that we’re launching sort of just amplifies that message,” he said. He thinks less expensive forms of entertainment are compelling during an economic downturn.
Facebook launched its store with a limited-time promo where proceeds from gift sales went to a breast cancer research charity. In this case there was the obvious added value of a donation which justified the purchases. Maybe this is the best usage of virtual gifts; if social networks aren't looking at this as a main revenue source they could use it to give back to the community.
It currently has 391 gifts in its shop, a mix of those that cost
$1 (equivalent to about 100 credits under a new pricing model) and free items, many of which are sponsored by advertisers so they are paid for in advance.
Sponsored gifts have been pretty popular: around Cyber Monday there was a
Dell laptop and a Sephora bag. Sierra Mist is offering free gifts that it encourages you to "re-gift" as part of its latest ad campaign. After the election, The New York Times sponsored a free virtual newspaper with the headline ”Obama Wins,” which in the first day was given more than 220,000 times.
“The main goal is to provide something of value,” said Hicks. “It’s not just a message to your friend.”
Do you buy virtual gifts? Why? Let us know in the comments why you think it is or isn't worth your money.
