Facebook Ditches Physical Gifts To Double-Down On Digital Codes And Its Own Brick-&-Mortar Gift Card

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Facebook Gifts is getting a major redesign that will end sales of physical gifts. It will now focus on suggesting you buy friends digital gift codes or Facebook’s omni-Gift Card credit to spend at brands and local businesses they Like, which now get their own Gifts landing page. These two types of Gifts made up 80% of sales, cost less to ship and support, so it makes sense to invest in them in the rollout coming the next few weeks.

Facebook launched Gifts in September 2012 to fanfare that it might challenge ecommerce kingpin Amazon. Gifts fell short of those lofty expectations, though.

The product let you buy physical gifts like chocolate and stuff animals or digital gift cards to Starbucks or Uber for friends on special occasions like their birthday. Facebook later added alcohol sales and iTunes Gift Cards, plus began surfacing opportunities to buy Gifts in mobile. Still, sales were suspected to be slow and Facebook reported $5 million in earnings between Gifts and User Promoted Posts in Q4 2012, giving the product a low maximum impact on the company’s bottom line compared to ads and game payments.

facebook-gift-card-envelopeSo Facebook tried something new. It launched its own Facebook Gift Card. It’s a credit-card style plastic slice you could buy for friends that Facebook would mail to them. It would come loaded with the Gift credit you bought them, and could be remotely topped-up with money to spend at different specific brick-&-mortar stores if other friends bought them Gift credits.

With time, Facebook saw that only 20% of total Gift sales were for physical products, while gift credits to Starbucks and iTunes were the biggest sellers. It turned out it was difficult to recommend specific products to buy for friends. However, Facebook’s data on people’s interests, location, and social graph made it easy to recommend whole brands or businesses to buy friends digital gift codes and Facebook Gift Card credit.

So starting today, 10% of the U.S. user base will receive the redesigned version of Gifts that eliminates physical gifts. The rest of the U.S. will get it over the next few weeks.

Facebook Gifts manager (and former CEO of gifting app Karma that Facebook acquired to power Gifts) Lee Linden tells me it was worth it for Facebook to invest in the product and not kill it off entirely because revenue from Gifts is “definitely going up. It’s been steadily going up since the beginning of the year and I think it will keep going up with this.”

What’s New With Gifts?

Beyond the disappearance of physical gifts, there’s a bunch of changes to the product and buying experience that you’ll see in the Facebook website birthday’s section, on friends’ walls, and in the mobile feed.

Landing Pages

Previously, the Gifts buying interface opened in a little overlaid window on Facebook’s website. Now it will have its own Gifts marketplace landing page, and each brand will get their own URL for their gift shop.

Real GiftsThat means businesses can finally share a direct link to where you can buy Facebook Gifts from them. That makes it much easier for brands like Williams-Sonoma, Whole Foods, and Express to promote their store front. Before, they had to tell people to sniff them out inside the cluttered Gifts window. Businesses could even buy Facebook Promoted Post ads to boost traffic to their store, or Facebook might consider a special ad unit for Gift shops. This means Facebook could double-dip, earning money to drive traffic to Gifts as well as a revenue share when people buy them.

Depending on the business, you’ll be able to buy gifts codes that can be instantly redeemed on ecommerce websites or in apps like Uber, or load up a friend’s Facebook Gift card with credit they can take to the mall and spend in person.

Recommendations

Because it doesn’t have to recommend you specific products but just whole businesses, Facebook is going to be leaning more heavily on your friends’ personal information to suggest where to buy them Gifts from.

To go with the greater emphasis on brick-&-mortar shopping through the Facebook Gift Cards, Facebook will now be factoring people’s check-ins (correction: but not photo locations) into recommendations. So if you check-in at Olive Garden, Facebook might suggest your friend buy you Facebook Gift Card credit to the italian restaurant chain. You’ll also be able to buy gift credit in any denomination, so you could gift me $29 to Target for my 29th birthday.

Linden tells me “The whole point of Gifts is to learn about commerce on Facebook and build a product that users wants. We’re going to improve commerce overall on Facebook in a number of ways. Gifts is a natural extension but not the end.” He explains the other components include commerce discovery from seeing apps your friends use as well as mobile app install ads, and Facebook’s new mobile payments test to help you automatically input your billing details when you buy other ecommerce apps.

Together, Gifts, ads, and payment info input could combine to help Facebook prove it delivers return on investment to advertisers. If Facebook is selling the gift or involved in an off-app payment that began with a click from one of Facebook’s ads, it can tell businesses the exact ROI of their ad spend. That’s key to getting them to spend more.

Facebook is finally realizing its synergies in commerce. Hawking a random scattershot of kitschy physical gifts didn’t play to its strengths over other ecommerce providers. But what Facebook does has is personal data. It knows what your friends are interested in and where they go. By harnessing that information to recommend what you should buy them, Facebook is taking the guess-work out of gifting. If you’re going to get someone a gift card, it may as well be to someplace they Like.