A few days ago, Facebook introduced gifts, a cute little feature that enables you to sends “gifts” to a fellow Facebook friend. The gifts are little icons, and the sending of a gift is broadcast to the friend’s network via feed (there is explicit publicness in this gifting). The gifts are cute, the gift-giving process is simple, and generally I like this feature – well, except for one thing.
First, a little background on Facebook’s strategy. Micropaying for virtual items is precedented in a number of online services. In the Korean social network Cyworld, individuals can (and do) purchase various accoutrements for their minihomes. In Second Life, an entire virtual economy of goods producers and buyers exists, as SL netizens purchase things like clothes, accessories or land. Facebook is obviously following these trends with the addition of gifts, though they differ in a key area.
In Cyworld and SL, virtual commodities are persistent and explicitly tied to identity. In SL, if you buy a cool shirt, you get to wear it. In Cyworld, if you buy neat wallpaper for your minihome, it stays there and makes your house look better. In Facebook, the value tied to the transaction is less identity-centric. First, you are explicitly buying the gift for another person, and this gift simply shows up in their profile as a received gift. In the other services, you were investing money in yourself, your appearance, your persona. In Facebook, the value you get from gift-giving is that one-time feeling (hey, we all love giving gifts, so I can’t fault Facebook) that doesn’t exactly last (i.e. you still love that awesome shirt you bought two years ago, but do you really feel good about the gift you gave your mom 9 months ago?).
Simply, motivation for micropayments are different between services. In the SL and Cyworld model, the motivations are built on very sound logic. People like to buy stuff for themselves that makes them look cool. Since online identity is primarily about the representation of self, people will pay to differentiate themselves. In Facebook, you’re buying a gift for someone else, so you’re getting that one-time rush. This rush is great, but it doesn’t last. It is actually a completely different value proposition. And sure, if you give out a lot of gifts, you get to make an identity statement about how generous you are – but I worry that it will be interpreted as “I’m someone with lots of dollars to waste.”
And that gets us to the crux of the problem – the price of Facebook gifts. The price of Facebook gifts are one dollar, an arbitrary amount set by FB. What else on the internet costs a dollar? For one, an iTunes song costs a dollar. A Flickr membership costs two of these dollars a month. A ringtone costs two of these dollars. The comparison? All of these goods hold actual value. Facebook gifts do not hold the same value as these goods.
And this is what gets us to rationality. Yes, we tried to throw away the rational-consumer model of economics a long time ago, especially in the luxury and incidental goods category. However, people are used to getting value for their dollars. Facebook, by setting the price of these gifts at the ridiculously high price of a dollar, is stetting itself up to severely limit the growth of this product. And why? People rationally want value for their money. They want things. They want more than a one-time rush. And to that extent, I would expect to see interest in a system like gifts peak early, and then tail off rapidly. People will get tired of giving gifts, especially when the price is one dollar. College students are smarter than Facebook is giving them credit.
Of course, this doesn’t have to be how the story ends. Facebook can arbitrarily shift the price of their gifts, they can diversify pricing, they can make some gifts free and some gifts pay. Since gifts are nothing but profit, Facebook can slide the price and see exactly how much that one-time gift is worth to a consumer. Of course, this will look like a reversal on behalf of Facebook, a company who prides itself on never being wrong.
It doesn’t have to be so drastic, however. Rather than Facebook devaluing their gifts by setting the price at 10 or 15 cents, they should sell packs of gifts. I think a good price would be 25 gifts for 5 dollars. Facebook should use the text message model – not the iTunes model. And to that extent, gifts are much more like text messages than they are iTunes songs. With a text message, we know we’re only getting something temporal – much like a gift. And we’ll pay 10 or 15 cents accordingly. If Facebook gifts had any of the value of a song, we’d be willing to pay more. But they don’t, and we aren’t.
Thrilled to see someone writing rationally about this! ;)
I’ve been keeping tabs on how many gifts my friends have been giving (through newsfeed and profiles, to some extent) and will report after V-day with findings, if there are any.
I think your analogy to a text message is right on. It is a graphical message that you are sending to a friend, and you are paying for (perhaps) the artistic merit of the message. However, ultimately, the person on the other end isn’t going to get an actual piece of candy, its just a representation or surrogate. I think its interesting how disembodied our culture has become that surrogates have market value (even if they are overpriced).
I just found your site and wanted to say great work!
Im a 23 year old american who has been living and working in east africa where I developed a very strong interest in the overlap of IT and international develop (specifically post-conflict development).
Before I go to the Fletcher School in the Fall I’m working at University of Maryland for a semester, trying to create a site that allows the 25,000 undergrads to have better (and more specific) access to civic engagement oppurtunities, as well as more incentive to take part in them.
Your thoughts on facebook have been helpful. I’ll keep reading!
im at
http://www.inanafricanminute.blogspot.com
Hotornot had such gifts years ago. An interesting money-making proposition, but not sure it had much effect except as a narcissus fertilizer.
I believe that livejournal.com has offered this feature (which earns money for them out of absolutely nothing but a cute graphic on their part) for a number of years. As far as I can tell, it’s relatively popular — at least it is in the circles I run in, in which:
a) people tend not to know each other in “real life”,
b) people already have most of the useful features that are available for cash (additional icons, paid accounts, that sort of thing)
The “useful” gifts that are available are also more expensive than the bundle of gifts, the good luck clover, or the box of chocolate gifts.
I get the feeling that Facebook is attempting to emulate this, but because the nature of the social network is different, I can’t imagine it is likely to be successful.
I think another way to diversify would be to allow people to choose their own gifts. There’s something flawed with only giving people a few choices when they’re used to customization. I guess to make the text message analogy fit a little better, right now it’s set up so that you can only send your phone’s predefined set of “quick texts”…which really aren’t very useful. Maybe Facebook could charge more for custom gifts. I agree that the value just isn’t there for $1.
I think you’re off here. First, HotOrNot broke ground here several years ago. More importantly, HON flowers cost $2-15. Have you considered that users might value gift giving *more* than an iTunes track?
It’s fine to say I’m wrong, but just because Hot or Not offered a feature a few years ago is quite irrelevant to this discussion. We’re talking two completely separate contexts, with different meanings and pretexts. And different economic goals (scale-wise) on behalf of the implementer.
As the founder of Hot or Not said last Saturday, “Dating sites are like bars – someone has to pay for the drink, and it is generally the guy.” This is not the model applied to FB gifts in any way.
Annie, I agree. Facebook has a lot of wiggle room here. Custom gifts, one-offs, etc. They could charge more, they could charge less. danah’s reply is wonderful and is going to allow me to flesh this out substantially…this is really a fascinating topic.
The flaw in the Facebook implementation of gifts relates to the free first gift.
The economic value of this kind of gift giving is as signaling behavior.
Because there is no way to determine whether or not a gift that is sent was paid for or not, the signaling value is muted or lost.
See e.g.: http://gregmankiw.blogspot.com/2006/12/economics-of-gifts.html
Simon
As a newsish Facebook user, I only wish I could toss my gift away. I don’t like any of the shiny choices (consumating.com lets you make your own little widgets if you have enough “points” to do so) and there is no one person that I’d like to give my single free gift to, so I’d love it if they’d stop telling me to.
my gut reaction was in line with danah’s
don’t forget that facebook is in High Schools too. Facebook is in large part about status. Gifts are a way for Facebook to capitalize on the popularity game being played out…the idea is sustainable, perhaps with modifcation to the logistics of what, how much, etc the gifts are
more than giving gifts, everybody likes to receive gifts… and that value and “feel” can be kept for quite a bit longer than that of giving one.
on facebook, these bright and funky lil gifts are the only things that stand out, and kind of show your popularity, which everybody wants. having a large number of friends on facebook doesn’t make you appear popular, b/c there are so many people adding randoms… however, you would only give to/receive gifts from people who you actually know well, or the opposite gender who has an interest in you. these are the ways to show your popularity on a site like facebook where the intent is to broadcast yourself to the world… we are proud of ourselves as people, we are nosy, and we are self-centered… we want to see what other ppl are up to, want other ppl to know what we’re doing (brag about), and we want ppl to know how popular we are, and we always want to be the best. on facebook you can somewhat show this from the ammount of posts/postees on your wall, but you could showcase this even more with you gift collection. if you have a lot of gifts, then you have a lot of good friends and are popular, or are at least popular with the opposite sex ;) and everybody wants that, and wants to show that they are the best at it. we know these matter, because it takes extra effort to send these gifts. and of course, we go back to, but why would we bother sending them? once again, it’s because we are self-centered as a people. we give the gifts, in hope that they will gift us back in return. the same way that people generally write on somebody else’s wall, rather than sending them a private message, in hopes that the recipient will post back on their public wall, where everyone can see it… that said person was written to, who by, and what was said… this shows their popularity… but if somebody’s willing to pay $1 to give you a gift, they must really like you… and if many ppl are willing to pay $1 to give you a gift, you must really be popular!!
so we give them a gift, hoping they’ll gift us in return, and striving to have the most gifts, and, therefore, be viewed as the most popular! ;) …my theory :P
p.s. i have not and will not buy a gift, since having used my free one, but i have received several gifts and love it greatly.
The money actually goes to charity! It isn’t pure profit?
ohhh that was February only.
Well i think all the money for these should go to a different charity each month, then i would definitely buy some!
I know this is an old post, but just for the record, I actually do fondly remember gifts that I give. I remember gifts I’ve given my mom or dad, or anyone else not just nine months ago, but years ago, and I get a lot of pleasure out of remembering how happy it made them or how perfect it was for them. So I really think your opinion on how people feel about giving gifts might be a bit of a generalization.
I am a gift-giver on facebook, and at first I thought it was a silly concept, but then I got one from a friend and saw some friends give them to each other and I realized that they make me smile and that it makes me happy even just to see what my friends give to each other. I see it as an easy way to bring a little joy to the day of a person I care about, even though I am completely aware that they are fundamentally worthless, primarily because they are temporary, but also because they hold no practical use. But then again, I honestly don’t see what makes a ring-tone worth any more than a graphical icon.
The price is high, certainly, but I think the value lies in being able to show someone you are thinking of them without spending time and effort that may be completely unavailable. They may be useless, but they certainly are cute or funny when put into context between two people of shared experience who know one another. Anyway, that isn’t intended in defense of facebook gifts, but more as my theory of where the value of the gifts lies.