In January of this year, we estimated that Facebook was selling digital gifts worth $15m per year. We based this estimate on an analysis of the number of each gift available each week over a 7 week period.
Facebook creates a certain fixed number of each type of gift. When
the number remaining for any particular gift drops below 100,000,
Facebook displays the number left. (The most common size runs are
100,000 and 1,000,000 but they range as high as 10,000,000 and as low
as 15,000.). For those items where less than 100,000 remain, we can
track how many gifts had been sold in the preceding week by subtracting
the number remaining from the number remaining the previous week.
We updated the analysis this month and found that Facebook has
dramatically increased its sales rate of digital gifts. As before, we
tracked the number of digital gifts available of each type (where data
was available). We ordered the items by bestselling (as defined by
Facebook) and, because data is sparse, we divided the list into groups
of 20, took the average of each group of 20 items and applied that
sales rate to all items in each group.
Once we excluded the free gifts, the averages looked like this:
By multiplying each average by 20 and adding the totals we came up
with virtual gift sales of between 390,000 and 600,000 per week, with
an average of around 470,000 across the three weeks.
The vast majority of facebook gifts are bought from the first screen
of gifts in the directory – almost 80% of the total sales come from the
group of the first 20 gifts. This points to the self reinforcing nature
of popularity (the crowdiness of crowds rather than the wisdom of crowds) when popularity data is made public.
We need to take into account seasonality. In most retail
environments, something like 40% of sales occur in the last 8 weeks of
the year. Judging from the high number of holiday themed gifts over the
holiday period last year, the same seems to be true of Facebook:
Holiday themed gifts (e.g. Santa hat, eggnog, Happy New
Year!) dominated the list of top selling paid gifts, averaging 4,755
sales per week.
If we apply this assumption to our weekly average sales numbers, we
multiply by 73.3 (instead of 52) to get to an estimate of annual sales.
Using this estimate we get a range of between 28,500,000 and 43,500,000
in annual Facebook gift sales, with an average around 34,500,000.
however, as only one item in the first 20 had “number left†data
available each week (Bear Hug), this also makes our estimate prone to
significant error. Bear Hug was consistently around 6 or 7 among the
most popular gifts, behind most of the birthday gifts, so hopefully it
approximates the average popularity of the top 20. Applying 25%
uncertainty to the average of the top 20 bestselling gifts creates a
similar range of between 28,000,000 and 42,000,000.
In both cases, these estimates are double the number that we
estimated at the beginning of the year which was around 15,000,000
digital gifts. That estimate was based on data drawn during the
holidays and may have been high on a run rate basis.
Given that Zuckerberg has estimated that Facebook will do between $300-$350 million in revenue this year, digital goods constitutes a meaningful secondary revenue stream for the company.
If you are interested in seeing the data directly, ask for it in comments and I will email it to you.
To read more from Jeremy, visit his blog.