Facebook Gifts: I Like It

Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Shares of Facebook (NASDAQ: FB) reacted positively on Friday after the company announced it will be launching a new online gift store which will users to purchase gifts via its desktop and mobile platforms. The idea makes a lot of sense, and it could be just what Facebook needs in order to build a solid monetization strategy and recover the love it quickly lost after its IPO.

This is a big improvement from the advertising strategies the company has tried in the past; Facebook Gifts could actually be a valuable service to users, not something you need to tolerate in order to use the social network. People use Facebook to be reminded about their friend´s birthdays and congratulate them online, so providing the opportunity to buy a present while you are at it sounds like a convenient service.

It has many advantages over other methods of buying presents online: you don’t need the user´s address, Facebook handles that part by popping the recipient with a notification asking them to choose an existing stored address or add a new one right when the gift is bought. Also, the person is notified right when the gift is selected as opposed to having to wait for delivery; this makes the Facebook Gifts an ideal tool for last minute gifts.

Facebook has access to a lot of personal information regarding user´s tastes and opinions, which can be very helpful when it comes to recommending a present for someone. In fact, Facebook is one of the few companies in the world with enough information to challenge Amazon (NASDAQ: AMZN) in that regard.

The online retailer has been very smart at developing Amazon Gifts and My Wish List as tools to help customers select a gift for someone. Facebook has the opportunity to take gift personalization to a whole new level if the company manages to efficiently capitalize on the gigantic amounts of information it has about its users.

The fact that Facebook is actively searching for other monetization strategies apart from advertising should be seen as welcome news by investors in the company. The company´s ads have been subject to considerable criticism lately, both by advertisers doubting about their effectiveness and by users complaining about the damage those ads are causing on user´s experience.

The shift towards mobile could be a knockout blow for Facebook when it comes to ads; even Google (NASDAQ: GOOG) has warned investors that it could face serious problems from that transition. Google is the undisputed leader in online advertising around the world, owing a market share of more than 65% in a product like search which is almost ideal for selling advertising.

Besides, Google owns Android, the most popular operating system for smart phones in the world, which gives the online search engine many possibilities for optimizing its advertising strategy to fit the mobile revolution as well as possible. If Google itself is going to face difficulties from the shift towards mobile, it would be dangerously optimistic to bet on a smooth adaptation from Facebook, since the social network hasn´t even proven it has successful business model in desktop advertising.

Ecommerce could be the solution Facebook is looking for; it provides a straightforward way to make money from its more than 900 million users, while providing them a valuable service as opposed to placing annoying advertising on the platform. At the same time, adapting to the mobile revolution shouldn´t be so problematic when it comes to the online shopping business.

Faceboook has been integrating its platform with ecommerce companies like Amazon, Ebay (NASDAQ: EBAY) and Mercado Libre (NASDAQ: MELI) over the last years, making online shopping and increasingly social experience.  Mercado Libre is partly owned by Ebay, in fact many refer to it as “the Ebay of Latin America”, that´s why it´s no big surprise that they have both been following similar strategies when it comes to their relationship with the social network.

Ebay, Mercado Libre and Facebook have been working together to develop more and better apps integrating Facebook with the shopping sites, as well as facilitating the development of applications by third parties. Everyone stands to gain from these alliances. Facebook gets more and better information regarding users, and the chance to use that information to optimize online shopping and advertising. The ecommerce sites get exposure to a huge user base, and can also make the online shopping experience a more social one.

Facebook Gifts is still a very young project; its effectiveness and profitability still remain to be seen. But it’s also a well thought out idea, adding value to the platform by offering valuable services as opposed to bothering users with more advertising. Ecommerce could be a game changer for Facebook, an area in which Zuckerberg and his team could generate a lot of value by working closely with strategic partners. Facebook has not gotten out of the woods yet, but at least it’s taking steps in the right direction.

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acardenal owns shares of Google, Amazon and Mercado Libre. The Motley Fool owns shares of Amazon.com, Facebook, Google, and MercadoLibre and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Amazon.com, eBay, Facebook, Google, and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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