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August 25, 2009

Facebook Expanding Gift Shop to Include Virtual and Physical Goods from Developers

We’ve covered the evolution of Facebook’s virtual gifts extensively on Inside Facebook over the last couple of years, but tonight we’re hearing that Facebook is about to start testing a major new expansion to the Gift Shop that will integrate items from third party developers. The move will expand Facebook’s merchant platform beyond the “Pay with Facebook” tests that are running inside a few applications and, for the first time, integrate a variety of third party virtual gifts into the Facebook Gift Shop. In addition, for the first time, Facebook users will be able to purchase physical merchandise in the Gift Shop with Facebook Credits.

Facebook has just confirmed the test to us, saying that the changes will go live for a limited number of users tonight. Four developers are part of the initial program: American Greetings Interactive, GreetBeatz, Someecards, and Real Gifts.

Here’s how it will work: gifts created by developers will be integrated into the Facebook Gift Shop alongside regular Facebook virtual gifts, marked with the developer’s logo or icon. In the case of virtual gifts, the price will usually be 10 Facebook Credits or USD $1, the same price as most virtual gifts created by Facebook. However, physical gifts – for instance, say a dozen roses – might cost up to 500 Facebook Credits, or USD $50. When users select a physical gift, they’ll be prompted to enter the delivery address in line, just like in a traditional shopping cart experience.

While Facebook says the launch is still a test, we think it’s indicative of Facebook’s desires to develop a much more robust merchant platform. Between the Gift Shop and payment service for developers, Facebook is in the unique position to build a robust commerce business and simultaneously create powerful new monetization opportunities for developers. And because all items in the Facebook Gift Shop are purchased with Facebook Credits, a growing gifts business expands the footprint of Facebook’s virtual currency, which is also used in Facebook’s application payments service.

When reached for comment, a Facebook spokesperson issued us the following statement:

“Yes, I can confirm that Facebook is making some changes to the Gift Shop that are expected to launch tonight. As we continue to provide users news ways to share with their friends around birthdays and special occasions, we are conducting a test in which third party developers will be able to offer virtual gifts in the Facebook Gift Shop.  This initial test is being conducted with a limited number of users and American Greetings Interactive, GreetBeatz, Someecards, and Real Gifts will provide gifts. We will share additional details of this program as they become available.”

All in all, we expect developers to be very excited by the opportunity to participate in Facebook’s Gift Shop for the first time. The sheer volume of users that Facebook has the potential to distribute premium content and merchandise to should be very attractive to any developer hoping to monetize through virtual gifts. In addition, it will be very interesting to see how sales of physical items within the Facebook Gift Shop go – this will be the first time Facebook has so heavily integrated physical goods for sale into the native Facebook experience.

Finally, Facebook’s decision to open up the Gift Shop to third parties should present significant opportunities to those with licenses of popular brands. For example, just last week, Facebook launched a special set of Britney Spears-themed virtual gifts for 20 Facebook Credits (USD $2) each. We expect to see more tests like these as Facebook further opens up the Gift Shop in the weeks and months ahead.

Gavin O’Malley – Media Post