$34.5 million spent on Facebook virtual goods?

At a rapid pace, Facebook is making money from those $1 virtual gifts, which may account for a shockingly high 10 percent of revenue. Maybe one day, goods will outshine advertising.

Jeremy Liew of Lightspeed Venture Partners appears to have cracked the code on how much money Facebook is making from its sales of virtual goods.

The short answer: based on different calculations, between $28,500,000 and $43,500,000 in annual Facebook gift sales, with an average of about $34,500,000.

Not surprisingly, the majority of the gifts are more drive-by than they are purposely chosen.

The vast majority of Facebook gifts are bought from the first screen of gifts in the directory--almost 80 percent 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.

I have to hand it to Facebook for making this absurd gifting a lucrative part of the social-networking norm. I wonder if the people who buy $1 virtual gifts would also buy $1 physical gifts.

Estimates put Facebook revenue between $300 million and $350 million in 2008, meaning that virtual-good sales would account for a shockingly high 10 percent of revenue.

Disclosure: Jeremy Liew's venture capital firm is an investor in my company.

 

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