Facebook, Apple Bring iTunes Store To Gifts Platform: What This Means For Both Companies
By Dave Smith | November 27, 2012 9:02 AM EST
It seemed like the Facebook Bubble burst this summer after its long-awaited IPO turned out to be a major disappointment in its early going, but Facebook has been working hard to restore some faith in its investors, and on Monday, the company announced a strategic partnership that will definitely help bolster its cash flow.
"Starting today with Facebook Gifts, you can instantly gift your friends iTunes digital gifts and recommend albums, movies, games, apps, and more available on the iTunes Store," Facebook announced on Monday via its Newsroom. "Search for a specific song or album to recommend, or let your friend decide. iTunes digital gifts are available for $10, $15, $25, or $50."
Sending physical gifts via Facebook may not feel comfortable for many consumers just yet, but Facebook hopes to turn that around. With its recent partnership with Apple in iOS 6, Facebook is significantly more visible on the mobile platform than ever before, now that friends can immediately see which of their Facebook friends have liked a certain, movie, book, TV show or game they purchased. The influence of a friend's opinion on one's purchase is a very powerful tool, indeed.
With Apple pre-loading all of its next-gen devices with Facebook integration on iOS 6 -- this includes the all-new iPhone 5, iPad Mini, and iPad 4 -- as well as its new Mac computers with Facebook's inclusion in OS X Mountain Lion, Facebook may now have a pretty good shot at owning a piece of a surprisingly big pie of revenue.
Mike Isaac at AllThingsD was keen to point out that iTunes Cards make a significant portion of Apple's overall iTunes Store revenue. Citing Apple's last 10-K, Apple reportedly generated $7.5 billion in fiscal 2012 from the iTunes Store alone, and according to "industry sources," more than $2 billion of that revenue comes directly from iTunes gift cards. You'll see these gift cards in most retail stores, including the big boxes like Target, Best Buy, Wal-Mart and others; reportedly, these third-parties get to keep about 13 percent of each gift dollar sold.
Doing the math, there appears to be a roughly $260 million market size for the iTunes cards, but those were only physical -- Facebook changes the game a bit by bringing a popular item onto the digital platform. Facebook Gifts has yet to go officially live, but once it does, this will definitely help boost its initial popularity.
Both companies win in this deal, even though the amount of revenue that will come from this particular partnership will be small compared to either company's revenue stream. Apple ought to get a minor boost from this at best, but Facebook, the company that really needs to win in this deal (for investors' sakes), the deal will probably only reap in the small tens of millions of dollars, which is small fries compared to Facebook's overall revenue ($3.71 billion in 2011).
Facebook stock has been climbing since hitting another low in early November at $19 a share. Facebook stock (Nasdaq: FB) rose on Monday to about $26 by mid-afternoon, a jump of about 8 percent from this morning.
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