Facebook Scraps a $100 Million Dollar Business

Come August 1, you will no longer have the option of paying real money for fake gifts to post on someone’s virtual “Wall” on Facebook. It sounds crazy, but I can’t help but think, “who in their right mind would spend their hard earned dollar for something so… not real?” Turns out that a number like $100 million dollars annually proves my doubts wrong and the buyers of online “virtual” gifts, right.

Facebook has seen the forrest for the trees and understand that while they could continue to make $100 million a year, they could just as easily make $3 billion.

We recently saw the beginning of these efforts with the MyTown app promotion, however we would only expect that to continue. Facebook’s acquisition today of nextstop highlights not only Facebook’s interest in location, but also an investment in the future of HTML 5 on mobile devices (as effectively articulated in this interview with Robert Scoble). If all goes well, the $10 billion global virtual goods market, could grow 1,000% and Facebook could be standing as the primary intermediary in the market.

If Facebook can capture only 10 percent of a $100 billion virtual goods market, with the current revenue share of 70/30 with developers (70 percent going to developers, 30 percent to Facebook), Facebook could end up with a cool $3 billion per year. Granted, these are optimistic projections, however Facebook is well positioned to capture a large portion of this marketplace and become the virtual currency standard. Looking at things from this perspective however illustrates why it may make sense to kill the gift shop, even if tens of millions of dollars a year was providing great margins.

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