As iTunes Cards Come to “Gifts,” Apple and Facebook Meet Under the Mistletoe
Here’s the latest to come of the pair’s improved relationship: You can now purchase iTunes credits for friends on Facebook using Gifts, the social giant’s major social gifting e-commerce initiative.
It works the same as all other purchases made through the Gifts product. Choose an item to send to a friend through Facebook (in this case, the iTunes digital gift), and you’ll pay via your credit card through Facebook. Right now, most of the options Facebook offers are physical goods like food, toys and apparel.
Lately, however, Facebook has geared up on digital gift card offerings. The company unveiled a series of new partnerships at a recent event, including subscriptions to Hulu, Pandora and Rdio. And the marquee partnership Facebook launched Gifts with was the Starbucks deal, which lets users send coffee cards to their friends via the service.
Facebook’s deep push into e-commerce appears right as holiday shopping season kicks off — it’s no coincidence that the iTunes deal is being announced on Cyber Monday — coming just before what is expected to be a banner retail sales season.
It also comes in the wake of a rather ugly season of downturn for shares of Facebook. Investors have questioned the company’s ability to generate sustainable long-term revenue from ads delivered to desktop and mobile users, and as a result, we’ve seen Facebook’s stock price slashed to around half of what it debuted at this summer. Facebook Gifts is a multi-platform initiative across the Web and mobile devices, not strictly beholden to generating revenue primarily from desktop users as is the case for the bulk of Facebook’s existing ad products.
So, does bringing Apple on as a Gifts partner actually amount to building out another meaningful revenue stream?
Perhaps, according to a little back-of-the-envelope math. Per Apple’s last 10-K, the company generated $7.5 billion from the iTunes Store during fiscal year 2012. Industry sources say that more than $2 billion of that revenue comes directly from iTunes gift cards. Sources also tell us that existing retailers who sell iTunes gift cards (like Best Buy, Target and the like) usually keep around 13 percent of each gift-card dollar sold.
So that adds up to around, say, a $260 million market size for physical iTunes cards split among participating retailers, of which Facebook will now be an active participant. That pie is small compared to Facebook’s overall revenue ($3.71 billion in 2011), but another digital product with less overhead and high demand is definitely a win for Facebook’s Gifts department. Not to mention the potential boost Facebook’s massive billion-user distribution could give on iTunes gift-card sales overall.
But the biggest takeaway here isn’t in the numbers; it’s in the fact that this deal even exists at all.
Facebook and Apple have had a long, troubled history of working together, particularly when Steve Jobs was Apple’s CEO. Perhaps the most poignant example came when the two companies failed to come to terms on integrating Ping — Apple’s doomed iTunes-based social network — with the Facebook API, due to what Jobs told us then were “onerous terms” that Facebook set forth.
With Jobs’s passing last year and Tim Cook now at the helm, initiatives like Facebook iOS and OSX integration and today’s iTunes Gifts partnership signal a new era in Facebook-Apple relations — just as Cook suggested would be the case onstage at our D: All Things Digital conference this past spring.
The relationship is no doubt still complicated. But Monday’s announcement is one step closer to peace between the two tech giants — just in time for the holidays.