Does Facebook Hate Money?

I don’t often write posts that relate to “current events,” but this one was interesting enough and I think has a pretty valuable lesson when it comes to making money online.  As reported in this article by TechCrunch earlier this month, Facebook will be closing its virtual gift shop on August 1st.  I was never one to purchase these virtual gifts (I guess that makes me virtually cheap?), but this gift shop had to have earned Facebook millions of dollars in “passive” income.

Facebook’s explanation for the decision to close this gift shop was odd at best, stating that they wanted to “focus more on improving and enhancing products and features that people use every day.”  The crazy thing is, people had no problem spending $1 on an icon to place on someone else’s profile.  They are pointless from my perspective, but I have no doubt that if money was being spent on them, they were providing some people (probably millions of people) with value.

Why would Facebook kill this cash cow?  Do they simply hate money, or is there something we can learn from this?  Clearly, this wasn’t standing in the way of their developmental efforts, despite what they said.

We know Facebook is smart.

Even the smartest companies aren’t immune to making boneheaded decisions, but we can assume the world’s most popular website (I’m not sure how the standings are now, but they edged out Google for “most traffic” back in March) does things for good reasons.  Facebook essentially took a very profitable cash cow that probably required little to no effort to maintain and killed it off.  Let’s look at some of the potential reasons:

1) They felt like it cheapens the “Facebook experience.” Charging money for virtual products sounds like something that gaming pros do (with popular online games such as Everquest and World of Warcraft), so maybe they don’t want to be associated with that activity.

2) Similar to #1, they felt it clutters Facebook profiles. I wouldn’t agree with this, mainly because there are so many other things on Facebook now that clutter profiles.

3) It doesn’t fit with Facebook’s strategy. I think this a key point, and I’ll go more into detail on this below.

Regardless of what the reason may be, it clearly has nothing to do with money.  If it were based on only financial decisions, we wouldn’t be reading anything about it, because they would’ve left it in place.

What can we learn from this?

The key takeaway here (in my opinion) is that, with whatever you’re building – be it a muse or a giant business, it’s important that you don’t sacrifice your long-term objectives and goals for short-term satisfaction or financial gain.

Facebook set out to create the most popular social networking site on the internet, and succeeded probably beyond its creators’ wildest dreams.  Facebook’s mantra (or perhaps a version of its mission statement) is:

Giving people the power to share and make the world more open and connected.

Becoming a platform for selling virtual gifts might not align with this mission, despite it being a moneymaker.

This advice is nothing new, but it’s great to see a real life example of one of the most successful online businesses in our lifetime, throwing away a multi-million dollar idea for the sake of its long-term strategy.  Does Facebook hate money?  I don’t think so.

I’m interested in what you think, so please share your comments.

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6 Responses to “Does Facebook Hate Money?”

  1. “Don’t sacrifice your long-term objectives and goals for short-term satisfaction or financial gain.”

    And, of the hundreds of thousands of blogs out there in cyberpace, this is precisely where so many people go wrong, Eric. (Not to detract the focus from Facebook, but it’s such a very important point with very wide applications) More often times than not, people forget (or they simply don’t know), that social media is all about forming and developing and fostering relationships, of substance, with people. In an attempt to “make money online”, people launch blogs, with affiliate links everywhere, and expect to make money right away. They seem to disregard the conscientious decision, of the reader,to determine, based on the quality, consistency and value of your posts (what you offer), if it is truly in their best interest to further explore your recommendations (for products) and to ultimately trust you.

    Different schools of thought reside, however, monetization, I truly believe, should take a backseat to providing high quality content, of substance, to your reader. Good job, so far, Eric.

    [Reply]

    Eric G. Reply:

    Thanks Howie, you added exactly what I should have added – bringing the whole topic back to me and/or blogging. You are absolutely right, and that’s the main reason my blog isn’t littered with ads (in fact, you’ll find none as of right now). I firmly agree that monetization should take a backseat to high quality content.

    Thanks again for the comment.

    - Eric

    [Reply]

  2. I don’t know of anyone who bought any of those virtual gifts.

    [Reply]

    Eric G. Reply:

    I don’t either, but apparently there were many who did. ;)

    [Reply]

  3. Thanks for bringing some light to this change in Facebook’s structure, Eric!

    It is a very, very interesting concept. Like you and Dean, I never purchased these gifts either; however, with the millions of users that Facebook has, even if they only converted 1/2% of all users into regular purchasers, you are talking about some serious money!

    I love seeing a large company like this take a step back and say, what is the long-term goal. Looking at benefits that are not only monetary, but foster community interaction and maintain the quality of the site.

    It will be fun to follow Facebook in the coming years, though I don’t use it much, and see how it continues to develop.

    A great post as always!

    Thanks,

    Keith

    [Reply]

    Eric G. Reply:

    Hey Keith, thanks for the comment! Indeed, Facebook gave up a very EASY source of income, but like you said, I’m sure the focus is on long-term goals. It’s really a great lesson we can all apply to our own businesses and projects.

    [Reply]

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