J. Bryan Scott

Background

It was recently my birthday and I received a massive number of wall posts on my Facebook profile. This Birthday Effect is propagated when Facebook advertises a user’s birthday to a user’s friends on the Home page via a profile link. I call this hyperlink the Birthday Link. The effect occurs for virtually every one of my Facebook friends - even those who are not active on the site. I’ve casually observed this effect for years , but this year I decided to analyze it.

Raw Numbers

My Birthday Effect resulted in 68 posts from 68 unique friends. I have 1,209 registered friends, yielding a conversion rate of 5.62%.

Extrapolated Conversion Rates

Since the Birthday Link only appears on the Home page (and not email, e.g. Plaxo), it makes sense to look only at users who would typically view the site. That is to say, users didn’t visit Facebook on my birthday simply because they knew it was my birthday.

Assuming 60% of my friends login daily, total impressions of my Birthday Link on the Home page were 725, yielding a capture rate of 9.37%. That’s over 262 times more frequent than Facebook’s average display advertising CTR (click-through rate) of 0.04%. Statistically, birthdays on Facebook are a big deal.

How Facebook Can Monetize

Friends care about one another’s birthdays, and they are expressing this through Facebook. I think Facebook can monetize this action-driven traffic from Birthday Link to Wall Post. Someeecards would be hilarious a good start, but the bigger opportunity is to provide a gift-buying advertisement. Gift advertisements could be targeted by a friend’s interests, music, books, movies, and other profile data. Imagine seeing a list of the 10 most popular related books on Amazon given your friend’s “Favorite Books” list on Facebook. Overnight shipping would be a popular option. This is a rare opportunity for advertising to solve an immediate, real problem and augment user experience.

Big Money

CPA (cost per action) agencies like Commission Junction pay 10% to 50% of transaction value to publishers. Assume that Facebook could contract a similar arrangement with an e-tailer such as Amazon for just 10% of transaction value. Let’s do the numbers:

U.S. Facebook Users 36,000,000
* = 90% list birthdays     32,400,000
* = 1 birthday per year     32,400,000
* = 10 clicks on each Birthday Link     324,000,000
* = 5% conversion to gift purchase     16,200,000
* = Average purchase price $25     $405,000,000
* = Facebook gets 10% of revenue     40,500,000
= Incremental Revenue to Facebook     $40,500,000

Facebook 2008 Revenue Estimate 350,000,000
Incremental Revenue to Facebook as % of Estimate     11.57%

Amazon 2007 Revenue Actual 14,835,000,000
Incremental Revenue to Amazon as % of 2007     2.18%

Conclusion

Facebook can generate an incremental $40.5 million (11.57%) in annual revenue by prompting users to buy gifts for their friends on their birthdays. Advertising must be carefully targeted to users who actually care about that friend. This can be assessed by clicks on the Birthday Link. Statistically, birthdays on Facebook attract huge attention from users. Facebook is poised to add value to this phenomenon while extracting gains for itself. As Facebook looks for new ways to monetize without compromising user privacy, these Birthday Ads seem like a great fit.

Disclaimers & Assumptions

- I believe the numbers related to my Birthday Effect are standard for college students on Facebook, but above average for all Facebook users. The extent of this is very difficult to quantify and could only be accurately measured in-house at Facebook. I believe I have adequately offset this in my calculation by assuming only 10 clicks on each Birthday Link (as opposed to my projected 68).

- I assume that my Facebook friends only see the Home page once per day. Using an actual average would lower conversion estimates and give a less favorable comparison versus the cited CTR for Facebook. This would push my Birthday Link conversion rate lower, but it would be at least partially offset by CTRs with no conversion (i.e. someone clicks the Birthday Link but does not post on my Wall).

- I ignore users outside of the U.S. because these markets are notoriously more difficult to monetize. Addition of international markets would increase revenue estimates, albeit at lower rates and purchase prices.