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Facebook sets sights on Amazon with new gift service

No one ever said they'd be friends forever.

Facebook, which barely two years ago announced a much ballyhooed partnership with Amazon to allow users of both services to link their accounts, is now aiming for the web retailer's jugular. Its just-launched gift service is a clear sign that Facebook isn't content to remain a pure-play social media service forever, and stretching beyond virtual gift-giving to real fulfillment pits it directly against the company that wrote the book on online retail.

More broadly, Facebook's move also opens a new front in social media's battle for legitimacy beyond its status-updating, what-I-had-for-breakfast-sharing roots.

From virtual to real

The new Facebook Gifts service, allows users to send real merchandise to their Facebook friends by clicking on a gift icon from their timelines. The company is partnering with about 100 retailers, including Starbucks, Gund, and 1-800-FLOWERS, to turn its user base of nearly 1 billion users into an online and mobile commerce powerhouse. While Facebook users can already buy games, movies and songs, this is their first opportunity to purchase and ship hard goods.

The initiative is based on technology acquired in the $80 million U.S. acquisition last May of gift-giving provider Karma. That deal, announced just after the company's IPO, is Facebook's second largest acquisition, after the $1 billion Instagram buyout that closed last month.

The service currently works via Facebook's main web interface, as well as an Android app, with an iOS app expected soon. Getting users to click "buy" from their mobile devices is crucial for Facebook. According to comScore, Facebook users spend 43 per cent of their time accessing the service from mobile devices. That's up five points in the last quarter alone.

Privacy, again

Facebook, which isn't commenting on reports it will retain a percentage of each sale, could also use the service to deepen relationships with advertisers. Data acquisition is another possible end game, as the gift service positions Facebook to capture credit card information. In the wake of yet another dustup over privacy — Facebook denied responsibility last week after users complained a glitch caused once-private postings to be posted to their public-facing timelines — expect privacy advocates to step forward with concerns over any deeper dives into users' personal and financial data. Concerns aside, the company will roll the service out gradually, targeting U.S. users initially.

Facebook Gifts won't exactly send Amazon running for cover. The online retail giant retains a number of key advantages over the social upstart. Its state-of-the-art warehousing and distribution network, customer information databases and logistics partnerships ensure the relatively thin Facebook offering won't threaten its dominance for some time to come, if ever. But the high-profile move illustrates what's at stake for Facebook as it risks alienating former allies to push into new markets.

More to come

Don't expect the new service to be Facebook's last word, either. With investors breathing down CEO Mark Zuckerberg's neck to stabilize share values and articulate a long term vision for identifying and pursuing sustainable revenue streams, expect Facebook to throw more seemingly bold initiatives at the wall in the hope that some of them stick long enough to drive growth. Its Groupon-like daily deal initiative crashed and burned last year, but the company can't afford to stand still given its Wall Street swoon since May.

Allowing users to gift each other with t-shirts and stuffed animals is an important first step in Facebook's goal of growing beyond its social media roots. The danger for Facebook is if it strays too far from its original competencies, it risks forcing investors to look the social media gift horse in the mouth.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca

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