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Your friend needs to be online as well. In the Options menu, set Xbox live/ORBS to either 'friends only' or 'everybody'. This will show your friend as a little floating orb in your gameworld, in the place your fiend is in their gameworld. You use it the same way you would talk to a person/use a switch etc.

Note however, that the person you send your gift to, does not have to be a xbox live friend of you. It can be anybody.

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