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There may have been a time when Facebook was hoping to create its own PayPal killer with the "Facebook Wallet," but those days are over. Today Facebook announced that it has entered into a strategic partnership with PayPal. Now users can use PayPal to purchase self-service ads and Facebook Credits on the social network.
This is good news for Facebook — and especially PayPal — but what about Facebook developers?
Partnered with Facebook's push toward self-service ads, this move is a big step towards democratizing Facebook's offerings. Earlier this year, Facebook gave up a contract with Microsoft to focus on getting users and smaller advertisers to adopt its ad platform. Making it easier for Facebook's 400 million+ users to purchase self-service ads is one way to help make that happen.
According to Dan Levy, director of payment operations at Facebook:
"We want to give the people who use Facebook, as well as advertisers and developers, a fast and trusted way to pay across our service. As our business has grown, offering local methods of payment has become increasingly important for advertisers who want to buy Facebook Ads."
But another thing that is increasingly important for Facebook is tapping into the growing revenue streams that are coming from the online gaming business. Virtual goods sales hit $1 billiion in 2009, and Facebook's new Credit system, which allows users to purchase virtual goods and gifts, is weighted heavily in favor of the social network.
Facebook Credits is set up to make it easier to separate users from their money. And PayPal makes that a lot easier.
As CNET points out:
"PayPal, which operates in 190 markets with 24 currencies, is often used as an alternative for customers who don't have credit cards, something that will be useful in international markets where it may be more difficult for small businesses to purchase ad space on Facebook."
It could also find a niche with young people on the network who don't have access to a credit card. But what about developers? A few Facebook games already rely on Credits as a payment system, but Facebook takes a big chunk (30%) of those profits.
As it stands, there is some speculation on the viability of Facebook's credit system for developers. According to InsideFacebook:
"Some developers have told us that Credits are bringing in 5% to 10% more revenue than third-party payment options, not enough to offset the 30% cut. When Facebook’s cut is included, one developer said it was seeing revenue decreases of around 20%."
The idea is that a Facebook approved payment system will make consumers more comfortable spending money on Facebook, and the more they use it, the more developers will profit from the network. And 30% is the same amount that Apple takes from developers on its platform. But developers have not yet seen that transition come to fruition. And while consumers may choose PayPal over other payment options, until the new platform starts getting new users (and current gamers to pay much more) that 30% will remain a cut that developers have to eat.