The full introduction of Facebook Credits, and their availability (in the US at least) as gift vouchers in offline retailers, opens up a whole new world for brands on Facebook.
The early adopters are, as expected, social gamers: Facebook and Zynga settled their differences earlier this year to agree that players of Zynga games (such as Farmville) can use Facebook Credits to buy virtual goods.
The implications are enormous. Suddenly, Facebook offers a new revenue stream for brands, and has itself a sustainable revenue model that doesn’t rely on the fickle advertising market.
Of course, Facebook isn’t the first social community to introduce a virtual currency; nor the first to sell that currency offline. Virtual worlds like Second Life (Linden dollars) and Entropia (Project Entropia Dollars – PED) have long had their own, thriving economies, and their currencies are even being traded on virtual world exchanges (how long before these become regulated markets?).
Virtual worlds have been the focus of the really big virtual currency spending to date. Earlier this year a man paid the equivalent of $330,000 to buy a virtual space station on Entropia; and virtual nightclubs are common purchase in Second Life. It might seem insane on the face of it - but if you can charge entry to go into your club, where a real band is performing a virtual concert; or charge for a virtual trip on the space station; suddenly these look like sound business investments.
Most virtual payments, however, are for small amounts; buying into a game, or buying virtual clothes, or a virtual space online. Apple’s App Store is a good indication of how people will willingly spend relatively insignificant amounts on ‘fun’ apps, even in a recession, and the principle for social games or branded goods is the same.
But Facebook Credits could change all that. Brands are already big on Facebook, and attract customers way beyond seasoned ‘Second Lifers’.
How can brands use Facebook Credits?
There are two big opportunities here. The first and most obvious is that brands can sell their products using Facebook Credits - so their Facebook pages become revenue generators.
Offers unique to Facebook, special edition trials and ‘first to buy’ promotions can all make a brand’s Facebook page more compelling for consumers, and provide a revenue stream for the brand. As ever with social media, this is a community, not a shop front, so exclusive deals will be much more attractive than simply providing an alternative to your online store.
The second is incentive or loyalty points. Facebook Credits could work like Nectar points, and could be offered online and offline to encourage interaction with the brand through the social network by awarding points that can only be redeemed on Facebook, even if they’re picked up in store.
It’s early days, but this could be a great way of encouraging consumers to engage with a brand in social spaces.
Why a virtual currency? Why not just use real money?
If social games and other online environments are to make money from their users, a virtual currency makes sense. It simplifies transactions on the site. If you have users from all over the world, it is much easier to transact in a single currency than accept hundreds of existing currencies.
This has great implications for brands, who may have a global Facebook site, and now Facebook Credits will make it easier to sell in different markets. And, of course, Facebook will take a reported 30% of the transaction.
I’ll be interested to see if there are any trust issues in buying Facebook Credits. Of course, at the point at which you can buy them like iTunes vouchers, at your local supermarket, trust won’t be an issue. But while you have to give Facebook your credit card details, Facebook will have to prove that its recent privacy and trust issues haven’t damaged its ability to collect money from consumers. I suspect it hasn’t.
The other issue Facebook will have to prove is that it can regulate transactions properly, and set a reasonable exchange rate in all currencies.
If it gets these two things right, brands will trust the site to be secure enough to use as a sales channel, rather than just directing consumers back to the brand site.
One of the most asked questions by brands is ‘how can I measure pure financial return on my social media spend’. Selling on Facebook might just make that question a whole lot easier to answer.