The market for digital goods and virtual currency on its site is already
a billion-dollar one, but up until now, Facebook is capturing only a
fraction of the business.
The reason: it gives developers great freedom
to monetize their applications using whatever business models and
third-party services they think work best.
But that will be coming to an end this July as the world’s largest social network looks to further boost its revenue growth.
According to TechCrunch:
Facebook has confirmed that it is indeed making Facebook Credits mandatory for Games, with the rule going into effect on July 1 2011. Facebook says that Credits will be the exclusive way for users to get their ‘real money’ into a game, but developers are still allowed to keep their own in-game currencies (FarmBucks, FishPoints, whatever). For example, Zynga can charge you 90 Facebook Credits for 75 CityCash in CityVille.
Facebook’s move could turn out to be one of its most significant yet, and will have a great impact on Facebook, its users and application developers.
How much is Facebook worth? That’s a tough question to answer given that the company isn’t public. But that will probably be changing in 2012 following Facebook’s recent $1.5bn fundraising haul from Goldman Sachs clients.
In secondary market transactions, investors are valuing Facebook at upwards of $50bn. For the public markets to do the same for any length of time, Facebook will probably need top and bottom line numbers that are as compelling as its story.
Credits could provide that. Collectively, a handful of the largest game developers building apps for Facebook, such as Zynga, likely pull in more revenue in a year than Facebook does.
Many of these companies have already signed deals with Facebook to use Credits, but by making Credits mandatory across the entire gaming ecosystem, the company could boost its revenue substantially almost instantly.
Of course, this doesn’t mean that there won’t be challenges. As Credits becomes the de facto currency throughout Facebook, the company will need to beef up its customer service.
That’s no trivial task when you have half a billion users. And since Credits will be used with applications developed by third parties, Facebook will need to police applications a lot more closely than it has to now. It may even have to provide credit card-like protections.
With Credits as the official currency of Facebook, the company should be able to boost user confidence. After all, if users know that they can use the Credits they’ve purchased in any gaming application on Facebook, there’s a strong argument to be made that they’ll be more comfortable — and spend more — on virtual goods.
But there’s a potential downside to this: as Credits become more widely used, criminals and scammers will have an even greater incentive to target Facebook accounts. At some point, it seems likely that hacking Facebook accounts could become just as lucrative as hacking, say, PayPal accounts. And given the way users interact with the site, and the type of information they reveal about themselves, hacking accounts may prove to be far easier.
Making Credits mandatory and exclusive would have a significant impact on developers. As noted, a single virtual currency to rule them all should, in theory, help speed the growth of virtual currency use on Facebook, which is good news for developers looking to monetize their applications.
But there are several big negatives as well. The most notable: the fact that Facebook takes a 30% cut of revenue. Although the 30% figure appears to be some sort of ‘standard‘ thanks in large part to Apple’s iTunes/App Store, it’s really just arbitrary.
Apple can collect 30%, of course, because it controls the App Store. Facebook might be able to do the same since it will have the same level of control over its ecosystem, but one has to question whether Facebook’s primary function here (read: payment processor) is worth 30% to developers when most payment processors take a single-digit amount.
Finally, it should be noted that a move to make Facebook Credits mandatory and exclusive will also violate a promise made when it launched its developer platform: that developers will always have the ability to monetize their applications however they see fit.
Facebook may be on top of the world, and in a position to break its promises, for now at least, but a company’s word is its bond, and in my opinion its broken promise here would say a lot about what we can expect from the company going forward.
Photo credit: xJasonRogersx via Flickr.