June 20, 2012
When Facebook Credits were first introduced as a new virtual currency, it was difficult to predict how successful the initiative would be. Several virtual farms and mafia wars later, it has proven to be a very profitable experiment and last year accounted for 15% of Facebook’s revenue, up 425% from the year before. Clearly, Facebook Credits are a force to be reckoned with, but it is unclear whether their reach will extend beyond gaming.
In case you are not familiar, when users play games on the social network, they can purchase Facebook Credits, which they redeem to add features to the game, usually in the form of content or equipment. Oftentimes a game is free, but, once you are hooked, expanding game play becomes incredibly attractive, and users make a series of micropayments to enhance their experience. Purchasing credits is fairly easy since they accept over 80 payment methods from around the world including all major credit cards, PayPal, and mobile phone numbers. The only obvious downside for consumers is that it encourages impulse buying and those incremental purchases can really add up quickly. For developers, however, it is a mixed bag.
In the beginning, Facebook supported virtual currencies other than their own, but as of July 1, 2011, it mandates that Facebook game and application developers exclusively process payments through Facebook Credits. Facebook then extracts 30% of all revenues. If developers attempt to bypass this by redirecting users to make in-app purchases elsewhere, they will be in violation of Facebook’s Terms of Service and face enforcement.
This is very similar to the structure Apple implemented, right down to the 30% cut. Developers are allowed to use a different virtual currency on other sites, but they are forbidden to charge less for a virtual good on an alternative platform. This obviously does not sit well with many developers, and litigation may soon follow.
The upside for developers is that Facebook propels the social gaming industry and delivers a massive audience of 850 million and counting. This is also a demographic that shares everything, and a game’s popularity can quickly swell.
Along with rapid growth, Facebook reaches consumers who never would have sought out gaming. They are drawn in by their family and friends, and the customer base can increase exponentially. Also, since Facebook Credits are so accessible for users, they are more prone to purchasing items without hesitation. In that light, parting with 30% is a lot easier for developers to swallow. Regardless of how fair or reasonable this arrangement is, Facebook’s virtual currency has secured its position as a payment network.
While there is an obvious use for credits when it comes to gaming and online media, it is unclear whether they have a utility beyond that. While mobile and online purchases represent a tremendous opportunity, persuading merchants and customers alike to choose credits over mainstays like Visa and MasterCard is a huge challenge that may not be worth persuing. Plink, on the other hand, is a compelling prospect for merchants and may be a game changer.
Launched this past January, Plink is the first ever Facebook Credits-based loyalty program. Consumers earn credits when they dine or shop offline at participating vendors with a registered credit card. Facebook Credits are automatically deposited into the user’s account, so it is very user-friendly, but you can only register one credit card at the moment, which limits its potential.
Initially, Plink is targeting restaurants such as Dunkin’ Donuts, Taco Bell, and Outback Steakhouse, but it could successfully expand to retail businesses. It is very similar to the popular Upromise program, but instead of contributing a percentage to a student loan balance or college fund, you receive virtual currency to redeem for online media purchases. While some people might scoff at the value of credits, consumers generally perceive their value as higher than their cost. In real dollars, a credit is worth $0.10, but there have been studies demonstrating users prefer 50 free credits to a $5.00 discount on a purchase. It may not be rational, but it is definitely profitable.
While it is unlikely Facebook Credits will replace major processing payment systems, its once tiny niche is expanding and represents a significant opportunity for the social network giant. It does seem to capitalize on poor consumer behavior, but when has that ever stopped a company? Whether this virtual currency is genuinely good for consumers or merchants remains to be seen, but that question quickly becomes obscured by the haze of a genuinely good game.
Article by John V. Facebook Credits have been established as a virtual currency that generates considerable profits. Whether they have potential beyond gaming remains to be seen. Learn more at http://www.wpromote.com/social-media