Apple’s iOS and Facebook are very different platforms at a fundamental level. But their moves over the past month suggest that they could clash over the next year or two in some fascinating ways.
At its core, Facebook is an identity layer that is agnostic about which device or application a user touches the platform with. iOS, in contrast, has so far existed mainly to drive sales of Apple hardware.
But both Apple and Facebook want a cut of downstream revenues from the burgeoning economies that their platforms support. Apple did this from the get-go by taking 30% of revenue from paid apps, which it extended to in-app payments and now subscriptions. Facebook did this with Credits, the currency it introduced as virtual goods blossomed into a $2.1 billion U.S. market. It anchored off the price expectations Apple set, and also used the 70% to 30% revenue split.
Both have moved to consolidate power around their in-house payment systems this year. Facebook will make Credits mandatory as the sole payment option for games by July. Apple now requires that publishers offer consumers the choice of paying through iTunes for subscriptions or in-app purchases, from which it will take a 30% cut. While consumers can still pay for subscriptions outside iTunes, Apple’s system is so seamless that most consumers will probably opt for it anyway.
So this is all well and good: Apple controls payments on iOS. Facebook controls payments on canvas games. When does it get interesting?
Multiple sources have hinted that Facebook Credits are coming for the web — perhaps as soon as next quarter. Opening up Credits to the web would extend the currency’s reach into many more gaming titles. It would also get the company into other types of digital goods such as content or music. There’s been widespread speculation about this for years.
The less discussed aspect of the move is that it would also be a back door into mobile. Facebook has been pushing game developers to use HTML5 instead of building native apps. Facebook chief technology officer Bret Taylor has also hinted that whatever tablet experience it launches may be in HTML5.
Now imagine if Facebook didn’t just launch a native iPad or Android tablet app. Imagine if it also launched a tablet-optimized HTML5 version that came complete with all of the Facebook platform’s top-performing titles from Zynga and other developers.
If it integrated Credits into HTML5 gaming titles, this would bypass payment restrictions in the app store and Android Marketplace. Much has been made of the HTML5-native debate, but many popular iOS apps have HTML5 elements in them. Oecoway’s unofficial Facebook app, Friendly for iPad, renders its core parts including the news feed in HTML5. It has just over 2 million monthly active users, according to AppData.
The interesting question is not whether developers are turning to native apps over HTML5, but why. Is it because of performance, discovery or monetization? If Facebook could solve two of those three problems with the social graph and Credits, would mobile developers come?
Supporting Credits in web apps would help Facebook hold onto its developer community as it eyes Android and iOS as alternative sources of revenue. From conversations with developers and third-party service providers, the handful of very top iOS game developers are operating on an annualized $20 to 25 million run rate right now. That’s a fraction of what Zynga makes, but is nevertheless intriguing.
Facebook is powerful enough as a destination that it could probably drive meaningful traffic to HTML5 gaming titles. About 60 percent of the company’s more than 200 million monthly mobile users access it through the web, which is more than the total number of Android devices that Gartner estimates have been shipped to date. On top of that, Facebook could always leverage its relationships with the carriers and device manufacturers to come pre-installed on handsets and tablets, along the lines of what it has done with Facebook Zero and the special HTC and INQ handsets that were unveiled last week at Mobile World Congress. It could offer carriers a cut of Credits revenue to sweeten the deal.
Meanwhile, given Apple and Facebook’s failure to come to an agreement with bringing Connect to Ping, iTunes’ social network for music, it’s hard to see iOS giving Credits an opening. So Facebook will have to go through the web at least in the long-run.
Since their inception, the iOS and Facebook platforms have presided over a shift from mostly free and advertising-supported experiences to freemium or free-to-play ones that are monetized with micropayments. Games have pioneered the way, but other industries like the media are beginning to experiment with payments too.
The question is who will provide the best payments infrastructure on mobile and the web for digital content? Apple’s iOS and Facebook have positioned themselves as ubiquitous and trusted platforms with the scale to become market-makers. Android is also emerging as the second major smartphone platform as Google fixes its payments infrastructure with in-app purchases and a subscription program OnePass. However, the company has never historically executed payments well. Amazon, with years of expertise in e-commerce and recommendations, plus ties to the developer community through web services, is very formidable too. Coming in behind these four are other players like Sony and Microsoft.
This is probably not a winner-take-all market. It may end up looking something more like Visa, Mastercard and Amex. Margins may have to come down as they compete. This will be one interesting horse-race to watch.