Facebook first broached the idea of creating its own virtual currency for third-party developers back in December of 2007. The company has slowly rolled the “Credits” product out. First it introduced the currency for buying gifts in its own gift shop last November, then a tweak here and there, and most recently the launch of Credits for third-party applications this past May.
But now we’re hearing new rumors about what Facebook is planning for developers.
Most significantly, we’ve recently heard from multiple industry sources that Facebook has been meeting with a number of large application developers — especially the big social gaming companies that already have their own lucrative virtual currency systems — and talking about making Credits mandatory. Facebook, we assume, would continue to allow other virtual currencies to co-exist alongside Credits, assuming it does generally move in this direction.
The Facebook credits program could become a significant revenue generator for Facebook because it’s fee-based — and not a PayPal-like few percentage points, but an Apple-like range around 30%. Note: we first heard this suggestion back in May. Hundreds of millions of dollars are being made on Facebook’s platform through third-party virtual goods sales. We heard in September that the company was on track to make more than $550 million this year, but that’s largely from advertising — its gifts shop is somewhere around $75 million, last we heard. New virtual goods revenue could help the company justify a higher valuation if and when it makes an initial public offering.
The question, of course, is what the impact of an enforced Credits currency would be on the developer ecosystem. Because Facebook isn’t saying much, and because everything we hear is rumors, it’s still all speculation.
If users choose Credits over other forms of virtual currency, developer revenues could be negatively impacted, because Facebook would be taking a larger cut of revenue than what several other virtual currency payment options currently do. Also, companies that have made significant investment in developing their own virtual currency systems would see those efforts become less likely to grow going forward due to due to the existence of a platform-level currency.
Given the many uncertainties, it’s too early to say how payments services companies might be affected. Offer companies, which make considerable revenue from offer walls that include various forms of direct payments, may find some of those options less relevant, depending on how Facebook integrates payments. However, mobile payments like Boku and Zong or pre-paid cards from InComm will likely have a place helping users get real money into the Credits system. Facebook has notably been doing mobile payment tests with Zong recently. There may also be opportunities for companies to build analytics services around Credits, similar to how companies have built their own systems for buying Facebook advertising.
But Facebook’s move could also increase virtual goods spending on the platform.
First, the Credits currency has the Facebook brand to back it up; users know they have the company in charge directly responsible for their money, so increased distribution of Facebook Credits could lead to more spending by some users. And, Credits is already used by people buying gifts in the gifts store, along with anyone in the 10 or so third-party apps currently testing it.
What’s more, as certain test screenshots have appeared to show, Facebook can make Credits — including the purchase process — an obvious and seamless part of the overall site experience. For example, the screenshot at the top of this post shows the number of credits you have within the top navigation bar on the site. It’s possible that Facebook makes Credits optional, but appealing, using site placement to encourage adoption. You can imagine a portion of the app store that features apps that use Credits, for example, as you can see in the screenshot below.
So we asked Facebook about everything we were hearing. Here’s the official statement: “We’re continuing to talk with developers about Facebook Credits but it’s too early to talk about any details. As we expand our current tests, our goal is to offer a simplified way for users and developers to transact and create an environment with high conversion rates and a great deal of liquidity.”
If Facebook can accomplish “high conversion rates and a great deal of liquidity,” that might be enough money to more than make up for what developers lose when Facebook takes a larger cut. This has at least some of our sources encouraged.
Which leaves the question of when we’ll actually see a big Credits roll-out. Earlier this fall, we heard rumors that Facebook had originally wanted to do something by Christmas, to try to take advantage of the holiday virtual gifting season on third-party apps. But we also heard that the plan got delayed until the the first quarter of next year.
Overall, it is not too surprising to be hearing these rumors. Facebook has been focused on monetization this year — although mostly on advertising, until now. In past years, it was more heavily focused on growth. With the advertising plan showing results already, with months of testing done on Credits already, and with social gaming getting so big, Facebook appears to feel that now is the time to move forward more seriously with the currency.
[Test screenshots via Jesse Stay.]