Guest Post: The Impact of Facebook Credits on Platform Payments

Editor’s Note: Earlier this week, Facebook confirmed to Inside Facebook that it is planning to launch an alpha test of its virtual currency, Facebook credits, with Platform application developers in the next few weeks. Under the test, application developers will be able to accept Facebook credits as payment for in-app features and items, and be reimbursed by Facebook for the credits spent inside their applications. Obviously, news of a universal Facebook currency has major implications for application developers, Platform payment companies, and the development of the Facebook Platform economy overall.

vikasguptaThis is a guest post by Vikas Gupta. Gupta is CEO of Jambool, the developer of SocialGold, a virtual currency and payment platform for social applications.

Facebook Credits will be a meaningful complement to, but not a replacement for, existing payment methods and virtual currencies on the Facebook platform.  It simply creates a new channel for developers on the Facebook platform to grow their revenue. Developers who already rely on virtual currencies for game play, or use subscriptions or other means to monetize, will continue to do so;  Facebook Credits will become yet another option for the user to transact.

Payments is a pain point for most developers, who’d rather focus on the game experience and growing an audience than processing credit cards or managing a currency.  When considering a new payment method or virtual currency, these developers tend to focus on ease of integration and conversion.  Basically, if it’s easy not only for the developer to integrate but also for the end user to transact, then the conversion will justify its inclusion in the game.

People currently can bring money into the application environment from a variety of different channels, and they can spend it in a variety of different ways within the applications themselves. The most common incoming channels today are pre-paid systems, direct in-game payments, subscriptions and lead-gen offers. Facebook Credits can offer an alternative pre-paid system, and will compete with other similar network wide pre-paid payment methods.

However, where people spend money to buy currency directly within the application, or pay for subscriptions that get billed periodically, Facebook Credits will provide negligible value to users and developers. At Social Gold, we’ve found that direct, in-game payments drive much higher conversion than any other payment method, due in part to a seamless transaction flow that does not disrupt game play, so requiring an intermediate step (i.e., purchase Facebook Credits at the Facebook Gift Store) will be much less effective.

Ultimately, the introduction of Facebook Credits will help increase the overall monetization on the Facebook platform, because it will associate virtual goods and virtual currencies with a trusted brand for those users who might’ve been apprehensive about transacting in the past with less known and less trusted applications; it basically will help more users get accustomed to the concept of virtual goods and currencies. This can only bode well for the overall ecosystem, and I’d even venture to say that it will help drive the growth in user spending on applications via payment methods other than Facebook Credits.

In many ways, the release of Facebook Credits validates models like ours, because we already let users transact across many popular Facebook applications, using a Social Gold wallet that is associated with their Facebook ID. On that front, we see our offering as very complementary to Facebook Credits.