Facebook is sending the clearest message yet that it intends to implement its own virtual currency, Credits, in a way that could be mandatory. This confirms months of speculation we’ve been hearing from developers. Because Facebook takes a 30% fee on Credits purchases, the decision could negatively impact the virtual goods revenue streams of some developers now — at least in the short term. If Facebook’s plan works like it intends, spending will eventually increase and developers will benefit.
At its f8 developer conference this week, company chief executive Mark Zuckerberg told Bloomberg that “‘there’s just going to be one currency that people use’ on all apps.” Later that day, Facebook’s Deb Liu was presenting about Facebook’s Credits plans, and she was asked if Facebook would continue to allow people to use third-party virtual currency services like Social Gold. She replied: “It’s still too early to tell, Credits is still in beta.”
Together with Zuckerberg’s statement, that sounds like it could be simply “no.” Another possibility is that third party virtual currency services can continue to exist, but will just be much less used than Credits, at least partially due to incentives Facebook will give to developers who use Credits – like free marketing.
To be clear, Facebook is also looking to work with third party payment companies for Credits. Liu said that these can include anyone from mobile payment providers to game cards to bank payment systems to reward cards, and it plans to get “100 to 200” of them as options for purchasing Credits. The company already works with Zong for mobile payments and PayPal for web payments, and accepts credit cards directly. It partnered with Peanut Labs (via RockYou) and Trialpay last week to begin testing advertising offers that can be taken in exchange for Credits, and we wouldn’t be surprised to see it work with more companies there.
We assume there will still be opportunities for other forms of virtual currencies, as most social games rely on dual currencies. Typically, one currency can be earned by actions in the game while the other has to be bought. There are many variations, this system allows some users to advance through hard work, while still incentivizing others to make purchases. It helps keep virtual economy inflation down by allowing developers to weigh the earnable currency more cheaply against the purchasable one. Even though many users might be cranking through games for free, buying currency can save them time and allow them to access otherwise difficult to obtain virtual goods.
What Facebook wants to do is handle the currency that involves real money. This way, it can take a 30% cut of all revenue coming through the system. The company has consistently framed this move as being about helping developers. Liu presented a few reasons why: Facebook can directly ensure the safety of the payment process, it can provide the currency at a scale where many users will have this currency than game or developer-specific ones, it can use its own brand and interface to promote the currency in ways others can’t.
What’s less clear is how Facebook plans to implement Credits as the one currency that people use on apps. We heard as early as November that the company was meeting with large developers and talking about ways they might make Credits mandatory; and, those conversations have continued through earlier this year. Credits now appears as in option in many of the largest social games, including Zynga’s FarmVille. CrowdStar has even been using Credits exclusively since last January.
Finally, there’s been a lot of speculation about Credits becoming not just a virtual currency but a payment wallet like PayPal. Credits as a virtual currency could be a “Trojan horse” to help the company go in that direction, as Dave McClure framed it at our Inside Social Apps conference earlier this week.