Facebook’s top developers say the company’s payments infrastructure and virtual currency Credits are converting fewer paying users than they had hoped a year ago.
Facebook made it mandatory for developers to use its payments platform in canvas games in July. That meant developers on the platform had to start handing over a 30 percent revenue share to the company, mirroring a similar split on Apple’s iOS. The hope was that a single, universal currency would make it more frictionless for users to start paying for virtual goods.
“We thought that conversions would go up and be around 15 or 20 percent,” said Kevin Chou, the chief executive of Kabam, a social gaming company that targets a more hardcore demographic, at the Inside Social Apps conference in San Francisco. “But it turned out to be around 5 to 10 percent, meaning that we’re taking a 20 percent net tax.”
For comparison, Facebook’s biggest developer, Zynga, revealed in its prospectus that it had 3.4 million unique payers during the third quarter of last year. That’s out of 152 monthly unique users in the same time period, suggesting a 2.2 percent conversion rate. Zynga attracts a much larger, more casual audience, so we’d expect to see a lower conversion rate compared to Kabam.
Anil Dharni, who co-founded Funzio, which has had hits on iOS and Facebook like Crime City, said the move to Credits ended up being roughly even for the company.
“Facebook credits is a wash for us,” he said. “It increased the conversion rate but we actually saw a gradual decrease in average revenue per paying user. It’s hard to know why.” Funzio has since moved its focus to iOS, where it has launched Crime City and Modern War, both titles that reached the top of the grossing charts.
Facebook’s payments revenue increased 20 percent quarter-over-quarter going into the end of last year to $188 million, suggesting that the platform may be improving at getting users to pay. However, the company also ran promotions during that time, giving some users an 80 percent discount on Credits. So it’s hard to tell whether those are genuine increases.
If Facebook can’t improve at converting more paying users, it risks losing developer talent to competing platforms like Apple’s iOS and Google’s Android. That in turn could mean growth in its payments business will slow or stagnate over the next year. Facebook diversified its business last year to make payments 17 percent of its revenues in the fourth quarter, up from 10 percent the year before. The rest is advertising.
Developers earned $1.4 billion in revenue from transactions on the platform last year, according to Facebook’s filing for an IPO. Apple’s iOS was able to pay developers about half of that or $700 million in a single quarter during the holiday season, according to their most recent earnings call.
“Mobile users are more engaged and they produce higher revenue than our tethered titles on PCs,” said John Spinale, the senior vice president of social games at Disney. He added, “We’re also seeing incredible revenue growth on Android. Android is a little bit unwieldy, but the revenue is meaningful enough that it’s worth the pain of doing.”
One developer, Wooga, which is the biggest social game developer in Europe and trails only Zynga in daily active users, defended Credits. The company’s chief executive Jens Begemann suggested that Facebook takes more flack because it instituted a 30 percent revenue share after several years of not charging developers for earning revenue off its platform. Apple had a split from the beginning.
“We have been on Facebook Credits since Day One. So for us, we don’t see really negative trends,” he said. “I’ve also not heard anyone complain about Apple for their 30 percent revenue share.”