Facebook began signing five-year agreements with developers this spring, working to guarantee that its virtual currency, Credits, will soon be the exclusive payment option for virtual goods in all applications on its platform.
As part of this, Zynga, the largest and most powerful developer on Facebook, is readying a switch to using Credits exclusively, according to multiple sources. The move will happen sometime before the end of the year, and possibly as soon as the next month or two. When Zynga signed its five-year contract with Facebook in May, Credits exclusively was part of the deal — the two companies just didn’t say so.[Update: The official joint statement from Facebook and Zynga, confirming the deal: “Facebook and Zynga have transitioned Facebook Credits to be the exclusive method of payment for most Zynga network games on the Facebook platform. The companies are committed to working together to provide the best possible customer experience during this transition.” It appears that the only Zynga title on Facebook not using Credits is Texas HoldEm Poker. Also, third party offer and game card providers continue to appear in most games, likely meaning that users can still buy in-game virtual currencies directly without going through Facebook.]
Facebook says it expects that over time Credits will be the main way that applications and people transact on Facebook Platform, although it hasn’t officially stated that Credits will be mandated. However, given that large developers like Zynga will lose millions in at least the short-term due to the switch, we believe Facebook has required that they all use Credits exclusively despite protests.
Credits have, of course, been offered as an option in most Zynga games for many months (excluding Zynga Poker), with Zynga experimenting with various interfaces to show it among other payment options. The latest payment flow visible in FarmVille today, as you can see below, and it is using Credits exclusively. Interestingly, the flow appears to let you pay directly for virtual currencies in games using a credit card. However, if you complete the transaction, you’ll get an email confirmation from Facebook Credits saying that you have bought the in-game virtual currency (either Farm Cash or Farm Coins) in the game. Facebook says this payment flow is easier for players, who might otherwise be confused about first having to buy Credits.
Zynga is joining the other largest social game developers on Facebook in switching to Credits as the sole payment method for virtual currency and virtual goods. CrowdStar introduced the first Credits-only game last fall, testing out Credits late last year in Happy Island; it eventually signed a five-year contract in June. RockYou signed on the next month, and Playdom, which is currently the second-largest developer (but still only a fifth of Zynga’s size) did too. Neither Playdom or RockYou has made the full switch to exclusively using Credits yet, but also will within the year. EA’s Playfish, which has been relatively quiet with Credits, has also been testing the currency in its games, and we expect it will move over along with the others.
The list doesn’t end there — mid-sized companies like Lolapps and Wooga have also told us they’re using Credits, and it appears that a large portion of smaller developers have at least started offering Credits as an option, too. Overall, Facebook says that 70 developers are offering it in around 150 applications, with a waiting line of developers wanting to get into the still-closed beta test.
The details of the five-year contracts have remained secret, but by going first, Zynga showed the way for other top developers. Because it is the largest business on Facebook — the company is on track to make more than $500 million this year, according to our Inside Virtual Goods report — it will be paying Facebook the most money out of any developer when it begins using Credits exclusively, or 30 percent of its payment revenue on Facebook.
One other point, here: neither Zynga nor other developers are getting a break, according to Facebook — everyone gets the same terms. Following the agreement, rumors had circulated about Zynga if not other developers getting some form of ad rebate or other discount in exchange for the agreement.
Zynga can still attempt to pull players of Facebook to destination sites like FarmVille.com, where Credits aren’t an option at all, but so far Facebook has continued to be the main way that social games have grown and maintained users. Even with the new costs, Zynga needs to be on Facebook going forward.
Credits itself continues to grow, with Facebook adding more payment partners to help get money flowing through the system. Zynga’s arrival could significantly increase the liquidity of the overall system, meaning that Zynga players who migrate to other games will bring their Credits with them, ready to spend.
That, in turn, could help out Credits, all developers, and Zynga itself.
We’ve covered Credits extensively in the past. Here are some links to previous stories: