Facebook Platform Payment Providers Report Strong Growth in Q1

While Facebook has focused its Platform efforts over the last 18 months on growth over monetization, several payment providers have moved quickly to fill the gap by providing payment processing services to Facebook Platform application developers. Based on what we’re hearing, those payment companies experienced very strong growth in Q109.

Although most of the companies we spoke with did not want to publicly disclose specific revenue figures, Inside Facebook’s survey of leading payment providers on the Facebook Platform shows that payment providers overall experienced about 35% growth in both overall transaction volume and dollar volume on Facebook for the first quarter. Some reported growth as high as 300% for the quarter, largely due to new distribution partnerships.

Challenging Economy Not Slowing Growth of Microtransactions

Although the impact of the economic slowdown on traditional advertising has been well documented, social applications and games monetizing through direct or indirect payments have been less affected. Analysts have offered explanations for this disparity, citing entertainment’s historically strong performance in a bad economy (because people have more free time and need more diversion) or consumers’ general preference for small purchases (because they’re holding off on making big buys like cars). Regardless, consumers on the whole are showing increasing demand for virtual currency – not only within Facebook but across social networks (like MySpace and hi5), emerging mobile platforms (like the iPhone), and online games in general. (You can track the social games space in detail at Inside Social Games.)

As a result, many social app and game developers large and small are posting strong profits – one developer of a leading analytics platform said recently he couldn’t believe how much some game developers are making. For example, Zynga, one of the largest developers of social games on Facebook and MySpace, is rumored to be profitable on $10-15 million in quarterly revenues, and Playdom recently told Inside Social Games that they were profitable as well. However, for every Zynga and Playdom, there are a dozen smaller developers focused on iterating just one mechanic or game. Nevertheless, social games and other applications which monetize through user micropayments are garnering significant attention from venture capitalists in Silicon Valley who are attracted to the margins and economics of virtual goods.

Growing Ecosystem of Players

As a result, a growing number of payment providers have begun focusing on serving application developers monetizing through user payments for virtual currency, virtual gifts, or other in-app features or items. It’s a complex ecosystem: some companies having previous experience in online or mobile payments, often with focus on particular international markets, while many new startups have also formed hoping to gain a foothold inside Facebook and other emerging social platforms.

Developers interested in moving beyond simply integrating PayPal, Amazon, or Google now have a plethora of payment companies to work with:

  • SocialGold, TwoFish, and PlaySpan are three startups aiming to help developers optimize their virtual economies by providing analytics tools layered on top of the payment system. SocialGold has built their own credit card processing product, while TwoFish’s model is based on revenue sharing.
  • Zong, Paymo, and MobillCash have increased their focus on social app and game developers in the last two years. These companies enable users to pay with premium SMS messages which are billed to their mobile phone providers. Zong has a mix of direct and aggregator relationships with international carriers, while Paymo works primarily with aggregators.
  • Spare Change has developed its own currency, called “credits,” that users can purchase with a credit card or Paypal and spend on a variety of Facebook applications.
  • Offerpal Media, Super Rewards, AdParlor, Peanut Labs, Sometrics, and Gambit provide developers with managed offer networks that users can pay for either directly or indirectly (i.e. through CPA offer completion). These companies have partnered with many of the payment providers above and help developers optimize which payment options to display most prominently (for users who choose paid offers) in order to optimize revenue.
  • Other payment companies, like Global Collect, CC Bill, and Zuora are also active in the space.

Facebook Staying Mum on Plans