Facebook to launch subscription billing for apps, transition from Credits to local currency

Facebook will soon support subscription billing for apps on its platform, according to a post on the company’s developer blog. The company will also phase out Credits in favor of a user’s local currency — dollars, pounds or yen, for example.

Subscriptions will launch to all developers in July, though Zynga and Kixeye are already testing the feature for their games. This change gives developers a way to charge users on a monthly basis, rather than relying on individual virtual goods purchases. The alternative model could help developers and Facebook better monetize. It could also be a start to getting non-game developers to try Facebook’s payment platform.

As our sister blog Inside Social Games explains, subscriptions could lead players to spend more in games and also makes Facebook a better option for developers of free-to-play browser-based massively multiplayer online role-playing games.

We’ve previously written about how the social network was likely to introduce subscriptions as a way to monetize non-game applications. Because Facebook Credits aren’t required for these apps, only a few developers use them. For example, some studios offer movie rentals for Facebook Credits. These companies might now consider testing a subscription model that gives users access to more movies or special features if they sign up for a multi-month package. Facebook subscriptions will also support free trial periods, which could incentive users to sign up.

Other businesses built on Facebook, such as professional networking app BranchOut or news apps like Washington Post Social Reader, might find uses for subscriptions, however the social network’s 30 percent fee is likely to turn off many developers. For companies like Spotify and Netflix, which have to pay huge licensing fees to rights-holders, losing 30 percent simply isn’t an option unless they significantly increased their prices. But at higher price points, consumers might not decide to subscribe at all. [Update 6/19/12 2:08 p.m. PT – A screenshot of a sample subscription settings page on Facebook’s developer site includes Spotify, MOG and RunKeeper as sample apps using subscriptions. It’s unclear whether these are simply examples or actual developers in the beta program.]

Although the 30 percent fee is standard for app platforms like Apple and Android, it is far more than what online payments systems like PayPal charge. PayPal takes a 2.9 percent fee plus a $0.30-fee for each transaction. Facebook acknowledged in a regulatory filing that it might reduce its fee, but for now the 30 percent seems to stand.

Facebook, though, is in a unique position to streamline payments and offer developers useful data about who’s paying for subscriptions. If businesses can automatically gather information they would otherwise have to ask users for through forms, Facebook’s payments platform would be more attractive. Ease of implementation, increasing conversions and providing useful reporting are all areas the social network will need to improve as it expands its payments business.

With the latest phase out of Credits and by now supporting pricing in local currency, Facebook can simplify the purchase experience and give developers more flexibility. Developers will be able to set more granular and consistent prices for non-U.S. users and price the same item differently on a market-by-market basis. This also eliminates any confusion that resulted from users trying to think about conversion rates for dollars, Credits and in-game currency. Facebook says it will convert any Credit balances into the equivalent amount of value in users’ local currency, which they can spend on in-app items in the same way they do today. People can still redeem gift cards and store unused balances in their account. Any apps or games that sell virtual items will be required to use local currency by the end of the year.

The company first introduced what it called “Pay with Facebook” in May 2009. That eventually got combined with the Credits program associated with virtual gifts that users could buy and post to each other’s profiles. In July 2011, Facebook made Credits mandatory for social games, leading payments and fees revenue to make up about 18 percent of the company’s revenue in its most recent quarter — up from a 13 percent in Q1 2011. Only 15 million users — fewer than 2 percent of total monthly active users — paid for virtual goods on the platform in 2011. Facebook has helped individual game developers who wanted to implement a recurring pay cycle in the past, but for the most part, subscriptions haven’t been an option until now.

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