Ever since Facebook launched the Facebook Platform two years ago, it has been very hands-off with Platform monetization: Facebook has never launched a paid app store, and has always opted to let third party developers fill the void of e-commerce infrastructure for Platform microtransactions.
And fill the void they have – a robust ecosystem of advertising networks, virtual currency monetization platforms, and payment providers have pounced on the opportunity. Industry executives estimate the Platform e-commerce market could reach between $300 – $500 million in 2009.
Now that Facebook is building its own payment service for developers, it will be directly monetizing the myriad of applications built on the back of its platform for the first time (assuming the early tests work out). However, how Facebook structures its payment service fees will obviously make a big difference in how just much of a revenue impact the system has for the company.
In our first estimates last December, we calculated that even if Facebook handled all Platform transactions in 2008 and took a 5% service fee, the program still would have only generated $5 – $10 million in incremental revenues for the company. However, while the payments system is still in the very early stages of testing, we’re hearing that the fees may actually be much closer to an Apple-esque 30% than a Paypal-esque 2.9%. Such a commission structure could generate more substantial revenues than we previously estimated.
Higher transaction fees would also likely earn Facebook praise from critics who have said the company should have been monetizing the platform more aggressively since the beginning, instead of focusing on platform growth as it largely has.
For its part, Apple is about to start monetizing iPhone app and game transactions, too: with the launch of iPhone OS 3.0 this summer, iPhone applications will be able to start monetizing through in-app micropayments billed through iTunes. Apple will be taking a 30% cut, the same fee it established at the launch of the iPhone app platform for application sales. Microtransactions revenues could easily eclipse app sales revenues for Apple soon, which has earned the company somewhere around $30 – $40 million so far.
If the Facebook Platform generates $350 million in gross transactions this year, that means Facebook would only need to handle 10% of total transaction dollar volume ($35 million) to generate $10 million in transactional revenues (assuming a 30% fee) in its first year. Payments could become a nontrivial revenue stream for Facebook over time – not to mention a platform on which it could build future e-commerce related programs. Although it costs a lot to operate a payments business, Platform transactions could be a $50 million business for Facebook within a couple of years.
Of course, for Facebook’s payment system to succeed, it must work for Facebook, developers, and users. If it doesn’t work well for any of those three, the service will not pan out. So far, a lot of developers have shown interest in trying the system out.