Weekly Update

Will Facebook Join the Mobile App Store Craze?

Facebook quietly launched an in-house payment system a few weeks ago. For now, the web-based payment service is being tested through sites such as GroupCard that use social networks as a marketing tool to sell their wares. Users can click a “Pay with Facebook” option that allows them to check their “Facebook credits” or, if necessary, buy more credits. The system will compete with a host of virtual payment companies, from venerable players such as PayPal and Google Checkout to newbies like SocialGold, TwoFish and PlaySpan, which package analytics tools with their transaction platforms.

Last week, the increasingly popular social networking site confirmed that it had hired Prashant Fuloria, a former Google exec who worked on Google Checkout (among other projects) during his six years there, to be the director of product management and oversee the in-house payment system. Fuloria’s addition to the team has spurred speculation that Facebook will move into the mobile payment space as well.

The mobile payment space is even more fractured, with venture capitalists, startups and big companies all backing a host of newcomers. But none of the other players has the active user base of 200 million-plus that Facebook can leverage. And mobile — where Facebook usage is exploding — is a natural fit for such a service.

Today, carrier billing is the path of least resistance for consumers, but it can be prohibitively costly for developers, with operators taking 30 percent or more of each transaction, and many third-party services haven’t matured yet. The recent outburst of mobile app stores will continue to fragment the space: Users shopping for apps from Android must use Google Checkout, Research In Motion uses PayPal for its App World downloads, and iPhone users must have an iTunes account. Nokia’s Ovi, Palm’s Pre and a host of other vendors are also bringing app stores online; their payment systems are yet to be seen. If its payment system gains traction, Facebook could provide transaction support for app stores (or other vendors).

And that’s where the strategy gets particularly interesting: Given Facebook’s runaway success with developers, and its massive user base, the platform could also serve as a springboard for a Facebook app store, serving a wide variety of handsets and network operators.

Such an ambitious strategy is rife with potential pitfalls, of course. Addressing a wide swath of mobile phones and platforms is a tremendous headache (as Nokia’s Ovi continues to demonstrate), and both carriers and device makers would likely view a Facebook app store as a major threat (unless, of course, they got a cut of revenues). Just as importantly, Facebook still faces a substantial challenge in gaining the financial trust of its community.

But Facebook has earned its reputation as a spectacular channel for distributing apps, and is working to make offerings more discoverable (which is an increasingly important issue for app developers). With a mobile-savvy network of users and a viable payment platform in place, Facebook may be in the process of building a formidable mobile app store.

Question of the week

Is Facebook’s new payment service a step toward launching a mobile app store?