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Facebook Credits: Virtual Goods Are Just the Beginning

Facebook is ready to go big with its Facebook Credits virtual currency: the company announced that all developers will have to use the credits in their apps starting July 1. The move takes Facebook Credits out of beta and will make it the main payment system for all apps, with Facebook getting a 30 percent cut of the action.

But the transition to Facebook Credits is not just about Facebook getting a cut of Farmville virtual transactions. This is about Facebook ultimately starting its own online payment system that could be used to buy a lot of different goods and stretch beyond the boundaries of the social network.

Facebook Credits was first launched in beta last year and though it forced developers to hand over a big chunk of their revenue, Facebook sold them on the system by emphasizing its ease of use and how well it monetizes with users. About 150 developers including Zynga, Playfish, CrowdStar, Digital Chocolate, PopCap and others currently use Facebook Credits on more than 350 applications, representing more than 70 percent of transactions on Facebook. Facebook developers will have the option of using their own payment system in addition to Facebook Credits but Facebook will be offering incentives like early access to product features and on-site promotion to help get them on board fully.

Apple (s aapl) has found a lot of success with its iTunes system, which first allowed people to buy music but has been a key driver in helping push app downloads. Like Facebook Credits, Apple takes a 30 percent cut of app downloads as well as in-app purchases. Apple insists that it doesn’t look to iTunes or its App Store as significant money makers.

Facebook, however, has the opportunity to drive a lot of payments through its Credits, not just virtual currencies. As businesses set-up shop on Facebook, the social network could use its payment system as the preferred system for buying goods, movie tickets or digital content. In addition to advertising, this could be the big play for Facebook as it looks to grow its revenues.

But beyond Facebook, Facebook Credits could join other payments systems like Paypal (s ebay) in trying to be the preferred alternative to money for online users. The 30 percent cut won’t work for non-digital goods, but if Facebook slashes its portion, it could use Facebook Connect to get Facebook Credits as a payment option for websites. If Facebook played its cards right, it could also try to make a move on mobile payments. This is going to be a big battleground as online retailers, banks, carriers, platform makers like Google and others look to build the infrastructure for digital payments and get rich off of people using their system.

It would take a lot of work but I’m sure that’s on the minds of Facebook execs. That’s what happens when you have a relationship with 600 million users. If you can leverage that cleverly, that might be an opportunity to make some real money.

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12 Responses to “Facebook Credits: Virtual Goods Are Just the Beginning”

  1. Paypal spent many many years developing a robust payment system, all it requires for you is to sign up. Facebook can start developing that now, but it is probably not worth it considering how much of effort it requires, google checkout never really took off inspite of so many gmail and google users.

  2. Facebook will have to contend with the “one-click” patents (which is being actively enforced by law suit), lack of security, problems about what to allow the 3rd party apps to have access to, and a host other problems if they want this to work.

    I, for one, would prefer to send my credit card details to every SPAM email before I would trust Facebook to get have those details.

  3. I think FB launching a full fledged payment geteway like Paypal could have far reaching implications in the e-com space.

    Do you have any inputs on when they plan to roll out that feature? I’m sure Marc Z. would love to be the default online transactions channel for the web :)

  4. Ryan, you are right that 30% is a non-starter for non-digital goods. If Facebook were to allow the use of Credits by Facebook Connect sites, fees would need to be reduced to PayPal levels of 5% or less depending on the size of the transaction.

  5. VanessaP

    Facebook isn’t a sort of social network that suits a payment system. The entire point of Facebook is to be free. This is where MyCube has a MUCH bigger chance of success with their “cube” system.