Facebook Inc is expanding a service called Facebook Credits that gives it a 30 per cent cut of sales from tractors, fish food and guns in online games, according to four people who have held discussions with the company.
Facebook is already testing the payment option in at least 17 games, including Happy Aquarium and Restaurant City. The company will make the service available in more games ahead of its annual developers conference in April, said the people, who declined to be named because the plans were not public.
After relying on advertising for almost all of its revenue, Facebook is moving to take a bigger piece of the market for virtual items bought in games, which may quadruple to $3.6 billion in the US by 2012, according to ThinkEquity LLC. Today, almost all of those sales go to the game developers, such as Zynga Inc., creator of FarmVille, and Electronic Arts Inc’s Playfish unit.
“It will likely be a significant revenue stream,” said Jeremy Liew, a managing director at Menlo Park, California-based Lightspeed Venture Partners who invests in social games. “They’ll keep working on it until it makes economic sense for developers.”
Facebook, the most popular social-networking site, allows outside developers to offer games to its 400 million users. The games are free, and players can pay for items that advance their progress, such as a $3.33 tractor in FarmVille, a $5.95 helicopter in Mafia Wars or a $4.89 box of fish food for Happy Aquarium.
Facebook Cut
The Palo Alto, California-based company is seeking to take advantage of the popularity of online games, a market that has already blossomed in Asia. Shares of Tencent Holdings Ltd, a game company in Shenzhen, China, tripled in the past year, giving it a market value of $35 billion. Facebook is also taking a page from Apple Inc, which gets a 30 per cent cut of sales from iPhone apps.
Today, gamers on Facebook can either buy Facebook Credits to obtain items in games, or pay for them through third-party services. Of the $3.6 billion in US virtual goods sales in 2012, about $2.2 billion will be on social networks, with 80 per cent on Facebook, said Atul Bagga, a ThinkEquity analyst in San Francisco. If all payments on the site use Facebook Credits, that would mean $530 million in revenue for the company, he said.
‘Trust Factor’
“It’s the trust factor,” Bagga said. “You trust Facebook more than you would trust any other payment company.”
EBay Inc’s PayPal unit said that it would become a payment option for Facebook Credits, allowing PayPal customers to buy the site’s virtual currency. Players can use credit cards or their mobile phone to buy credits.
Payments and virtual currencies will likely be a focus of Facebook’s developers conference, which is scheduled to start April 21 in San Francisco, said three people who had discussions with the company.
“We are continuing to look at ways to extend our virtual currency — Facebook Credits — via a small alpha test with a handful of developers,” Facebook said in an emailed statement. “The test started in May and is exploring ways for people to use their Facebook Credits with third-party applications.”
Allowing Facebook’s users to buy a single virtual currency that can be spent on all games will probably increase sales for developers, said Vish Makhijani, chief operating officer of San Francisco-based Zynga.
‘Additional Liquidity’
“Facebook Credits will drive more people to become buyers,” Makhijani said. “That additional liquidity or ability to spend in more places clearly would be more attractive to a consumer than something you can only spend in one place.”
In rolling out Facebook Credits, the company may still allow players to buy goods using other payment services. Developers would prefer to have Facebook Credits as an option — rather than being the exclusive payments provider — because purchases made with Facebook cost them more, said Vikas Gupta, chief executive officer of Jambool Inc., also known as Social Gold, which offers an in-game payment system.
“Facebook Credits comes at a pretty high tax,” said Gupta, whose San Francisco-based company charges developers 7 per cent to 10 per cent per purchase. Still, he said Facebook Credits “will help grow the overall ecosystem so you’ll see more people pay for goods.”
