Facebook Could Make Actual Millions With Virtual Payments

facebook Facebook will soon begin testing a system that would let members use its virtual currency to make purchases within applications in the social network, providing a potential new revenue stream for the company.

Until now, people have only been able to use Facebook "credits" ($1 buys 100 credits) to purchase items in the site's virtual gift store. But extending that virtual currency to the site's thousands of third-party applications could possibly bring in millions of dollars in additional revenue for the company.

The blogs Inside Facebook and VentureBeat estimate that developers this year will generate between $300 million and $500 million in revenue from transactions within Facebook applications that currently offer payment options via credit card, PayPal and other providers such as OfferPal and SuperRewards.

Through its own gift shop, which sells things like virtual birthday cakes and flowers, Inside Facebook estimates that Facebook will make $45 million to $55 million in 2009. That would amount to about 10% of a projected $500 million in total revenue for the company this year.

Going a step further by creating a "universal" virtual currency system for applications "could be a powerful revenue driver for the company, which to date has largely abstained from directly monetizing the sea of applications running on the Facebook Platform," wrote Inside Facebook's Justin Smith, in a post Tuesday about Facebook's plans to trial its virtual currency in apps.

Indeed, the company has come under criticism for not doing more to make money from its developer platform, while helping companies like Zynga, Rock You and Slide to flourish by distributing apps on Facebook.

A Facebook spokesperson Wednesday confirmed the test, but indicated that it was too premature to provide details. "We're starting a very small alpha test in a few weeks with a handful of developers that explores ways for users to use their Facebook credits with third-party applications on Facebook.com," he said.

Facebook initially announced plans to begin beta testing a payment system for application developers in December 2007, but the company appeared to put that effort on hold while it focused on growing its user base and other priorities.

But that has not stopped competitors from pushing ahead with their own e-commerce initiatives. Social network Hi5 in March launched a virtual currency system for developers, and MySpace is reportedly looking to develop its own payment system for third-party applications.

With Facebook and other social networks still struggling to monetize their vast amounts of inventory through advertising -- especially amid the economic downturn -- any supplemental e-commerce revenue they can produce is welcome.

But why should developers who already offer various payment options want to add another from Facebook? The company says it would give members more places to use Facebook credits and developers another avenue to monetize apps. Smith adds that Facebook's own currency would have the benefit of being more deeply integrated into the social network's ecosystem than a third-party service.

While no details have been disclosed, Smith speculates that developers who agreed to accept Facebook credits would be reimbursed by Facebook for currency spent in their apps, less a small percentage the company would take as a commission.

1 comment about "Facebook Could Make Actual Millions With Virtual Payments".
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  1. Michael Trigg from hi5, May 16, 2009 at 7 p.m.

    I'm VP of marketing at hi5. As this article mentions, hi5 is already doing exactly what is proposed in this article. Our virtual currency, hi5 Coins, has been available since December. Just last week we announced that RockYou is live as the first third-party developer integrated to our virtual currency http://www.hi5networks.com/prs/0513090.html And we will be announcing a string of additional partnerships with new game providers in the coming weeks.

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