Facebook announced this week that it will be launching its Facebook Credits virtual currency in June so that people can spend real money on virtual goods in games and other apps on the social network.
That doesn’t sit well with other providers of virtual currency, including Jambool, which offers virtual currency on its Social Gold platform. Vikas Gupta, chief executive at Jambool in San Francisco, wrote in a blog post that Facebook’s new currency could actually hurt the purchasing of apps. Credits are supposed to accelerate the spending of money on Facebook’s free-to-play apps. In these apps, such as Zynga’s popular FarmVille game, players would play a game for free but use the currency to buy special items like better tractors for tending crops.
At the f8 conference in San Francisco earlier this week, Facebook manager Deb Liu said that users will have a two-step process when they want to buy something in certain apps. They would use a credit card or another payment means to buy Facebook Credits. Then, in games where there is a separate currency, they would have to convert the Facebook Credits into a new currency before they could actually spend it. In response to a question, Liu acknowledged that the two-step process could slow things down and possibly stop users from making a purchase.
“We’ve always argued that the purchase experience needs to be in-game, user friendly and above all frictionless,” Gupta wrote. “This means that the money should flow from one end of the system (user’s pocket) to the other side (the game) with least amount of friction or steps involved. We consistently see that this is what the ideal model is, and this is what drives better conversion and higher ARPU for games. This is also what users want — there is less confusion, and the users do not get disengaged from the game they are playing.”
He added, “Whenever the users have to buy one currency and then convert it to the game’s currency, the conversion is poor. However the games will always want to have their own currency. Given this, it seems Facebook has a challenge on its hands: Facebook Credits have poorer conversion and therefore lower monetization than platforms like Social Gold.”
Facebook chief executive Mark Zuckerberg has said that there are lots of advantages to standardizing around a single currency, allowing users to spend money in lots of apps without having to enter their credit card numbers over and over. Liu argued that Facebook Credits will be like the euro in Europe, motivating people to cross borders and spend money.
But there are lots of reasons that game publishers will want to maintain their own currencies. One reason is that currency is often used to motivate users, with sales promotions that are specific to a game. Developers have also been upset that Facebook is taking a 30 percent commission on transactions using Facebook Credits. (Our poll showed that two out of three respondents felt this amount was too high).
“Such sales and giveaways are always local to a game, as it keeps the economic impact localized to single game,” wrote Gupta. “It continues to be that currency is just as integral to the game’s dynamics as the virtual goods themselves — often even more so. Giving away control of that currency reduces the potential of your game, and limits what your game can do on the platform.”
Gupta concluded, “We continue to believe that Facebook identity — thanks to the simple and elegant Open Graph API — will be everywhere on the web. On that Open Graph, developers have two choices to monetize: a low conversion, high fee universal currency [Facebook Credits], or a high conversion, low fee platform like [Social Gold].”
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