Updated with analyst comments.
Facebook is announcing the next phase in the rollout of its virtual currency, Facebook Credits, which is leaving beta testing today. That means all Facebook game developers will be able to use Credits as their payment system for virtual goods — in fact, Facebook is requiring them to make the switch by July 1.
Facebook Credits are a system of points, managed by the social network, that can be purchased or awarded in exchange for marketing offers, then traded in within games for virtual add-ons that enhance gameplay. It’s a surprisingly large business already: In 2010, the market for such purchases reached an estimated $835 million, according to a report by Inside Network.
Facebook planned to make the announcement at noon Pacific today, but it’s releasing the news a little early after TechCrunch got the scoop from an unidentified source and predicted that decision would “ruffle some feathers”. That’s probably true, though the transition is already well underway. In the past year, Facebook held occasionally tense negotiations with the biggest social game developers like Zynga to bring them on-board with the program.
During the beta period, 150 developers starting using Credits in 350 applications, representing more than 70 percent of all the virtual goods transactions in Facebook, according to Credits product manager Deb Liu. She emphasized that while the big deals attracted the most attention, Facebook made sure to include large and small developers in the beta.
Liu told me the move should improve user experience by turning Credits into Facebook’s “universal currency,” one that can be used in any game.
And come July, Facebook will be pushing for even deeper integration of Credits. Right now, Liu said games can use Credits in two ways — as a way to purchase the in-game currency, or as the in-game currency itself. In Zynga’s popular game CityVille, for example, you can use Credits to buy City Cash, and then use City Cash to buy virtual goods. Facebook, however, wants developers to get rid of those other currencies, so that users can buy goods directly with Credits. Facebook will be offering incentives like prominent placement on the site’s games dashboard to developers who make the switch.
Facebook may have a financial reason to make these changes, since it takes a 30 percent cut of all Credits purchases. In the past, the company’s executives have said that they don’t expect the program to be a big moneymaker initially, and that any profits would be reinvested in the Credits product. When I asked about that today, Liu said Credits revenue will “enable us to invest more into the platform.”
Update: I spoke with Atul Bagga, an analyst who focuses on digital media and online gaming for ThinkEquity, about the news. Bagga emphasized that the decision definitely isn’t a surprise, since it’s been pretty clear that Facebook was moving in this direction.
He characterized the switch as very significant and “over the long-term, definitely positive,” because it will help overcome any hesitation that users might have about spending real money on virtual currency. Now they’ll know that if they buy Credits for one game they can use those Credits elsewhere. However, there could be some short-term pain as developers try to make the transition, he said.
As for how significant this is for Facebook’s revenue, Bagga speculated that it could be “a very nice layer of revenue opportunity” for the company. But ultimately, Facebook is more interested in becoming a platform that makes its money from advertising.
“They see Google as the competition,” he said.
[image via Flickr/Mykl Roventine]
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