Video calling could be Facebook’s next freemium bombshell

Social networking site Facebook launched a new service on Wednesday within the site that lets users start video conferences with each other using Skype’s video chat technology. The chief executives of both companies said the service was free, but teased reporters with suggestions that they might introduce premium features in the future.

That would give Facebook, which primarily makes money off advertising, a new and potentially huge source of revenue if the company starts charging for premium video-calling features with Skype on the website. It could also benefit Microsoft, which has announced its plans to acquire Skype, by giving it access to many potential customers.

Facebook CEO Mark Zuckerberg said the social networking site has 750 million users, and new users join the site on a daily basis. That’s a huge audience that might be willing to pay for extra ways to communicate with their friends without leaving the main Facebook website, like starting group video chats or having virtual voicemail inboxes for the service.

“Remember what we did here — an easy, one-button click to call a friend that is on a social network that already has all your friends,” Zuckerberg said at an event to unveil the product in Palo Alto, Calif., on Wednesday.

Right now Facebook has two sources of revenue — Facebook credit transactions with games like FarmVille and advertisements, the company’s largest source of revenue. The company is reported to be generating nearly as much revenue as companies like Yahoo off its advertising, to the tune of $4.05 billion this year, eMarketer predicts. Social games are also very popular, if social gaming company Zynga’s $1 billion IPO is any indication, and Facebook likely makes a lot of money off transactions within those games. Zynga sells nearly 38,000 virtual items every second, and those sales typically use Facebook credits.

Facebook games were largely successful because they rely on a “freemium” model. Here’s how it works: players are able to play online games for free but must pay for additional perks like becoming more powerful at a quicker pace. The model was so successful that it has since spread to virtually all types of services, ranging from music streaming to enterprise social networks like Yammer — where companies give out a number of features for free but charge for better, premium features.

Facebook’s video calling service only allows one-on-one video chats right now. There are other video conferencing services — Skype included, through its own desktop app — that allow multiple people to join the same video conference. It’s useful for business, but the existence of apps like ooVoo has shown that consumers enjoy starting multi-person video conferences too.

Video calling itself is also very popular. More than 50 percent of the calls going through Skype’s voice-over-Internet service are video calls, said Skype chief executive Tony Bates. The company also logs more than 300 million minutes of video calling every month, he said at the event today.

It’s popular enough to have even snared Google, which added a video conferencing feature to its newest social network, Google+. The Hangouts feature lets up to 10 people join a group video conference and talk amongst themselves. That service is free and works pretty well. VentureBeat’s Devindra Hardawar called the Google+ Hangouts feature the “killer feature” of Google+.

Facebook has been diversifying its revenue streams outside of just advertising and transactions. The company recently unveiled Facebook Deals, a competitor for group-buying site Groupon. Video calling could serve as another large source of revenue if it proves as popular on Facebook as it is on other apps and in other ecosystems. The company also incorporated “Facebook Payments,” a company based in Florida, in December last year.

The company has not laid out the exact financial details about its deal with Skype yet, but it does seem like a bigger boon for Skype, which will be able to tap into Facebook’s massive audience. Skype has around 170 million users compared to Facebook’s 750 million users.


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