One of Pixels and Policy's favorite discussion areas is digital integration – whether we're looking at how augmented reality is finding a niche in the music industry or how virtual currency standardization is moving much quicker than many suspected.
Facebook's recent announcement that the social gaming titan Zynga would be accepting Facebook's pay-to-play "credits" in addition to Zynga's PayPal currency transfer method went relatively unnoticed, but it could be the catalyst for more major changes in how we fund our virtual lifestyles.
Pixels and Policy investigates.
Virtual Currency, Any Way You Want It
As Virtual Worlds News reported on the 26th, Facebook is looking to take a cut of the fast-growing virtual economy, and pay-for-premiums transactions are a safe way to enter into the market. Facebook isn't new to the idea – their Facebook Credit system already requires a transfer of real cash for virtual tokens – but allying with Zynga opens bold new doors for the future of the Facebook Credit system.
What is Facebook's plan? It's simple: Facebook allows users to exchange real currency for Facebook "credits," which can then be spent on a variety of products offered by Facebook. Credits can be used to promote a band through digital advertising, or a gamer can buy extra cash or unique items from the few games that support the Facebook Credit system. With the announcement of Facebook's improved partnership with games designer Zynga, the number of games open to Facebook Credits just spiked, and now includes some of the most popular (and profitable) social media games.
Zynga is the undisputed titan of social media gaming, with an estimated $500 million in revenue from 2009 and open discussion of a late 2010 public stock offering. It isn't difficult for Facebook's financial team to calculate just how much of Zynga's corporate wealth comes from the $1 to $5 microtransactions that emanate from FarmVille's 75 million unique monthly users. By comparison, the Facebook Credit system doesn't match up.
Virtual Worlds News took a look at Facebook's expected cut, and how increasing the accessibility of real-money transactions in games like FarmVille could end up being a net gain for Facebook, Zynga, and consumers:
Sources are claiming that Facebook's take of transactions
using the Credits platform will be 30%, much higher than other players
in the payment space but lower than some early estimates.
At least one developer believes that Facebook Credits will
single-handedly increase conversion rates enough that Facebook's take
It's a bold move not only because Facebook will single-handedly expand the potential customer base for real-money transations, but because this marks the first time Facebook has offered its Facebook Credit conversion through a major social gaming developer like Zynga. Previous efforts through games like Happy Aquarium fell victim to middling consumer interest, but a FarmVille tie-in will certainly catch the eyes of millions of harried digital agriculturalists.
Facebook as the Vanguard of Virtual Currency Standardization?
By making Facebook Credits legal tender for all of your Mafia Wars and FarmVille needs, Facebook has shrewdly edged into an expanding and very profitable market. The virtual economy topped $1.6 billion in the United States for 2009, and is expected to top $5 billion domestically within five years. Of that $1.6 billion, the majority came from the transfer of real money into virtual worlds for the purpose of item purchases. Facebook clearly sees a low-overhead, high-profit opportunity in its partnership with Zynga.
What's more, if Facebook's partnership with Zynga goes well, it could integrate further by using an established force like Offerpal, which recently made a power play aimed at increasing its market share of the virtual transactions business. In fact, the entire virtual transaction industry is in a state of greater integration, with several pioneering services offering one digital currency valid across multiple worlds and developers.
While the hope of a single virtual currency for social media games may be a bit optimistic, Facebook's integration into Zynga shows that serious market players are turning their interest to the virtual goods market. Depending on the success of Facebook's experiment in virtual commerce, other companies could jump in as 2010 progresses.