Friday, January 28, 2011

Facebook Credits - Making It Easier to Buy Nothing of Value

It's great that Facebook is at the vanguard of American consumerism, creating a new artificial currency to help people buy "virtual goods" for the various games offered through its platform. It makes no sense, after all, to buy a fake tractor for your fake farm with real money - so it should not be a surprise that Facebook would have you first buy fake money and skim a 30% "service fee" on your purchases. Plus all the "Facebook credits" gift cards that go lost or unused? Pure profit. But don't fret too much - you can use fake Facebook money to buy other types of fake money for your favorite games:
Facebook says that Credits will be the exclusive way for users to get their ‘real money’ into a game, but developers are still allowed to keep their own in-game currencies (FarmBucks, FishPoints, whatever). For example, Zynga can charge you 90 Facebook Credits for 75 CityCash in CityVille.
Gotta love the exchange rates.

Fortune asks whether forcing its users to buy fake money to use on its apps could turn Facebook into the next PayPal. Nope.
Paying friends back online; buying goods from vendors; wiring money as soon as it's needed. That's PayPal, but there's no reason it can't become Facebook, and there's no reason Facebook, with its social features, wouldn't be a better at it.
Actually, there are very good reasons why you don't want your PayPal account to have "social features" any more than you want your checking account or credit card to have "social features". Heck - it's bad enough already when junior decides to use your credit card to pay for his fleet of fake tractors.

Also, if you're selling fake tractors, paying somebody 30% of your profit margin for the privilege of using their fake money isn't going to devastate your bottom line. But you simply cannot afford to do that with real goods and services. No merchant is going to say, "I can pay 1 - 3% in service fees to receive payment via PayPal or a credit card, or I can pay 30% to accept payment in 'Facebook Credits'... dang, how can I get my customers to pay with Facebook Credits?" Now, granted, Facebook may eventually start offering tiers - "If you're selling real goods, we'll charge you a 1 - 3% service fee; if you're selling virtual goods we'll charge you 30%" - but under the present scheme that idea has less appeal than Flooz. (I have a Flooz gift card somewhere, assuming it's not lost to the ages, a gift for which I'll always be grateful - after all, what choice do I have?)

Something else to remember: PayPal is designed to be very secure. Yes, it's possible for the security to be defeated, but I can't recall anything quite as embarrassing as this. It's one thing if the worst damage you can do when hacking somebody's account is post something embarrassing to their wall, send obnoxious messages to their friends and change their profile picture. It's another thing if you can start purchasing items with the account as if it's a credit card, or transfer credits to your buddies in Bangalore or Bulgaria.

As for the money you put into PayPal? Real money. The money people send you through PayPal? Real money. The money you take out of PayPal? Real money. Do you have $800 in your PayPal account? You can take it out. Do you own $800 worth of Facebook Credits? Um... enjoy buying those virtual tractors. Refunds? Try finding the word "refund" on their help page. And as for the glorious "social aspect" of Facebook, what if I want to transfer some of my credits to a friend? I don't see that, as of yet, transfers are supported. (But I can give my friends the opportunity to buy the same virtual tractor I just bought... at a discount. "I was just dumb enough to spend $5 on a virtual tractor - and now the same virtual tractor can be yours for only $4.50!"1)

I do agree with Fortune that it will be very good for Facebook if it can successfully impose its system of credits on app providers. They will be guaranteed their 30% cut, up front. Facebook users won't have to deal with multiple points of payment or "virtual currencies", and with their credits having universal value may be inspired to try more apps. But if I'm an app developer I have the opposite problem - I can't sell my own credits as easily (and won't reap the benefit of lost or unused gift cards), my users won't be locked into using their credits on my app (or family of apps), and it's more difficult for me to engage my users through other platforms that might in the short- or long-term be considerably more profitable for me than Facebook.
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1. If you're reading this and you just paid $5 for a virtual tractor, um... present company excluded?

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