Viximo

Last Thursday, Facebook officially announced the alpha testing of their Facebook Payment platform. While they are just rolling it out now, it certainly hasn’t hindered a virtual goods ecosystem from forming across many applications. Certain bloggers have even predicted up to $500 million in 2009 virtual goods revenue for application developers. But now that Facebook has started focusing on a key component which will accelerate the development of the virtual goods ecosystem, how will this impact virtual goods sales on Facebook?

1. Facebook Payments Will Expand The Market Of Virtual Goods Purchasers

Facebook’s Trusted Brand Among Consumers

Let’s be honest. Facebook applications don’t have the most trustworthy reputation. Users find many apps to be “spammy,” useless, and unprofessional, causing them to be nervous about submitting payment information . Facebook itself, however, has a more trusted brand and relationship with users. There will be a significant portion of the Facebook audience who don’t trust their payment information with applications, but do with Facebook.

Facebook’s Brand Leverage

Facebook’s brand leverage and overall size allows it to execute certain initiatives that application developers are unable to. For example, prepaid cards have been found to capture an additional segment of users that don’t have the ability to pay via credit card. However, due to size and cost, it doesn’t make sense for an application developer to launch a prepaid card service on their own. A Facebook branded card on store shelves could do very well in capturing that additional segment of paying users that are currently unavailable to application developers.

Ability To Capture Foreign Audiences

The fastest growing regions on Facebook are all foreign audiences. Developers have struggled monetizing Facebook users outside of North America. Advertising rates are even more dismal than usual, and there are few high payout CPA offers.

Virtual goods presents an opportunity to monetize these high growth audiences. The major road block is accepting international payments . While Credit Cards are a common payment method in North America, popular payment methods vary widely country to country. Habbo Hotel, for example,  has over 160 payment methods to cover their international audience and claims it to be one of the keys to success. This makes it very difficult for individual developers to serve those foreign audiences unless they integrate with an aggregator such as Global Collect. Even then, setup fees are in the thousands and therefore out of reach for most developers.

While it’s not economical for individual app developers to take on the burden of directly integrating with the wide range of international payment methods, it is completely within reason for Facebook to do so. In fact, Facebook has already placed an emphasis on international audiences by accepting credit card payments in 10+ currencies and I expect them to continue to expand this over time.

2. Facebook Payments Will Increase Purchase Conversion

Hundreds of Reasons To Buy Into Facebook Credits

At Viximo, we’ve found that on social networks a major motivator for users paying into a virtual currency is how many different outlets of purchase are available for that currency. The more reasons you give a user to buy into a currency, the higher the rate of success. With the ability to use Facebook credits across numerous applications, users will soon have hundreds of reasons to buy into the system.

Getting a user to buy into a currency is the majority of the battle. After that, the “monopoly money” mindset takes over. The psychology of spending “credits” instead of “dollars” impacts a user’s spending behavior. A test run by Viximo shows that users were 10X more likely to buy a virtual good when they already had stored value in the system. For example, if a user bought currency to play a game, but then ended up in a virtual gift store, that user is 10X more likely to purchase a virtual gift then if they didn’t already have currency available.

Access to Millions of Stored Credit Cards

Success of paid applications on the iPhone platform are partly attributable to the millions of credit cards Apple has stored for one click purchasing. Storing credit cards and one click buying drastically reduces the barrier of payment, and increases the ability of “impulse” buys (which many virtual goods are). Facebook, likely, already has more stored credit cards then any application developer just from their virtual gifting feature. The database of credit cards will quickly grow as more applications are able to integrate Facebook payments. Sharing that database across Facebooks apps will benefit all application developers.

In App User Flow

Some payment methods used by applications to date, such as PayPal, require a user to be taken off site and to a secure Paypal page. At Viximo, we have noticed drastic abandonment rates when this extra step is added into the user process. Facebook’s payments keep the user in the experience of the application with a standard Facebook popover. It might seem like a small difference, but this has a large impact on conversion.

3. Negative Impact on the CPA Offer ecosystem

CPA offer networks such as Gambit, Offerpal, and SuperRewards have been popular methods to monetize virtual currencies and goods on the Facebook platform. In many ways, it was a means to an end, a way to enable the virtual goods ecosystem. Users often complete CPA offers for one of a few reasons:

1. They don’t have access to a Credit Card

2. They don’t trust an application with their payment information

3. They aren’t “sold” enough on virtual goods to enter their payment info

But as mentioned previously , Facebook payments mitigate many of these issues. I have talked to many app developers recently, and over the past 3 – 6 months they have seen the trend revenue coming from offers declining, in favor of direct payments. While Facebook payments will continue to push this trend, I suspect there will always be a place for offer networks, although their market share may be somewhat diminished.

Conclusion

Many questions remain about Facebook’s Payment plans. Who will Facebook allow to use their payment product? How much will they charge developers? Payments is a complex business, so how will they manage the challenges of the industry as their payment platform scales? Will Facebook extend payments beyond their internal ecosystem with Facebook Connect? Even with these questions unanswered it is clear that Facebook has a significant opportunity with their payment platform and  application developers selling virtual goods stand to greatly benefit from the initiative.

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