Facebook Sees Profits in New Payment System
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As social networking use continues to increase at a staggering rate, is Facebook on the way to decreasing its reliance on ads as it attempts to achieve profitability?
It appears that may be the case, if the social networking site can successfully employ a unified payment system for virtual goods used in games at the site, therefore putting the company in a position to get a slice of the revenue.
Facebook began early roll-out of an internal payment system allowing members to buy "credits," then use those to purchase virtual goods from third-party applications, such as games, that run on the site, according to the Financial Times Web site.
If reports are true, it could mean that the social networking site is making some progress at earning some money from its 300 million members. "Facebook hopes that by offering a site-wide currency it will encourage more commerce on the Web site. By serving as the payment provider, it will capture a percentage of every transaction," according to the Financial Times.
The way the system works now leaves Facebook out of the payment loop, as third-party developers create their own payment systems and take all the revenue. The premise is that a unified payment system for items such as virtual poker chips for card games would make it easier for Facebook members to play more games. This, in turn, would benefit everyone involved, but especially Facebook, which would be getting a cut of the transaction, and therefore presumably making money off the revenue stream for games, which is quite significant.
For now, it seems Facebook is using the payment system with just three applications, but plans to introduce it to more applications in coming weeks.
As Facebook, like other social networking sites, struggles to generate revenue, one of Facebook's largest app developers, social gaming firm Zynga, is reportedly pulling in revenue of approximately $100 million a year, according to the blog AllFacebook.com. The company makes games for other sites, so that may not all be coming from Facebook applications, but it does signal there's money to be made.
Zynga is one of the leading third-party developers on Facebook, with approximately 42 million monthly active Facebook members playing its games, which include Texas Hold 'Em and Mob Wars. The payment component comes in when, for instance, players buy virtual poker chips to play the card game.
Zynga and Facebook had not returned calls seeking comment by press time.
News of Facebook's push for profitablity comes at a time when social networking continues to grow at a rapid clip. The amount of time people in the U.S. spend on social networking sites jumped 83 percent over the past year, according to a study by market researcher Nielsen Online released yesterday.
And Facebook is leading the way -- Facebook users in the U.S. collectively spent 13.9 billion minutes on Facebook in April 2009, up 700 percent from the 1.7 billion minutes they were spending in April 2008, according to the study.
Minutes spent on Twitter soared a whopping 3,712 percent to almost 300 million, versus around 7.8 million from the same month a year ago.
"We have seen some major growth in Facebook during the past year, and a subsequent decline in MySpace," Jon Gibs, Nielsen's vice president for online media and agency insights, said in a statement. "Twitter has come on the scene in an explosive way perhaps changing the outlook for the entire space."
But the report also warned that what's hot in the social networking space today, may not be tomorrow. "Remember Friendster? Remember when MySpace was an unbeatable force? Neither Facebook nor Twitter are immune," said Gibs. "Consumers have shown that they are willing to pick up their networks and move them to another platform, seemingly at a moment's notice."
For now, however, it appears Facebook may in a position to finally leverage its vast member community, though at least one analyst thinks social gaming may not ultimately be the most profitable.
"Facebook is experimenting with a lot of things in this area right now, so I see this as just one part of that, I don't think it's going to be the absolute revenue generator for the company," said Jeremiah Owyang, social media analyst with Forester, told InternetNews.com.
Rather, he said focusing on streaming content is a better strategy. "One of the biggest opportunities for them is to monetize media, stream content within the network, things that people want to view in a social context," said Owyang. "For example, if you streamed 'Wolverine,' and had people watch it live, they might pay to do that. Another example is something like the inauguration. I think that's an interesting play because members might just pay for premium content in a social context."