As discussed about in an earlier blog, when increasing majorities of our lives are going online, and online behavior and habits will increasingly get transactional such as buying goods and products. Due to the global nature of the domain itself, purchasing and buying will be greatly facilitated by a virtual online currency, for procuring virtual goods and services online. Sales of virtual goods are projected to reach $1.6 billion this year in the United States alone, according to an Inside Network report. About half of that will be spent on social games, and the majority of that in Facebook games such as Farmville. Facebook Credits is one of the first virtual online currencies that promises to be a billion dollar business soon in the days to come.
Facebook is taking its first steps to becoming a dominant player in the virtual currency space and is expected to face stiff competition from Apple, Google and Paypal. Currently Facebook credits is the “funny” money that is used to pay for things on Facebook from online magazines to Farmville turnips. Going forward this “Funny” money may have serious relevance to a lot more than Facebook fun elements. Right now, most virtual goods are acquired within games, but music, movies, and other forms of content could follow suit, increasing the stakes in the race to reduce the friction affecting in-app transactions. Paying Consumers (Through Virtual currency) for watching online video ads or service registration is another way of transacting “funny money”
Facebook already has a big advantage over those companies: a virtual currency, Facebook Credits, that works across different apps rather than being tied to one specific app or another. The other fact that also provides the edge to Facebook in terms of virtual currency is the way they have migrated their partner game and application publishers: Zynga, Playdom, Playfish, Crowdstar, RockYou to Facebook credits. Zynga, the Farmville creator has already been selling over $1 million-worth of virtual credits per day as early as April. Because of the relationship that Facebook has with publishers, it has been able to have every single major publisher switch to Facebook Credits. This provides enormous traction to the platform in its very early days.
The significant other players who could challenge Facebook on the virtual currency platform are Apple and Google. Apple with its 250K apps and iTunes store already has a platform ready through which it needs to integrate its virtual currency. Apple also has the experience and the competency in terms of real time selling of their virtual goods i.e selling iTunes through payment gateways and pre-paid gift cards. Google hasn’t reported much on the virtual currency but with allies like Google Checkout, YouTube, Google Books; Google also has a very strong base for building a virtual currency framework which would integrate into its online merchandise pretty well.
Emergence of more than 2 virtual currency platforms can create complications for developers. App users and gamers will then have to maintain stockpiles of multiple virtual currencies, one for each platform on which they wish to access the same cloud-based app or game which could be a bit of muddle. However, ignoring/non-participation this platform could be a foolish tactic because as and when the Virtual currency platforms reach critical mass and thresholds, would mean lost opportunities and failing to encash on the opportunity !