Strategy & Competition

Facebook Tests a Payment Service for Virtual Goods


The price of a FarmVille tractor is $3.33. A box of fish food for Happy Aquarium sets you back $4.89. The tab for a helicopter in Mafia Wars is $5.95. And Facebook, headed by CEO Mark Zuckerberg, wants a cut of the action.

The giant social-networking site is testing a service that allows it to collect 30% of the sales of virtual game props, according to four people who have held discussions with the company. Facebook has relied to date almost entirely on advertising for revenue, but lately the market for game items has become too big to ignore. The research firm ThinkEquity estimates that sales of virtual goods and all the rest on social networks and mobile phones could quadruple, to $3.6 billion, in the U.S. by 2012. Today almost all such revenue goes to game developers, such as FarmVille's creator, Zynga.

For Facebook "it will likely be a significant revenue stream," says Jeremy Liew, a managing director at Lightspeed Venture Partners in Menlo Park, Calif., which invests in online social games.

Facebook is testing the payment option with 21 games through a service called Facebook Credits. The company will broaden the experiment with more games before its annual developers conference in April, according to people who have discussed the plans. "We are continuing to look at ways to extend our virtual currency—Facebook Credits—via a small alpha test," Facebook said in an e-mailed statement. "The test started in May and is exploring ways for people to use their Facebook Credits with third-party applications."

The most popular networking site, with 400 million users, Facebook is following the lead of Apple (AAPL), which gets a 30% share of sales of applications on its iPhone. At present, people playing games on Facebook can obtain props via third-party payment services or use the nascent Facebook Credits system. The games themselves are free.

Atul Bagga, a ThinkEquity analyst in San Francisco, says that if all game payments on the site shifted to Facebook Credits, the company could collect as much as an additional $530 million in revenue over three years. The reason players might make the move, he adds: "You trust Facebook more than you would trust any other payment company."

Levy is a reporter for Bloomberg News in San Francisco.
Womack is a reporter for Bloomberg News in San Francisco.
Galante is a reporter for Bloomberg News.

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