2 articles originally combined via slashdot.org:
http://www.forbes.com/sites/georgeanders/2012/01/20/is-facebook-a-central-bank-too/
Is Facebook a Central Bank, Too?
Facebook’s 27-year-old founder,
Mark Zuckerberg, isn’t usually mentioned in the same breath as
Ben Bernanke,
the 58-year-old head of the Federal Reserve. But Facebook’s early
adventures in the money-creating business are going well enough that the
central-bank comparison gets tempting.
Everything started quietly, in 2009, with the experimental launch of
Facebook Credits, billed as “the safe and easy way to buy things on Facebook.” Anyone who chipped in $5 from a Paypal account,
Visa card or the like, could do the equivalent of changing money on an overseas trip. Voila! — $5 turned into 50 Facebook Credits.
Initially, the Credits-based economy was confined to the virtual
world’s trifles. Credits could be spent to buy imaginary gold bars for
aficionados of Mafia Wars, or bouquets of virtual flowers for birthday
postings on friends’ Facebook accounts. This new form of digital money
was cute but essentially useless for mainstream activities.
Lately Credits have become more intriguing. Warner Brothers this
summer offered movie-goers a chance to watch “Harry Potter” and “The
Dark Knight” for 30 Credits apiece. Miramax and Paramount countered with
film-viewing offers, too. In a provocative post this week on Inside
Facebook, guest blogger Peter Vogel
argues
that Credits in the next few years will become more of a true currency.
Facebook’s 800 million worldwide users represent a lot of buying power.
He figures Credits could evolve into commercial mainstays for digital
movies and music.
Vogel has a personal interest in seeing Credits take off. He is
co-founder of Plink, a customer-loyalty program in which people earn
Facebook Credits by eating at participating restaurants. Plink is just
getting started, and no one knows yet how much traction his company
ultimately will enjoy. But such uncertainties can’t stifle Vogel’s
ebullience. He predicts that the Facebook Credits economy could double
every year for the next five years.
Already, Credits looks very rewarding for Facebook, thanks to
built-in commissions or transactions fees. Merchants participating in
the Credits economy receive 70 cents of every dollar spent on their
wares; the other 30% goes to Facebook. That’s in line with the way that
Apple
Inc. runs its iTunes store. It’s far more lucrative than the 2% to 5%
fees associated with credit cards or currency-exchange counters in the
traditional economy.
Facebook won’t say how much it’s making from Credits, but the research firm of eMarketer offered up a widely quoted
estimate
in September. Its tally: $470 million of revenue in 2011, or about 11%
of Facebook’s total business. Costs associated with the Credits program
are likely to be trivial. So while advertising remains Facebook’s
dominant source of revenue, banking looks like an alluring second way of
making money — literally.
Edward Castronova,
a telecommunications professor at Indiana University, is fascinated by
the rise of what he calls “wildcat currencies,” such as Facebook
Credits. He has been studying the economics of online games and virtual
worlds for the better part of a decade. Right now, he calculates, the
Facebook Credits ecosystem can’t be any bigger than Barbados’s economy
and might be significantly smaller. If the definition of digital goods
keeps widening, though, he says, “this could be the start of something
big.”
In the short term, Facebook may choose to move cautiously with its
Credits-based economy. Company executives are likely to have their hands
full the next few months, trying to manage a successful initial public
offering of stock. Moving too aggressively into banking could invite
more government regulation than Facebook wants.
Still, Facebook’s buildup of Credits suggests more than just a minor
dalliance. Facebook already takes payment for Credits in more than 40
currencies — ranging from the euro to the Vietnamese dong. Exchange
rates are adjusted daily. It probably won’t be long until some
economist tries to calculate the inflation rate, money-supply velocity
or other traditional dimensions of the Facebook economy.
If Facebook at some point is willing to reduce its cut of each
Credits transaction, this new form of online liquidity may catch the eye
of many more merchants and customers. As Castronova observes: “there’s a
dynamic here that the Federal Reserve ought to look at.”
--
Predictions for Facebook Credits in 2012
http://www.insidefacebook.com/2012/01/18/predictions-for-facebook-credits-in-2012/
[Editor's note: This is a guest post by Peter Vogel, co-founder of Plink,
which lets consumers earn Facebook Credits for dining out and shopping
online. He argues the rise of Open Graph applications will push Facebook
Credits beyond social games and one-off experiments to become a major
source of revenue for Facebook and developers.]
Although Facebook Credits is still primarily an in-game currency, in
2011 we began to see a glimmer of what Credits will look like when it
grows up.
Movie studios like Miramax, Warner Bros. and Paramount Pictures, not
to mention BBC Worldwide began offerings movies and TV shows for rent on
Facebook. As an example, in promotion of “Mission: Impossible, Ghost
Protocol,” the series’ first three movies were made available for rent
on Facebook for 30 Credits per rental. In addition, to promote the
launch of “Tower Heist,” Universal Pictures gave away 1 million Facebook
Credits ($100,000 value) in an online scavenger hunt. DJ David Guetta
began selling MP3s on his Facebook Page (19 Credits per track) and
U.K.’s “Big Brother” and “The X Factor” began allowing fans to vote for
contestants using Facebook Credits.
These examples, however, were few and far between in 2011 and it’s
fair to say that even most Facebook users don’t know what Credits are
for. 2012 is the year this will change.
Prediction 1: Facebook adds subscription billing as an option for Facebook Credits
Currently companies who sell virtual goods or products on Facebook
can only accept one-time payments via Facebook Credits. For example, a
player can use a small amount of virtual currency to buy a new cow in
Zynga’s FarmVille. But media companies such as Netflix and Spotify would
need a monthly billing plan. Consumers could agree to pay 100 Facebook
Credits for monthly access to movies or music and would agree to be
billed monthly. Until Facebook adds a monthly billing feature, it will
be difficult or nearly impossible for many of the largest media
providers to accept Credits.
Facebook will continue to improve the Credits platform in other ways
as well to make it more functional and profitable for developers to use.
Credits is the primary way, if not sole way, most developers generate
revenue, so you can be sure that Facebook is truly committed to making
Credits as flexible and effective a currency as possible.
Prediction 2: Open Graph Partners, including Spotify and Netflix, start to accept Credits
During its F8 conference, Facebook announced 17 music partners who
would integrate Open Graph, allowing users to share their listening and
other behaviors with friends. Spotify initially gave users a six-month
free trial. Now, though, the nearly five million new members who’ve been
getting unlimited free music will be limited to 10 hours a month and
only five plays per song — not that much for a real music fan. Look for
Spotify to add Facebook Credits as a payment option for these new users,
potentially even offering special introductory rates to entice users to
commit to a year-long membership.
In addition, a few notable facts lead me to believe something big is coming from a Netflix/Facebook partnership.
- Netflix’s CEO Reed Hastings joined the Facebook Board of Directors in June of 2011.
- Netflix recently signed deals with BBC, DreamWorks and Disney to increase the quality of available streaming content.
- A piece of legislation cleared the House and is on its way the
Senate that would reverse a law enacted in 1998 that forbids public
disclosure of video rental records. This would prevent the sharing of
movies being watched between Facebook users. Much as users now have
“Like” or “Listening to …” labels, it’s widely anticipated there would
be a “Watching” tag as well.
This increased level of sharing could dramatically increase the
number of Netflix movies watched and shared on Facebook, leading to a
Facebook-only Netflix plan that could be paid for with Facebook Credits.
Prediction 3: The size of the Facebook Credits economy will double every year for the next five years
Similar to Moore’s Law, which famously predicted that the number of
transistors than could be placed inexpensively on an integrated circuit
doubles every two years and Mark Zuckerberg’s Law that (scarily to some)
states that people will be willing to “share” twice as much each year, I
believe the Facebook Credits economy will double every year for the
next five years.
This is based on the staggering amount of new ways that people will
be earning and spending Facebook Credits over the coming years and the
international growth, which will follow innovation in the U.S. This is
conservative based on reports we’ve already seen that global revenue
from Facebook Credits more than tripled in size from 2010, $140 Million,
to $470 million in 2011. By 2016, Facebook Credits could be a $15
billion business.
What’s driving this? One example is the efforts by Milyoni, one of
Facebook’s leading commerce and video streaming platforms. This year,
Milyoni was responsible for hosting the first ever movie available for
rent on Facebook, Warner Bros.’ “The Dark Knight,” at a cost of 30
Facebook Credits. Milyoni also hosted the first ever live pay-per-view
concert on Facebook, “Widespread Panic” live from Austin, Texas, at a
cost of 50 Credits. This year, according to Dean Alms, VP of strategy
and marketing at Milyoni, they have deals in place with 13 movie studios
and expect to offer 3,000 movies for rent on Facebook. That’s compared
to less than 100 films offered in 2010. In addition, the company has
plans to stream 40-50 live concert and events available on a live
pay-per-view basis, compared to just two in 2010. Multiply this by other
innovative companies and you get an idea of what’s to come this year
and beyond.
Final Take:
Facebook has proven that the Credits model can work in social gaming,
which represents between 25-30 percent of Facebook users, and will now
utilize the same model to first enter the business of music, movies, TV
and any other shareable media, before entering larger industries like
financial services and health care in the coming years.
While still relatively unknown, Facebook Credits will emerge and
begin to mean very real cash to a quickly expanding group of first-mover
entrepreneurs and innovators who are just starting to get a whiff of
the opportunities presented by the Facebook Credits economy.
It’s for real and it’s here.
Peter Vogel is co-founder of Plink,
a Facebook Credits-based loyalty program that rewards Facebook members
for dining and making purchases at their favorite restaurants and
stores. Reach him via email at peter@plink.com or follow him on Twitter @pvogel.