Virtual Currency, Facebook against Paypal
Facebook is absolutely going to test some form of virtual currency in the next few weeks, in the hopes of finding new ways to monetize its more than 200 million active users. This will become a major issues in the internet world, since Paypal has been dominating virtual currency for ages while facebook definitely has 200 millions users which means as an enourmous potential.
The idea would be to convince a portion of those users to purchase Facebook dollars which they could then use to pay for stuff inside Facebook applications (although knowing Facebook, it would probably call the currency Wolverines or, to give it a more international flavor, Florins or Ducats). Perhaps for Paypal users still could bought this facebook electronic currency.
Most of those applications would be created by third-party developers, and Facebook would take a cut of the pie. And the main question is whether Paypal could still have a slice on those pie or not?
To get the whole complete idea of the business model behind the idea, Michael Hickins has spoke to Cary Rosenzweig, the CEO of virtual world IMVU. Rosenzweig told him that his company generates around $1.00 per user per month from his 1.5 million users, 90 cents of which is from virtual currency and the balance from advertising; the mind boggles as to how much Facebook could reap from its 200 million users. Absolutely those number will still increase, and surely the number will make everyone jealous.
Of course, not all of Facebook's users will buy virtual currency, but then again, it's a safe bet that Facebook apps will cost more than $1.00. And while the comparison isn't perfect, note that the 20 million people who own iPhones have downloaded more than one billion apps -- some of which are free, but many of which are not, and can cost upwards of ten Simoleons.
In any case, launching virtual currency will probably give Facebook a more reliable revenue stream than advertising (which, if you take IMVU as a model, is probably generating Facebook something like 20 cents per user per month, or $40 million. That isn't chump change, but Facebook's ambitions are a little larger than being a $480 million company).
Facebook could also use virtual currency as a way of getting more users (yeah, it's already big, but Twitter serves as a reminder that someone else could come along and steal your hold on the zeitgeist); IMVU gives users 1500 credits (worth around $1.50) for every friend they get to register with the site.
One more thing Facebook could be angling for -- to become literally the gold standard for virtual currency on the Internet. More accurately, this would be like becoming the U.S. dollar. "Given their size and centrality in social networks, I wouldn't be surprised if they're trying to make their currency the equivalent of the U.S. dollar in international markets," Rosenzweig told me.
If you don't think that's a big deal, imagine the pickle we'd be in if the world didn't need dollars to pay for oil with.
For the record, Rosenzweig is thrilled at the prospect of Facebook launching its own currency, just as most SaaS companies are happy to operate in the shadow of Salesforce.com, which blazed a trail of trust and reliability among corporate IT managers. "[Facebook has] such a large footprint -- it will educate hundreds of millions of people about translating real-world currency into virtual currency... Once people get comfortable with virtual currency, once they get over that hump, there'll be no more problem getting them to use any virtual currency," he told me.
Now little bit away from virtual currency, but still about facebook. For the past few years, Facebook has been flirting with the possibility of supporting the OpenID log-in standard, which calls itself "an open, decentralized, free framework for user-centric digital identity" without actually building support for it.
Now, the massive social network--once famous for its ultra-walled-garden approach to data and user experience--announced Monday that it has become an OpenID "relying party," which basically means that it's started, at last, to deploy support for the standard. Facebook joined the OpenID Foundation in February, even though many considered its Facebook Connect log-in standard to be a proprietary competitor.
But, Monday's announcement indicated, Facebook believes the two can work in tandem.
"We've always let our users express their real world connections," a post on the Facebook blog read. "From the beginning, Facebook users could use their college and workplace identities to establish real world networks. Now, they can use open standards to establish their identities on Facebook."
Most notably, you can now register for a Facebook account with your Gmail account, or can link an existing Facebook account with Gmail or other OpenID-participating services if they support automatic log-in.
"We've always believed that making the user experience as secure, lightweight, and intuitive as possible, which 200 million people can comfortably enjoy and understand, is one of our top priorities," the blog post read. That could be a subtle nod to the fact that OpenID, founded in 2005, has historically been a bit difficult for the non-tech-savvy to comprehend.
Facebook's blog post also said that security concerns have been an issue. In working with the OpenID community, "we shared our experience developing Facebook Connect, where we eventually came up with a design that ensures that users would know that they were providing their login credentials to Facebook, and not some unscrupulous site."
The plus side? Facebook's tests have indicated that if new users can register with an existing Web service account, like Gmail, that they are more likely to stick around.
...
The idea would be to convince a portion of those users to purchase Facebook dollars which they could then use to pay for stuff inside Facebook applications (although knowing Facebook, it would probably call the currency Wolverines or, to give it a more international flavor, Florins or Ducats). Perhaps for Paypal users still could bought this facebook electronic currency.
Most of those applications would be created by third-party developers, and Facebook would take a cut of the pie. And the main question is whether Paypal could still have a slice on those pie or not?
To get the whole complete idea of the business model behind the idea, Michael Hickins has spoke to Cary Rosenzweig, the CEO of virtual world IMVU. Rosenzweig told him that his company generates around $1.00 per user per month from his 1.5 million users, 90 cents of which is from virtual currency and the balance from advertising; the mind boggles as to how much Facebook could reap from its 200 million users. Absolutely those number will still increase, and surely the number will make everyone jealous.
Of course, not all of Facebook's users will buy virtual currency, but then again, it's a safe bet that Facebook apps will cost more than $1.00. And while the comparison isn't perfect, note that the 20 million people who own iPhones have downloaded more than one billion apps -- some of which are free, but many of which are not, and can cost upwards of ten Simoleons.
In any case, launching virtual currency will probably give Facebook a more reliable revenue stream than advertising (which, if you take IMVU as a model, is probably generating Facebook something like 20 cents per user per month, or $40 million. That isn't chump change, but Facebook's ambitions are a little larger than being a $480 million company).
Facebook could also use virtual currency as a way of getting more users (yeah, it's already big, but Twitter serves as a reminder that someone else could come along and steal your hold on the zeitgeist); IMVU gives users 1500 credits (worth around $1.50) for every friend they get to register with the site.
One more thing Facebook could be angling for -- to become literally the gold standard for virtual currency on the Internet. More accurately, this would be like becoming the U.S. dollar. "Given their size and centrality in social networks, I wouldn't be surprised if they're trying to make their currency the equivalent of the U.S. dollar in international markets," Rosenzweig told me.
If you don't think that's a big deal, imagine the pickle we'd be in if the world didn't need dollars to pay for oil with.
For the record, Rosenzweig is thrilled at the prospect of Facebook launching its own currency, just as most SaaS companies are happy to operate in the shadow of Salesforce.com, which blazed a trail of trust and reliability among corporate IT managers. "[Facebook has] such a large footprint -- it will educate hundreds of millions of people about translating real-world currency into virtual currency... Once people get comfortable with virtual currency, once they get over that hump, there'll be no more problem getting them to use any virtual currency," he told me.
Now little bit away from virtual currency, but still about facebook. For the past few years, Facebook has been flirting with the possibility of supporting the OpenID log-in standard, which calls itself "an open, decentralized, free framework for user-centric digital identity" without actually building support for it.
Now, the massive social network--once famous for its ultra-walled-garden approach to data and user experience--announced Monday that it has become an OpenID "relying party," which basically means that it's started, at last, to deploy support for the standard. Facebook joined the OpenID Foundation in February, even though many considered its Facebook Connect log-in standard to be a proprietary competitor.
But, Monday's announcement indicated, Facebook believes the two can work in tandem.
"We've always let our users express their real world connections," a post on the Facebook blog read. "From the beginning, Facebook users could use their college and workplace identities to establish real world networks. Now, they can use open standards to establish their identities on Facebook."
Most notably, you can now register for a Facebook account with your Gmail account, or can link an existing Facebook account with Gmail or other OpenID-participating services if they support automatic log-in.
"We've always believed that making the user experience as secure, lightweight, and intuitive as possible, which 200 million people can comfortably enjoy and understand, is one of our top priorities," the blog post read. That could be a subtle nod to the fact that OpenID, founded in 2005, has historically been a bit difficult for the non-tech-savvy to comprehend.
Facebook's blog post also said that security concerns have been an issue. In working with the OpenID community, "we shared our experience developing Facebook Connect, where we eventually came up with a design that ensures that users would know that they were providing their login credentials to Facebook, and not some unscrupulous site."
The plus side? Facebook's tests have indicated that if new users can register with an existing Web service account, like Gmail, that they are more likely to stick around.
