Developers say Facebook Credits is converting fewer paying users than they had hoped

Facebook’s top developers say the company’s payments infrastructure and virtual currency Credits are converting fewer paying users than they had hoped a year ago.

Facebook made it mandatory for developers to use its payments platform in canvas games in July. That meant developers on the platform had to start handing over a 30 percent revenue share to the company, mirroring a similar split on Apple’s iOS. The hope was that a single, universal currency would make it more frictionless for users to start paying for virtual goods.

“We thought that conversions would go up and be around 15 or 20 percent,” said Kevin Chou, the chief executive of Kabam, a social gaming company that targets a more hardcore demographic, at the Inside Social Apps conference in San Francisco. “But it turned out to be around 5 to 10 percent, meaning that we’re taking a 20 percent net tax.”

For comparison, Facebook’s biggest developer, Zynga, revealed in its prospectus that it had 3.4 million unique payers during the third quarter of last year. That’s out of 152 monthly unique users in the same time period, suggesting a 2.2 percent conversion rate. Zynga attracts a much larger, more casual audience, so we’d expect to see a lower conversion rate compared to Kabam.

Anil Dharni, who co-founded Funzio, which has had hits on iOS and Facebook like Crime City, said the move to Credits ended up being roughly even for the company.

“Facebook credits is a wash for us,” he said. “It increased the conversion rate but we actually saw a gradual decrease in average revenue per paying user. It’s hard to know why.” Funzio has since moved its focus to iOS, where it has launched Crime City and Modern War, both titles that reached the top of the grossing charts.

Facebook’s payments revenue increased 20 percent quarter-over-quarter going into the end of last year to $188 million, suggesting that the platform may be improving at getting users to pay. However, the company also ran promotions during that time, giving some users an 80 percent discount on Credits. So it’s hard to tell whether those are genuine increases.

If Facebook can’t improve at converting more paying users, it risks losing developer talent to competing platforms like Apple’s iOS and Google’s Android. That in turn could mean growth in its payments business will slow or stagnate over the next year. Facebook diversified its business last year to make payments 17 percent of its revenues in the fourth quarter, up from 10 percent the year before. The rest is advertising.

Developers earned $1.4 billion in revenue from transactions on the platform last year, according to Facebook’s filing for an IPO. Apple’s iOS was able to pay developers about half of that or $700 million in a single quarter during the holiday season, according to their most recent earnings call.

“Mobile users are more engaged and they produce higher revenue than our tethered titles on PCs,” said John Spinale, the senior vice president of social games at Disney. He added, “We’re also seeing incredible revenue growth on Android. Android is a little bit unwieldy, but the revenue is meaningful enough that it’s worth the pain of doing.”

One developer, Wooga, which is the biggest social game developer in Europe and trails only Zynga in daily active users, defended Credits. The company’s chief executive Jens Begemann suggested that Facebook takes more flack because it instituted a 30 percent revenue share after several years of not charging developers for earning revenue off its platform. Apple had a split from the beginning.

“We have been on Facebook Credits since Day One. So for us, we don’t see really negative trends,” he said. “I’ve also not heard anyone complain about Apple for their 30 percent revenue share.”

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14 Responses to “Developers say Facebook Credits is converting fewer paying users than they had hoped”

  1. Developers say Facebook Credits converts fewer paying users than hoped says:

    [...] Continue reading on our sister site, Inside Social Games. [...]

  2. Tadhg Kelly says:

    “The company’s chief executive Jens Begemann suggested that Facebook takes more flack because it instituted a 30 percent revenue share after several years of not charging developers for earning revenue off its platform. Apple had a split from the beginning.”

    Also because in exchange for its 30%, Apple hosts and distributes your app, whereas Facebook developers have to do that themselves.

  3. Bart says:

    That’s why I am happy there are so many growing alternative markets to FB out there that many of these folks ignore.

  4. Vin St. John says:

    I wouldn’t really say that’s true, Tadhg. The primary service Apple is providing developers is payment provider (same as Facebook) for storefront and in-app payments. They provide this service evenly for all developers.

    Then on top of that, they provide a distribution platform that relies on charts and a keyword-optimized, flat directory for users to find games. While this is technically a service, it’s not doing much that you can’t find in a million other places. For most developers, this isn’t providing enough competitive edge to get themselves out there.

    Facebook provides the equivalent service, although they approach it quite differently. One can argue the same thing there – Facebook does only a little to favor a few developers- the rest are left to their algorithms to hope for distribution. (I personally prefer Facebook’s crowdsourced, pseudo-merit-based system of distribution over Apple’s, but that’s besides the point).

    Ultimately, neither one is doing anything that a developer couldn’t already pull off on their own domain on the world wide web, but developers know that the App Store front page and http://www.Facebook.com get a lot of hits every month. The service they provide is “we’ll let people give you money while they’re on our site.”

  5. Facebook Credits Underwhelm Game Makers | Belfast Downtown says:

    [...] blog Inside Social Games reported that developers had been hoping for a high conversion rate to paid users in order to [...]

  6. Game developers give Facebook Credits mixed reviews | ZDNet says:

    [...] Inside Social Games interviewed three social game development firms; here’s a quick rundown: [...]

  7. Spencer says:

    Personally I think that everybody is missing the point about what’s wrong with Credits. Conversion rate is only one part of the equation, and it’s naive to believe that even this could be improved by central action at the platform level (as opposed at the granular app level).

    IMO FB’s mistake with Credits is believing either or both of the following:

    a. That they (as a single organization) can do it (payment processing) better centrally than the multitude of developers could individually … in effect this is a form of web communism / design by committee, and the implications of this should be obvious even to the casual observer;

    and / or

    b. That they will make more money by controlling the flow of funds than if they let developers handle their own payments.

    Re (a), the point is that (other things equal) the individual decisions and actions of independent market actors will always be collectively more effective than that of a single oversight body, particularly if the oversight body doesn’t itself participate in the market and thus has no insight into or appreciation of what issues the market participants face.

    In practical terms, our experience has been as follows since the switch to Credits:

    – Our transaction failure rates have gone through the roof. Before Credits, we were able to optimize most of our payment options to solve various problems that arose … now those problems sit on the other side of the Credits firewall and we have no idea what’s going on

    – Worse, failure rates are now proportional to transaction value, whereas before they were inversely so (in other words, previously our bigger spending players had higher success rates, now they’re lower). 15 years of e-commerce experience and a 0.2% chargeback rate pre-Credits says that in all likelihood FB don’t know how to manage credit card risk very well, and have a bunch of unwarranted value / velocity checks in place that are needlessly stopping players from being able to spend

    As a consequence, our yield per player has dropped *dramatically* (despite no major changes to our meta-game) as has our overall ROI.

    This brings me to (b) … FB is certainly making a lot less money out of our app than they would if they let us manage our own payments and simply levied a 30% rent.

    Technically this would be easy to do – they’d only need to require that each transaction be logged with them, and then (if they’re feeling paranoid) run some random audits and / or require audited financials from apps with large user bases (check out appdata and you’ll see that there are less than 100 game developers with more than 500k MAU, so this would hardly be difficult for FB)

    I don’t have much experience with iOS but FWIW my gut says that the issues there are probably a bit different:

    – Apple is also a developer for the iTunes / Mac app store / iOS ecosystem, and hence cares about all the steps in the funnel just as much as independent developers, and *more importantly* has practical experience of how to deal with such issues.

    – Apple’s entire customer experience is tightly integrated and highly regulated, whereas FB merely sandboxes developers on canvas pages (and inside the sandbox it’s not far from the Wild West, save that there’s only one bank in town).

    Apple makes a lot of money as a user of its own platform (in part because of how well they have optimized the experience), and therefore has a lot to lose from giving developers the kind of freedom that has brought FB its success.

    Apple also set out intentionally to build its platform to make money in this way (essentially as a natural offshoot from iTunes), whereas FB (it seems to me) struck it lucky when independent developers (most notably Zynga) worked out how to monetize the platform in ways that FB probably hadn’t even dreamed of beforehand.

    Maybe the best way to think of it is as follows:
    – Apple is a high end department store that decided to rent out space to other vendors but nonetheless doesn’t want to cheapen the experience in any way; whereas
    – FB is a fleamarket / swapmeet landlord who (mistakenly IMO) believes that it makes sense to insist that they’re the one at the market allowed to have cash register.

    It’s pointless debating whether or not controlling the cash register is worth 30% or not, but IMO it stands to reason that either way it’s not good for turnover.

  8. Today in APIs: Facebook Credits, LinkedIn Acquisition and 7 New APIs says:

    [...] seems Facebook Credits isn’t helping developers make money like expected: Facebook made it mandatory for developers to use its payments platform in canvas games in July. [...]

  9. Facebook credits are “a net tax”, says Kabam says:

    [...] Chou, from Kabam Entertainment, says that’s not the case. “We thought that conversions would go up and be around 15 or 20 percent. But it turned out [...]

  10. Developers say Facebook Credits is converting fewer paying users than they had … « TK – the traditional commercial information blog says:

    [...] for developers to operate a payments height in board games in … Read some-more upon Inside Social Games Deceitful accounting of grant funds The former process of converting a Z$ pool volume [...]

  11. Facebook runs promo to convert game players into paying customers says:

    [...] Apps conference in San Francisco last week, some top game developers said Credits were converting at a lower rate than they had hoped. Funzio Co-founder Anil Dharni said that after introducing Credits, his company saw an increased [...]

  12. Facebook Credits may break US antitrust laws | Freeex Blog says:

    [...] its $5 billion IPO this spring, and several weeks after the social network’s Credits system came under fire from some developers for causing lowered conversion rates (from free to paying users) and average [...]

  13. Are Facebook Credits the key to the social network’s future? — Tech News and Analysis says:

    [...] for those critics. Another potential fly in the ointment is that some developers say Credits don’t convert casual users into paying subscribers as well as they had hoped. Kevin Chou of social-gaming company Kabam told Inside Social Games: We thought [...]

  14. Are Facebook Credits the key to the social network’s future? | Social Paygate Blog says:

    [...] yield for those critics. Another intensity fly in a salve is that some developers contend Credits don’t modify infrequent users into profitable subscribers as well as they had hoped. Kevin Chou of social-gaming association Kabam told Inside Social Games: We [...]

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