Facebook shares new documentation for local currency pricing, sets migration for Q3

creditsFacebook today provided updates regarding its transition from Credits to local currency pricing. The company offered new documentation for game developers and announced that migration will occur in Q3 this year.

Facebook decided to phase out Credits in favor of a user’s local currency — dollars, pounds or yen, for example — in June 2012. This allows the social network simplify the purchase experience and give developers more flexibility. Developers will be able to set more granular and consistent prices for non-U.S. users and price the same item differently on a market-by-market basis, as opposed to pricing their virtual goods in $0.10 USD increments as was required when Credits became mandatory in July 2011. This also eliminates any confusion that resulted from users trying to think about conversion rates for dollars, Credits and in-game currency.
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Facebook updates payments terms to reflect addition of subscriptions, Credits phase out and more

Facebook has updated its payment terms for both users and developers following Tuesday’s announcement that it would support monthly subscription billing for apps and games on its platform and phase out Credits in favor of a user’s local currency.

Note that Facebook’s transition from Credits to local currency is not an indication that the social network is getting out of the payments business. In fact, it is expanding it to be more similar to Apple’s iTunes App Store model, rather than emphasizing virtual currency. This should give Facebook more flexibility as it looks to monetize apps beyond games.

Overall, the new policies are more comprehensive and better organized, which is important as the number of users and developers who use Facebook’s payments platform expands over the next year to include more non-game transactions.

Continue reading about the changes to user and developer terms on our sister site, Inside Facebook.

How likely is to Facebook lower its 30 percent fee for developers on the platform?

Facebook acknowledged in a regulatory filing that it might reduce the percentage fee it takes from developers building on its platform if it expands its payments business beyond games.

Currently, the social network requires social games to use Facebook Credits, of which it takes a 30 percent cut of revenue when players buy virtual goods. Some developers have experimented with using Credits for digital goods like song downloads and streaming movies, but Facebook’s currency is not mandatory for these apps.

Monday’s S-1 amendment is the first time Facebook has publicly suggested that it might change its revenue share structure.

Continue reading on our sister site, Inside Facebook.

Facebook pushes Credits promotion with in-game units for first-time payers

Facebook developers can now display Facebook-sponsored promotions in their games to encourage players to make a first-time purchase, according to a post on Facebook’s developer blog.

“New payer promotions,” which the social network created in February, give users who haven’t bought Facebook Credits before an extra $4 of in-app currency when they buy $1 in Credits. Facebook has advertised this promotion through offer walls and sidebar modules, but with today’s announcement, it will also get in-game placement.

The offer is meant to turn casual social gamers into paying players. Once users add billing information to their accounts and experience the in-game advantages that come from spending Credits, they are more likely to continue to buy virtual and digital goods within applications. Facebook says early data shows that about 20 percent of the users who make that first-time purchase spend more within a month.

The in-game promotions are available through DealSpot. After developers add a piece of code to their games, players who have not previously purchased Credits will see an icon promoting the offer. TrialPay, which controls DealSpot, says it will test several icons and optimize for performance without requiring any additional actions from developers.

It is unclear how much control developers have over where the icon appears in the game. In the example provided by Facebook, the offer is placed on the right-hand side of the screen, an area used in most games for less game-critical features. This might not be the most optimal spot to get a user’s attention, but it could be more effective than sidebar modules (see below).

This story originally appeared on our sister site, Inside Facebook.

There is a $100M discrepancy in Facebook’s payments revenues

There is a $100 million discrepancy between what Facebook earned in payments revenue and what it paid out to developers, according to revenue figures in its IPO filing last week.

In the filing it says, “In 2011, our Platform developers received more than $1.4 billion from transactions enabled by our Payments infrastructure.”

But based on the company’s $557 million in payments revenue last year and its 30 percent share of transactions on the platform, Facebook should have paid out $1.3 billion at most. There is at least a $100 million discrepancy here. A company spokesperson declined to comment.

There are a number of possibilities:

Facebook may have comped free Credits for some developers: When Facebook began rolling out its virtual currency Credits, it would give them away for free to entice users to sign-up. Developers would have to eat the extra costs if  players bearing these free Credits showed up to play their games. They complained — loudly. But it’s possible Facebook comped some of this free Credits usage for certain developers.

(Sidenote: This only happened to gaming companies that used Credits as their in-game currency. Some developers like EA and Zynga didn’t change their in-game currency but still used Facebook to manage their payments.)

There may have been initial problems with fraud in the early months of Credits, which the company may have also comped for developers: One other developer told us that there were early issues with fraud and completion in Facebook Credits purchases (as you would expect with a nascent payments platform). So perhaps Facebook covered developers for these problems too.

Certain developers may have gotten a more favorable revenue share: It would be surprising if Facebook discounted its revenue share for favored partners. Facebook has always been adamant about taking a flat 30 percent cut across the board for all developers. Even Facebook’s special multi-year agreement with Zynga explicitly mentions the 30 percent payments share (although there are parts right around that number that are redacted in the contract, which was attached to Facebook’s IPO filing).

From the filing. (Anything marked [*] is a redaction):

“The amount of the service fee described in the Facebook Credits Terms that we charge to you at any given time to redeem Facebook Credits shall be [*] 30% per each Facebook Credit redeemed [*].”

Facebook started doing promotions on Credits with 80 percent discounts last November: One likely explanation might be promotions on Credits that ran from November to January. They gave certain players 80 percent discounts on the virtual currency, but still paid developers as if the virtual currency was priced normally, according to our conversations with gaming companies in the ecosystem.

There are a couple of ways to think about this. On the one hand, when we see individual developers engage in aggressive virtual currency sales, it can be a red flag. It’s a sign that they are sacrificing long-term revenue for short-term gains. They might be trying to boost financial performance to look better in an acquisition or funding round.

But Facebook isn’t a company that culturally operates for the short-term like that. By discounting Credits, the company is potentially getting more users to hand over their credit card data — which will make it more frictionless for them to pay for things down the road with Credits.

Right now, Facebook likely has payments data on just a small fraction of its users. If you consider that 50 percent of Facebook’s 845 million monthly active users play games, and then 2 to 6 percent of them monetize by paying for virtual currency, then a back-of-the-envelope calculation would suggest that they have payments data on around 30 million users. By comparison, Apple has more than 250 million iTunes accounts. Facebook needs more credit card data on more users if it wants to power payments for more interesting areas down the road.

So if the sales were successful in getting more users to hand over their credit card details, that’s a good thing in the long run. But if they just encouraged users who already pay with Credits to gorge on the virtual currency, then it could mean softness in payments revenue going into the first or second quarter of this year.

Zynga’s market cap climbs more than $1B a day after Facebook’s IPO filing

Zynga shares jumped almost 17 percent today after Facebook’s IPO filing yesterday revealed that the social network’s payments revenue climbed 20 percent quarter-over-quarter by year-end — suggesting Zynga might see a comparable boost in its own bottom line. Facebook added that the social game developer contributes 12 percent of its 2011 revenues.

At market close yesterday, Zynga was trading at $10.96 per share — slightly higher than the $10 price they debuted at in December‘s IPO. They opened today at $11.05 and peaked at $12.81 in just a little over an hour. By close, Zynga’s market capitalization was up 12 percent to $8.66 billion from $7.4 billion yesterday. Zynga’s Facebook traffic is also on the rise — up 1.9 million daily active users and 6.4 million monthly active users in the last seven days as recorded by our AppData traffic tracking service.

Zynga won’t share its fourth quarter earnings until Feb. 14, but that hasn’t stopped analysts from speculating that the company may report higher bookings for the quarter. If Facebook’s payments revenues went up 20 percent, Zynga might see a comparable rise. Facebook said its payments revenue rose to $188 million in the fourth quarter from $156 million in the previous one, suggesting that its platform may be doing a better job at converting gamers into paying for virtual goods.

In a research note republished on AllThingsD, Baird Equity Research analyst Colin Sebastian estimates that Zynga’s net bookings may have been $315 million in the fourth quarter.

Sebastian’s estimate is rough. Since Facebook reported $1.13 billion in revenue in the fourth quarter and Zynga contributes a 12 percent of that, Zynga may have contributed $135 million to the social network’s earnings. Baird believes 75 to 80 percent, or $101 to $108 million of that, is from virtual goods sales. If that $101 to 108 million is the 30 percent revenue share Zynga must give to Facebook, then the social gaming company keeps $235 to $250 million. Sebastian adds that an additional $65 million may have come from other platforms like iOS, Android and Google+.

Other gaming companies like Gameloft and Capcom have said this week that their mobile revenues ranged from $25.4 million to $52.6 million for the holiday quarter. That suggests that Zynga might easily have a $100 to $200 million-a-year mobile gaming business because it has similarly ranked games.

With Facebook delivering 93 percent of Zynga’s revenues, the two company’s futures are intertwined until at least 2015, when a five-year deal between the two expires. Zynga has taken steps to mitigate the risk of relying completely on Facebook by expanding into mobile and international markets.

Facebook, meanwhile, is trying to forge a stronger, more compelling games platform with improved discovery to offset rising costs to developers on its platform. Through Credits, Facebook takes a 30 percent cut of all in-game transactions. On top of that, social game developers are also a large source of advertising revenue for the company.

Zynga made up 12% of Facebook’s revenue in 2011

Revenues from Zynga games accounted for 12 percent of Facebook’s 2011 revenues, the social network’s S-1 filing reveals. No other customer represented more than 10 percent of total revenue in 2009 or 2010. Facebook reports that social game devs — most of all Zynga — are currently responsible for almost all revenue derived from Payments.

Aside from in-game transactions conducted with Facebook Credits — of which Facebook gets up to a 30 percent cut as part of a special agreement with the social game giant — and ads bought by Zynga, the CityVille developer also generates a large chunk of pages where Facebook displays ads. While Zynga is locked into Facebook Credits until May 2015, Facebook points out that any trouble in paradise with its biggest game developer could harm its bottom line.

Be sure to follow our sister site, Inside Facebook, for full coverage of Facebook’s initial public offering.

Facebook relents on Credits, allows in-app currency offers

Facebook announced today that it will give developers the option to provide in-app offers in their native currency, the company announced in a blog post Friday.

The change should help developers since users are more likely to complete offers that involve the unique currency of the game they’re playing. Completing offers in units of Facebook Credits might not be as easy to understand for users who have to do the math to know what Credits convert to. “In-app offers,” as Facebook noted in its announcement, are an important way for developers to monetize users who might not otherwise buy virtual currency. In these cases, advertisers cover the cost of the currency in return for the app bringing them customers.

By completing advertiser offers, such as signing up for a subscription service or shopping in an online store, app users can earn virtual currency. Since the transition to Credits, which was made mandatory in July 2011, all offers have been done in Facebook’s universal currency, except for games by a few large developers who Facebook allowed to provide offers in their native currency. Now, the company is allowing all developers who prefer transactions to be in their own in-app currency to offer them. Before the launch of Credits, many third party offer networks provided offers to developers in native currencies.

Facebook will leave Credits offers as an option, which developers can use instead of or along with in-app currency offers. The new offers documentation supports Offerwall and Dealspot. Details are available on the Facebook Developer site.

This article originally appeared on our sister site, Inside Facebook.

Facebook Updates Credits Payflow, Adds International Payment Methods, and Updates Transfer Policy

Facebook has announced several updates to Credits today with changes that resolve a known pay flow issue, add additional payment methods for international markets, and restrict applications from transferring Credits between each other without prior authorization.

The pay flow issue deals with one of the three callbacks generated by the Pay Dialog. A recent change to the callback status=settled resulted in some cases in which users were not getting the item that they paid for. To avoid this problem, Facebook is now asking developers to fulfill orders on the callback status=placed instead of waiting around for status=settled. To completely eliminate confusion, Facebook is removing the status=settled callback 90 days from now.

Next up, Facebook Credits now supports additional payment methods in Europe, Asia, New Zealand and Latin America. The new methods added are:

  • ELV (Germany)
  • MyCard Mobile (HongKong, Macau, Malaysia, Singapore, Taiwan)
  • Visa Electron (Argentina, Brazil, Chile, Colombia, Finland, Hong Kong, India, Japan, Malaysia, Mexico, Netherlands, New Zealand, Singapore, Taiwan, Thailand)
  • WebBilling Online Bank Transfer (Austria, Germany, Spain, Switzerland)

Find the full list of supported countries and payment methods here.

Lastly, Facebook has updated its Credits policy to restrict apps from transferring Credits between one another without prior approval from Facebook. The new policy:

2.14 You may not accept Credits in one application and deliver or transfer the purchase to the user in another app without our prior authorization. For example, an app solely designed to facilitate transactions is not permitted.

This will affect dubious apps that facilitate illegal gambling, and may also affect certain game developers that attempt to use one type of premium currency across more than one game running on different app IDs — but it sounds like Facebook is willing to make allowances for cases like that if the developer presents them.

Facebook also notes that developers should keep their company info up to date in order to receive payouts. The Facebook Credits documentation has also been revamped to address developer feedback.

This article originally appeared on our sister site, Inside Facebook.

Facebook Testing “Facebook Credits for Websites” That Helps Third-Party Sites Sell Virtual Goods

Facebook has just announced a closed, limited test in which for the first time it will allow websites to process payments for virtual goods using Facebook Credits. Facebook’s virtual currency is currently the mandatory payment method for all Facebook games on the web, a payment option for Facebook apps, and became available as a payment option to mobile app developers last week. The only initial launch partner for “Facebook Credits for Websites” will be online and downloadable games site GameHouse that until now only accepted payments through credit card and PayPal.

During the test, Facebook will closely monitor the demand for Credits as a payment method and the user experience of those that pay though its virtual currency. If a high enough percentage of users make purchases through Credits and feedback is positive, Facebook may expend additional resources to let more websites add Credits as a payment option.

Eventually, Facebook might open the option to all web developers selling virtual goods or digital media, allowing the social network to earn a 30% cut on transactions across the web. In exchange, sites will be able to provide an easier way to buy their goods and media than punching in credit card or PayPal details. Facebook has provided a signup page for developers that want to try Facebook Credits for Websites if the test is expanded.

GameHouse users that sign in to the site with their Facebook login and play Collapse Blast or UNO Boost will only see Credits as a payment option, not credit cards or PayPal. If they choose to buy virtual goods or proprietary in-game currencies, Facebook Credits will be deducted from the same account that Facebook canvas and mobile games pull from. Similar to how it works within Facebook, users without an existing balance of Credits will be able to purchase a bundle within the payment flow.

Unlike on Facebook where Credits are the exclusive payment method for games, GameHouse may still offer other payment options. However, Ian Fliflet who handles corporate strategy for GameHouse tells me that those signed in through Facebook won’t see the option to pay with a credit card or PayPal account. This could anger some long-time GameHouse users that try signing in through Facebook for the first time only to find their preferred payment options missing in the two test games. That in turn could negatively skew feedback on Credits for Websites.

If the test does indicate a demand for Credits as a payment option outside of Facebook.com, its unclear whether Facebook would require developers to use its virtual currency exclusively. It could simply make them an additional payment option, the way Credits currently work for Facebook.com apps as well as mobile apps and games. However, it might extend this test model so that sites that want to use Facebook as an identity and login provider will also need to use its taxed virtual currency.

The impact of Facebook Credits for Websites could be significant. It could assist independent game developers and digital media merchants with monetization, as customers might be able to quick make purchases rather than having time to reconsider while enduring the friction of entering their credit card information or logging in to PayPal.

Currently, many independent game developers have to distribute through portals like GameHouse that have built a base of users that have already provided their credit card details. Facebook Credits for Websites could give them the opportunity to distribute directly to fans in way that gives them more control over branding. The tax that third-party game portals take on credit card or PayPal transactions may vary widely, so Facebook’s 30% cut could be less or more than developers are used to paying.

Facebook has much to gain from Credits for Websites, though. The more places they’re accepted, the more users that are likely to buy and maintain a balance of Credits, and the more transactions Facebook will get a cut of. A user might buy a bundle of Credits to spend them on a gaming portal or to buy a band’s album, but then spend then become a paying customer of a freemium game on Facebook.com.

More users maintaining a balance of Credits also makes Facebook a more lucrative platform for developers. Typically only a few percent of gamers ever pay to play, but if they already have a balance they may be more likely to spend. Facebook may need to initially reduce its tax or not demand any exclusivity as a payment method to get websites hooked on Credits. With time, though, Facebook Credits for Websites could become a significant revenue source and powerful way to attract developers.

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