Facebook Credits: The World's First Major Virtual Currency?

Last Updated Apr 26, 2010 3:55 AM EDT

Facebook is projected to do over a billion dollars in revenue this year, more than some small countries, and its 400 million strong userbase is larger than the population of most big ones. So why shouldn't the social network have its own private currency? In the future, we may pay for some goods not with dollars, yen or euros, but with Facebook Credits.

Credits wasn't the biggest news last week for Facebook, which announced an aggressive initiative to make itself the consumer web's connective tissue that CEO Mark Zuckerberg called "the most transformative thing we have ever done."

Creating a new virtual economy is a pretty big deal too, but Credits, which allow people to buy units of a virtual currency that can then be spent on various applications across Facebook, remained in the background. That's because the program is still in private beta -- independent payment companies control most of the $1 billion virtual goods market.

But most of those virtual goods are sold on Facebook itself, on games like Zynga's FarmVille, in which players can buy special items for their farms and gifts for friends. Selling these in-game items, which help gamers get ahead more quickly, has turned into a big business very quickly, but Facebook isn't far behind; the company looks impatient to start taking a cut. Credits would do just that, giving Facebook a solid 30 percent of the pie.

That's not the best deal for companies like Zynga and Playdom that sell the virtual goods, and it's a terrible one for the current payment processors, but it's starting to look like Facebook might push out the competition, according to Inside Social Games:

At its f8 developer conference this week, company chief executive Mark Zuckerberg told Bloomberg that "'there's just going to be one currency that people use on all apps." Later that day, Facebook's Deb Liu was presenting about Facebook's Credits plans, and she was asked if Facebook would continue to allow people to use third-party virtual currency services like Social Gold. She replied: "It's still too early to tell, Credits is still in beta."

Together with Zuckerberg's statement, that sounds like it could be simply "no." Another possibility is that third party virtual currency services can continue to exist, but will just be much less used than Credits, at least partially due to incentives Facebook will give to developers who use Credits -- like free marketing.

At the same conference where the new Open Graph was announced, Zuckerberg told press that Credits aren't about the revenue for Facebook. Journalists may be math-disabled, but even they can figure out what a 30 percent cut of a billion dollars is. (Hint: It's a lot of money.)

But Facebook hasn't yet come off as the bully. That's partially because Facebook's various representatives haven't yet said anything firm, but mainly because the new model, even with its huge cut of each transaction, could ultimately be great for the social game and app companies that would have to switch to Credits.

The advantage is a lower barrier to adoption for users, who would have the advantage of only having to pay into a single system, and being able to take their pool of Credits to any app. The difference doesn't seem immediately important, but there's plenty of evidence from the iPhone that users care about convenience -- anecdotally, the iPhone has triple the average revenue per user that Facebook apps do. (Apple, by the way, also takes 30 percent.)

So if Facebook can create a similar system they'll open the way for virtual goods to become a lot bigger than a billion dollar market, and possibly for other apps besides games to successfully tap into the virtual economy. Exactly how far this would go, nobody knows, because if Facebook succeeds with its plans, it will have created the world's first major virtual economy.

[Credit for image of Mark Zuckerberg: jolieodell / Flickr]