There’s been a lot of buzz around the Zynga vs. Facebook “battle” over the Facebook credits system, and the potential for it to become a requirement of doing business on Facebook.
I like to remind myself that I’m building a social games enterprise first–meaning games that people play with their friends. We’re not a “Facebook games company.” To me, Facebook is just a distribution channel. At present, it continues to be the most cost-effective channel. However, it’s the Web that is our principal platform–not “Facebook,” which means we’ll go wherever we can economically address customer demand.
I thought it would be helpful to look at Facebook Credits in the context of history and the broader market:
- Amidst all the bluster between Zynga and Facebook, keep in mind that Zynga’s CEO also has an interest in creating his own payment platform (whether by offers, or the Zynga game cards now being distributed at retail). Part of the friction is because Zynga wants to compete with other payment platforms!
- Historically, portal companies (e.g., Yahoo) have charged games and applications up to 50% of revenue to act as a distribution channel. Many companies have happily paid that, because it represented incremental revenue. The problem with this model is that it puts the portal company in the role of “choosing” winners and losers (through a process of negotiating deals with everyone) rather than the scalable application-platform methodology of companies like Google. Facebook needs to decide whether it is more like Yahoo or more like Google. It isn’t clear that they actually know which way they’ll go yet.
- Unified currencies can be a good thing because they can remove obstacles to purchases, particularly microtransactions. Microsoft’s Xbox has shown how a virtual currency system can drive a lot of incremental revenue for their partners (via the active downloadable content market). If Facebook credits make it easier to buy, then conversions could increase enough to compensate for the 30% cut. (However, Facebook appears to need to do a lot more about the current lousy user experience for it to yield improvements in conversion)
- If I was at Facebook, I’d be concerned about potential legal challenges. Zynga is already making noises to this effect. It may be problematic for Facebook to lure application developers with the premise that they would be able to create whatever monetization mechanisms they want, and then later demand a tithe. With Facebook having emerged as the overall winner in the social network market, it could even give rise to antitrust difficulties.
- From a practical standpoint, Facebook probably has more to gain by fostering a strong developer community. If they are sincere that Facebook credits are “for the developers,” then there’s no reason to force it on everyone–they should just make it an option, and if the platform is successful then it will naturally emerge as the best payment platform through the course of competition. In other words, provide a platform and let the market decide–it’s this approach that has made Google successful in a range of applications, while allowing those that still need a lot more work (Wave, Buzz, etc.) to develop without the burden of becoming a forced standard. If Facebook’s payment system isn’t the best for consumers and developers, it could lead to big inefficiencies and ultimately stifle the development of third-party applications–ultimately driving application developers to competitors.
For the reasons outlined above, I’m doubtful that Facebook will make their credit system a requirement for being a Facebook application developer. If they do, I wouldn’t expect the change to happen quickly–there are far too many problems to be worked out in the current platform, and too many developers with large commitments to other payment systems. However, if they do go down this path–then all that changes is that entrepreneurs will recalculate the best way to distribute their products.
For some, Facebook will still be the answer due to clear business advantages; for others, there is always a new distribution channel, a hungrier competitor who is eager to partner, a more economic means of user acquisition. Navigating the chaos of shifting markets is what makes starting a company fun; and it is this challenge that makes it rewarding for innovative companies.
on 
