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We are looking at how Facebook could increase its digital goods revenue by improving the Means, Motive and Opportunity for users to buy digital gifts. Yesterday we looked at Opportunity. Today we’ll look at Means.

Means

Last year Facebook switched from denominating gifts in dollars to gift credits. This was a good first step as users tend to be more willing to spend virtual currencies than real money, even when they are readily interchangeable.

Currently there is only one way to buy Facebook gift credits, and that is via a credit card. But a lot of Facebook users don’t have or don’t use credit cards. They may want to be able to buy and give gifts, but they can’t do so. This is a common problem for a lot of game developers, including many game developers on Facebook. The techniques that worked for them can work for Facebook too.

As a start, Facebook could enable additional payment mechanisms, including Paypal, cell phone billing (including premium SMS) and direct debit from checking accounts. With such an international audience, additional payments mechanisms would allow many of Facebook’s international users to more easily buy gift credits.

Some Facebook users, especially those younger than 18, may not have access to any payment mechanisms other than cash. Accepting cash in envelopes for Facebook points would not scale very well. However, many game companies have been successful in getting their branded prepaid cards distributed at retail. This is one way of turning user’s cash into a payment mechanism that can be used online. Facebook has the brand awareness to do the same thing by striking deals directly with the two biggest distributors of prepaid cards, Incomm and Blackhawk. Alternatively, if they did not want to deal with retailers directly, a company like GMG Entertainment could handle it for them.

However, some users don’t have any money at all to spend on gift credits. $uperRewards and MyOfferPal have found one way to reach this market, through incentive offers. These companies allow users to trade their attention (through filling out market research surveys, applying for credit cards, getting a free trial of a service, signing up for email newsletters or other activities) for virtual currency. They take the bounty paid by the company acquiring the user, and use some of that to buy the user their virtual currency. Facebook could enable users to buy gift credits with incentive offers.

The combination of these tactics to increase Means to buy digital goods could provide an additional lift of 50-100% in digital gifts revenue.

What other ideas do readers have
?

Tomorrow we’ll discuss the last, and arguably most important factor, Motive.

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  • http://www.linkedin.com/in/jeanpaulrehr Jean-Paul Rehr

    Jeremy, couple of thoughts/questions.

    How do you come to project a 50-100% increase? Are you aware of any studies which have quantified this lift? I am in an assessment phase for our company to introduce payment systems for MMO/social networking/social gaming partners for Latin American market.

    Other examples of possible ‘payment forms’ are myriad: in Chile, credit cards are dominated by retail credit card systems – far greater penetration than Visa/MC/AX but not available through international processors; in Colombia, you can pay with many things through your electricity bill; in Brazil they also use a ‘Boleto’ (couponing) system at retail. Obviously attaching payment systems to networks of cyber cafes/lan houses is imperative – the corollary of use of the cafes by consumers who are ‘cash only’ is extremely high.

    However, as you note, scalability becomes a challenge when trying to deal with emerging markets where even the microtransaction dollar has a direct competitor with food, clothing. So pricing becomes an issue as well.

    Note: prepaid cards have a COGs, distribution and retail margin requirement that reduces the realized dollars, so how is that accounted for in your ‘lift’? I can see that not being a problem in the markets like USA and Canada, where scale drives down per unit costs. However I wonder about the economics in emerging markets (where according to Comscore, current stupendous growth of social networking is happening)

  • http://www.twitter.com/heidiperry1 Heidi Perry

    Maybe this will go with your next post: Motive. A more implicit change that Facebook could make to encourage increased monetization is to change its metrics for app success to ones like ARPU, $/MAU, or $/action (hugs, gifts, etc). Right now you still see app developers trying to tune their app on views and virality. That’s very ad-market focused- but as direct-to-consumer revenue streams become more important, shouldn’t platforms shift the “carrots” too? Even if FB walked away from a global currency for now, they could do more to incent developers to think about monetization, test the waters, then decide to take a rev-share later if it works out.

  • Greg Tseng

    Small but important point (no pun intended):

    Facebook’s currency is ‘credits’ or ‘gift credits’ not points. I’ve heard that points is not a good currency name because people think you don’t buy points but instead earn points, e.g. playing an arcade game. However, people think you buy credits, e.g. putting quarters in the arcade game to play again.

  • http://lsvp.wordpress.com jeremyliew

    @Greg – good catch – I have changed the language
    @Jean-Paul – I have no data, it is just my guess

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  • http://mikelorna@shaw.ca Europe Venture Capital

    Yes Facebook could do that and make a ton of cash

  • http://www.europe.vc Europe Venture Capital

    Facebook needs to open a store

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  • http://webnetgames.org ArcadeFan

    Cool site :-)

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