Before 2011 this year Facebook Credits were merely an option for game developers and it was a nice option to have. If they chose not to manage their own virtual currency but wanted the option to sell virtual goods, Facebook took care of it for a fee. Then in January this year, Facebook announced a new policy, effective July 1st 2011, that would make it mandatory for game developers to use Facebook Credits should they want to sell virtual goods to users through Facebook. Basically, they were leveraging their then 500 million plus user base to get mega social game developers like Zynga to concede to the 30% Facebook takes off the top. To be fair, there are advantages to having one universal currency and Facebook has offered targeted ad campaigns as part of the deal.
What Facebook has been missing out on is the revenue generated by smartphone and tablet users who take advantage of the mobile apps and mobile browsers for the various platforms. They are asking developers to start building apps with HTML 5 standards which might put them in a better position to take advantage of the revenue slipping through their fingers. ThinkEquity LLC estimates the virtual goods market to be around $20 billion by 2014 and, with the growing popularity of mobile gaming, Facebook could be missing out on a lot of revenue right now. Undisclosed sources told reporters at Bloomberg that Facebook might include something like a news feed in apps that is dedicated to displaying your friends in-game activities in an effort to get game developers more recognition.
With a possible Facebook IPO early next year, hit the break to find out why they need to take advantage of these revenues.
Facebook is still growing their user-base and has exceeded 750 million users but it's not all gravy. Recently, statistics have shown that Facebook usage in the US has dropped by 30%. This is bad news when the vast majority of their revenues comes from advertising. An inside source with Facebook shared with Bloomberg that they expect to make more than $2 billion in EBITDA (earnings before interest, taxes, depreciation and amortization) this year from ad revenue alone.
Putting all of their eggs in one basket is risky, especially with decreased usage rates. If your customers, businesses wanting to advertise on your platform, start to lose confidence in your ability to keep users engaged then they might go elsewhere. It's possible this is an indicator that Facebook has missed the peak time for its IPO but diversifying its revenue sources might help mitigate some of that risk and allow them get a better bang for their buck Q1 next year.