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Monday, September 20, 2010

Are Facebook Credits Becoming A Universal Virtual Currency?

The announcement that PayPal and Facebook have a deal to allow people to buy Facebook credits with cash in their PayPal accounts, combined with the push to make Facebook credits the currency of choice in Facebook, begs the question if we are witnessing the maturity of virtual currency putting it on par with pounds, euros and dollars.

In April 09 I wrote a blog about the emergence of a universal currency after witnessing the public offerings of two Chinese companies; Changyou(CYOU) and Shanda(SNDA). Both of these company's profits were based on the sale of virtual goods and the issuing of virtual currency and exchange of virtual currency. At the time most people found the blog interesting but could not grasp the concept of a game based currency as a base currency for general commerce. Is it time to reconsider now that Facebook has decided that virtual goods purchase and sales should be done with Facebook credits?

It is certainly an interesting question. Game and e-commerce vendors of all kinds are feeling pressure from Facebook to use their currency as opposed to a company's own currency to buy and exchange virtual items. With the PayPal deal when will people begin buying physical items with Facebook credits?

Granted there are some procedural aspects of Facebook credit issuance and exchange that will have to change to make this happen.

Facebook Credit Inflation - What is the real value of a "credit". With no control over the amount of credits being issued the currency could become heavily devalued or at least unpredictable and unstable. This would have to be fixed by controlling the issuing of it and listing exchange valuations with other like currencies. Hi5 is doing a good job in this regard with their newly emerging social game platform business plan.

Exchange with Other Currencies - Facebook's Paypal and credit card deals effectively establish an exchange rate between traditional currency and Facebook credits. The inflation issue is still problematic. However, consumer demand or dissatisfaction will force Facebook to take their currency more seriously by posting exchange rates.

So what happens to everyone else issuing virtual currency? If Facebook continues on its current path it will force every company to use its currency in the Facebook environment. This is a little strange because Facebook is charging other vendors to pay a premium for the use of their currency. I suspect there will eventually be a legal challenge to this practice.

Legal Issues - I wrote a blog about the US Justice Department and State Attorney Generals investigating Zynga for the trade in Zynga virtual currency for traditional currency. If Zynga and other social game companies are using Facebook credits is Facebook subject to the same scrutiny? The Zynga legal challenge trail has gone cold since it was first rumored. Will Facebook credits revive the investigation?

The emergence of virtual currency that act like dollars and pounds seems inevitable. Facebook just might be the company that takes the lead and exploits the phenomena for its own purpose.

1 comment:

Carl Fravel said...

Ah, finally....



- Carl Fravel