Millions of online gamers are flocking to Facebook
Networking site looking to social games in exploring next moneymaking bonanza
Facebook Inc. is tapping virtual farmers, mafia dons and online pets to generate cash from the social- networking Web site’s 300 million users.
The company is testing a payment system to gain a cut each time an online-game player buys a digital tractor, weapon or hat on the site. That would give Facebook a piece of the hundreds of millions of dollars that are being pulled in by Zynga Inc., creator of “Farmville” and “Mafia Wars,” and Playfish Inc., maker of “Pet Society.” The social-games market will almost triple to $2 billion by 2012, estimates ThinkEquity LLC.
“Virtual goods and microtransactions, especially inside games, can be a very big and thriving business,” said Ethan Beard, who runs the developer network at Palo Alto, Calif.-based Facebook. “Two years ago, we never considered it.”
Zynga and Playfish, which both started in 2007, offer free-to-play titles and sell virtual goods to users through so-called microtransactions. They have turned Facebook into the world’s largest game portal, with more than 100 million users. By comparison, Nintendo Co.’s Wii, the leading current-generation game system, had sold 52.6 million Wii consoles through June.
Facebook Credits, a payment service being tested by six outside developers, can become the “dominant payment method” on the site, where $1 billion in game-related goods and services will trade annually in three years, estimates Atul Bagga, an analyst with ThinkEquity in San Francisco.
“If you buy credits on ‘Mafia Wars,’ that credit is only usable in that game,” said Bagga. “But if you buy 20 credits on Facebook, now you can apply those credits wherever.”
How much money Facebook makes will depend on how the system is structured, Bagga said.
PayPal, the online payment system owned by San Jose, Calif.-based eBay Inc., charges 5 percent plus 5 cents for each microtransaction. Assuming a similar rate at Facebook and Bagga’s $1 billion estimate for transactions at the site, the company could reap $55 million from the service by 2012.
That figure represents more than 10 percent of current revenue. Facebook, which turned profitable in the second quarter, expects more than $500 million in sales this year, according to Marc Andreessen, a board member.
The company is looking for ways to expand the use of Facebook Credits. Users can already buy virtual gifts for friends. They will also be able to purchase music, the company said this week.
“These are spur-of-the-moment purchases so if the whole payment system becomes seamless and painless it’s going to be a big driver of growth,” Bagga said.
For now, outside game developers are making most of the money. Zynga, which is testing Facebook Credits in one of its games, sells virtual goods in games and lets players pay to advance their positions. It expects revenue to exceed $100 million this year.
The 10 most popular games on Facebook draw more than 100 million users a month. In Zynga’s “Farmville,” more than 60 million players harvest crops, raise animals and buy materials.
Both San Francisco-based Zynga and Playfish, based in London, are backed by former executives from Electronic Arts, the second-largest publisher of traditional video games.
The companies’ growth makes them acquisition targets for industry leaders Activision Blizzard, Electronic Arts and Ubisoft Entertainment SA, which are coping with a 12 percent decline in U. S. video-game sales through September, Bagga said. Media companies also may try to acquire them, he said.
“We want to be a way that people connect with each other through games and fun that is so meaningful to them and becomes such a daily behavior that they can’t imagine what life was like before they had ‘Farmville,’ ” Pincus said.
Zynga’s “Mafia Wars” has almost 26 million users. It lets players become the boss of a crime family, acquiring weapons, armor and automobiles.
“Pet Society,” Playfish’s most popular game, has gained more than 20 million monthly users by letting them create a virtual pet, decorate its home and buy gifts for friends’ pets.
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