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This story has been doing the rounds for a while but it seems that Facebook is taking on both the Apple App store and Google’s Market in the mobile and smartphone marketplace, and the launch may be imminent.
Technically, the problem for Facebook has been a lack of presence in the mobile space ie no specific app for iPhones and iPads that would then allow them to capitalise on mobile spending eg in-game and in-app purchases. All revenue went to the handset OS manufacturers – that is, Google and Apple, with Facebook missing out on its share. The big problem has been the use of Flash in games and apps on FB (which does not work on iPhones) and the lack of a mobile app to add an FB ’skin’ to in order to suit iPhone users. This would then help them spend their money through Facebook credits.
It seems that a project at Facebook called Spartan may have been set up to resolve this issue for FB and that the end is nigh! However, FB has taken Spartan down an interesting route by basing the solution on HTML5 and hence within Apple’s very own browser – Safari, which is resident on every iPhone and iPad.
Facebook Credits – the virtual currency which FB insisted all virtual goods must be sold for earlier this year – is the key to the potential success of this strategy, and for anyone who is in the virtual goods market, FB’s entrance in to this market place gives yet another route to customers. Developing a community of apps that will operate from within Facebook could unlock revenue streams that FB has to date been unable to access and take them beyond advertising being the major source of revenue.
Obviously, we do not all sell virtual goods such as items for farms, or cheese for Mousehunting, but there are major brands who have jumped on to the virtual goods bandwagon in order to create new revenue streams and markets, and it is a growing market. Offering a free game that then requires money to be spent to advance is a not so novel branding mechanism now, and it seems that brand loyal consumers are as willing to spend hard earned cash in this way as to buy an actual product.
One can see how this virtual goods element could become important to brands and businesses, especially those who have realised the income potential within the social and mobile worlds. We are already seeing mobile payments for actual goods coming into play and for those who want to make micro payments for goods in vending machines etc, having all of this accessible from within a single FB Credit account may prove attractive.
However, it goes far beyond this in that FB has a keen community of developers already, and challenging the apps market without losing the 30% share has been one of the problems facing those who are ensconced in the FB space.
HTML5 may prove to be a further death knell for Flash, which has been the bane of Apple for quite some time, although it has kept app developers on their toes working around it. The Android success may have something to do with its ability to work with Flash, but it is hard to ignore the popularity of the iPad and think that Facebook are being a tad canny in going out to the browser for the solution rather than struggling within the OS.
Companies looking to keep ahead of their competitors would do well to hold a brainstorm about virtual goods over the coming months……
There is a growing trend by brands and companies to offer virtual goods through gaming and social networking sites, such as Facebook, Second Life and Empire Avenue. Instat reports that the sale of virtual goods rose by 245% from 2007 to 2010, and was worth $7.3billion last year.
This is not a new concept and back in 2002-3 Cyworld in Korea had many major brands on board, allowing users to purchase branded goods using the acorn, Cyworld’s virtual currency. Acorns could be bought using cash and this approach gave a solid business model for other companies to follow. For some years, it has been possible for avid gamers to sell characters and avatars for hard cash to those desperate to get on in the game but without the time to develop characters to the necessary level for their ambition. Now, companies such as Zynga and HitGrab have seen the phenomenal success of FarmWorld and Mousehunt etc enhanced by the sale of virtual goods for real money as well as for virtual currency.
The popularity of games has spread to a wide audience and is not restricted to those who might fall into the ‘gamer’ category, but also to housewives, white collar workers, and silver surfers. Those with a high disposable income are unlikely to flinch at a £5 buy of a virtual item in order to progress in the game, and the advances in micropayment systems and in-game or in-app purchasing has eased the way for the virtual goods market to expand.
Empire Avenue is the latest to offer virtual goods – an XBox – after teaming up with Microsoft, and the addition of a limited achievement will undoubtedly see the kleptomaniacs for such achievements forking out the currency required to purchase the item and then will spread the word they have done so using Facebook and Twitter, thereby helping to evangelise the product and reach a wider audience.
Offering virtual goods and rewards not only allows you to engage with users within a game, but you can also extend these to real world offerings. So, Foursquare.com offers companies the chance to offer deals to those checking in to their location, such as free coffees for the Mayor or discounts for multiple check-ins over time. Customer retention is far cheaper than customer acquisition and loyalty rewards and discounts are extremely popular the world over.
Whether you are a tiny pottery in the Yorkshire Dales or a global brand, the rising popularity of games and applications using gaming mechanics, along with the social networks’ growth, mean that this should be a strategy worth your consideration as part of your online marketing plan.
The BBC is reporting that virtual goods will make billions over the next few years on sites such as Facebook and gaming sites.
This however is only a new phenomenon to the West and to the BBC! Sites such as Cyworld in Korea have been in profit for several years due to the introduction of a currency (acorns) which permits members to buy virtual goods for their ‘mini worlds’, as gifts for friends and so on.
In addition, many gamers have been earning real world cash by developing characters for games and then selling these on eBay and other sites. About 5 years ago, I remember reading about a teenager who sold a game character for $20,000 to a gamer who did not have the time to play and wanted an advanced character in a role-playing game.
Goods created from 1s and 0s are likely to gain popularity in certain circles as we move into a world where ‘free’ ceases to mean ‘free’. As long as the purchase price is a no brainer, and below the line where transaction decisions need to be seriously considered, it is likely that micro-purchasing may finally find its niche.
To date, micro transactions have been stymied by the costs of processing the transaction through the banking system, but it is likely that 2010 and beyond will see the resolution of this; perhaps by the introduction of systems which allow people to buy ‘credits’ for whole networks eg Facebook, which can be spent in a variety of applications, games, and even perhaps with e-commerce providers who offer digital versions of their product set.
For many, it may be difficult to see how this can fit their business model, but for those with a little imagination, it may be time to look to the East and see how this has already become a mature market there. As a marketing gimmick, it is a good idea, but as a method for generating revenue, it may have far more legs.
