We like shaking things up a bit on the social side here at Jugnoo, and AllFacebook is no exception. Hessie has some key insight on F-commerce–basically, any commerce on Facebook–and whether or not it can actually be successful in today’s marketspace.
Can Facebook get over the revenue hurdles it has faced in the past and create a real game-changer?
Facebook – The Value Proposition
There’s no doubt that Facebook is a valuable platform for social marketing–brands are creating unique interactive experiences within the iFrames platform, nearly one billion people (almost 1/7th of the world’s population) have an account, and the average user spends over half of their online time on the site; far more than any other social network.
Simply put, it’s the place to connect, share your story, and store your memories.
Facebook is not just a social network, though–it’s one of the earliest and most successful social sharing platforms of all time, from both a user acquisition and activity perspective.
On the revenue side, however, Facebook has had its public ups and downs; most recently with the flop of their IPO.
For a company valued at $100B, Facebook’s yearly revenues (although growing year over year) pale in comparison to its overall worth. In 2011, Facebook generated $3.8B in revenue; 85% of it from advertising, and 12% of it from Zynga games.
For the most part, F-commerce has failed to completely take off despite valuable opportunities for brands to get in front of their customers.
To start, Facebook Credits–predicted by some to be one of the largest sources of revenue for the platform–have failed to be a significant money-maker. Why?
The Facebook Commerce-to-Users Conundrum
If you had a Facebook account anytime between 2007 and 2010, you may remember the Facebook Gifts program.
Users could send each other virtual gift icons using Facebook Credits; and brands had the ability to sponsor Gift giveaways–one of the first real ways Facebook was able to monetize a brand presence. Facebook ultimately killed the Gifts program in August 2010 though, citing:
“Closing the Gift Shop may disappoint many of the people who have given millions of gifts, but we made the decision after careful thought about where we need to focus our product development efforts. We’ll be able to focus more on improving and enhancing products and features that people use every day, such as Photos, News Feed, Inbox, games, comments, the “Like” button and the Wall.”
After the demise of the program, Facebook credits were entirely allocated toward gameplay and the purchase of virtual goods within this framework. Zynga, a popular Facebook games developer, made millions in revenue as the maker of Zynga Poker, Mafia Wars, and the increasingly popular FarmVille.
Just how big is the Facebook gaming economy?
In 2011, Zynga’s FarmVille, FrontierVille, and CityVille accounted for 57% of online game revenue. (On that note, how are your beets doing?) It’s a massive ecosystem, but limited by the Facebook Credit economy, which forces users to buy credits that can then be converted into game credits, which can then be spent in-game.
Despite a fairly large and well-integrated gaming ecosystem, Facebook credits available for purchase on the shelves of some of America’s largest retailers, and even some experimentation in application, Facebook Credits have failed to garner serious user adoption and it’s hurting their revenue capabilities.
It’s the dawn of a new era on Facebook, however. Company founder Mark Zuckerberg announced last week that Facebook Credits will be replaced by real currency payments.
Death of Facebook Commerce or New Beginning?
This move has huge implications–by switching to real-world currency, Facebook is shaking the “Credits are for games” mentality held by many of the platform’s users–which may have contributed to previous failures–and making another big move toward a more serious e-commerce framework.
There are numerous revenue opportunities within the platform, but also as many concerns. Public fiascos like Project Beacon (2007) have caused setbacks–mostly due to privacy concerns over payment and consumer information on a very public network.
Facebook Storefronts, another revenue option, have some very public failures and only a few real success stories. One of the biggest hurdles? Public perception surrounding security issues. Only 26% of users feel the storefronts are secure for conducting transactions.
F-commerce is still very much in the early stages and will grow as the kinks are sorted and public perception shifts, but will it fully succeed?
Within the next five years, some predict that F-commerce will overtake e-commerce giant Amazon in revenue. Is this possible? Perhaps. Facebook has the market share and user attention it needs to generate massive revenue.
The real issue is in getting users into a purchase mentality in a space that they’ve traditionally used to hang out, connect, and have fun; as well as overcome the privacy hurdles that have plagued Facebook throughout its existence.
This will, of course, take time. Even though recent moves indicate that Facebook is taking revenue more seriously since its IPO, there’s still a long way to go before the real rise of F-commerce.
What opportunties are they missing? What do you think would help push F-commerce to success?
Please feel free to share your thoughts in the comments below.