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FirstTake: Facebook PayPal Deal Spurs International Ad Sales

Categories: Facebook Strategy, First TakePosted on February 18th, 2010

Web Strategy Summary
Facebook to now offer Paypal as an additional way to buy advertisements and virtual currency for social games (press release).   This paves a way for Facebook to reach global advertisers who prefer PayPal vs traditional credit cards. Although this partnership is limited in parameters to those two specific use cases of ads and virtual currency, this is yet another testing ground for developing Facebook into an eCommerce platform with over 400 million global users.

Update: Facebook contacted me after this post went up, and made it clear, this is announcement is not intended towards eCommerce, and is really just limited to the two use cases. While I understand and agree with the scope of today’s announcement, as brands interject more money into Facebook via advertisements, and on the flip side, users are more comfortable purchasing goods (albeit virtual) this continues to be an opportunity for brands and their members to get comfortable with monetary exchanges. As such, I’ve removed from the title of this post “Testing ground for eCommerce”, although the rest of the post stands.

Background
Facebook has been testing the ability for users to purchase virtual Facebook credits for over a year, allowing users to send virtual goods to each other, as well as purchase additional features in third party social games. Over a dozen of these third party games already exist extending created by playfish, Zynga, CrowdStar, and others.

Industry Impacts:

  • Increased revenues for Facebook –and PayPal. For Facebook, and their new partner PayPal, this deal makes sense, as they can continue to grow scalable, low-touch revenues streams by cultivating international advertising dollars, where there is clear global growth. This spurs international brands to continue to deploy Facebook ads, likely in the SMB space as international companies that are enterprise class would delegate ad buying to their digital agency. Although Facebook touts their advertising program, no official case studies or data has been released by them or third party researchers to my knowledge.
  • Additional channels to monetize heavy game players. For the game heavy , perhaps the 43 year old middle age women with disposable incomes, this gives them new opportunities to play games with increased functionality.
  • More use cases for game creators to test virtual goods, with brand sponsors. Game creators should allow for virtual items to be introduced into their games, and be sure to have a business development opportunity for large brands to participate –and offer branded virtual items in context of a social game.

The big opportunity? Testing ground for ecommerce within Facebook.
Facebook should roll this out to the application developer community to allow ecommerce functionality to the platform, starting with an application from eBay, the owner of PayPal.  Brands should carefully watch how these early test by Facebook occur –and expect by end of year that Facebook will start to experiment with allowing ecommerce happen directly on Facebook Fan Pages. This is, of course, extremely exciting –but could be very terrifying to normal users.

Additional Industry Resources

This entry was posted on Thursday, February 18th, 2010 at 11:05 am and is filed under Facebook Strategy, First Take. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

View Comments
  • http://twitter.com/mikerbrt Mike/Wicke

    Hi Jeremiah,

    Virtual gifts will push Facebook to raise funds from IPO this year. Now you can check your virtual credit balance in your Facebook profile.

  • http://www.nickchhan.com nickchhan

    This is very interesting as it opens a much wider international geographic reach for facebook and increased monetary gains and subscribers for the entire channel of paypal and the gaming companies (read: Electronic Arts owned studios). My immediate concern is facebook's platform API which has functional problems in many areas from chat, to photos, and integration holes to apps. When money and large corporations are involved, fb better step up their game inlight of this new development.

  • http://web-strategist.com/blog Jeremiah Owyang

    Interesting point.

    We'll know if this takes off if kids ask for their allowance in Facebook credits using PayPal.

  • http://twitter.com/patrickboegel Patrick

    Extremely interesting, if I was an Amazon.com I'd be immediately leveraging a property such as Amazon mp3s within the environment, testing users appetite to buy via either a fanpage application. Hell if I was a musician I'd be setting up the download store pronto. Why pay Apple to take a cut.

  • http://web-strategist.com/blog Jeremiah Owyang

    Recently Xbox allowed for Facebook Connect to work with its system (if I recall) yes, we should expect Facebook's profile and social data to spread to other game platforms –and game manufactures.

  • http://web-strategist.com/blog Jeremiah Owyang

    Expect eBay to be the first mover here, as the owners of PayPal.

  • http://www.hoodiepeople.com/ Hasan Luongo

    the ecommerce possibilities are really exciting, adding a Pay by Paypal feature is well not that exciting. as an e-commerce retailer with a strong and expanding base of fb fans, we are thrilled to hear that fb is starting o make moves into this type of functionality, hope that make the jump soon.

  • http://web-strategist.com/blog Jeremiah Owyang

    I just got off the phone about 45 minutes after I posted this blog post, I added an update above, please read.

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