Social Gold | Virtual Currency. Real Commerce.

A few weeks ago, Inside Network hosted the event Inside Social Apps which touched on some interesting topics regarding the future of social gaming and applications as well as the future of the Facebook platform. Key discussions from the event included the larger role that brands will play in social gaming’s success in the long term and the potential effect of Facebook Credits for developers.  We believe that Facebook should play a stronger role in proactively fostering their ecosystem given their relationships with developers (both big and small) and the tools they could potentially integrate into their platform to support this initiative.

In a panel focused on investment opportunities in social apps and games, Tim Chang of Norwest Venture Partners brought up a significant point that many viral channels, which had previously been used to promote applications through notifications to friends, have since been shut down by Facebook. As a result, developers with smaller marketing budgets don’t have as many marketing channels available to drive traffic to their applications, while the top 5 – 7 developers continue to raise their applications to the top of the charts through paid marketing and cross-promotional mechanisms within their product portfolio.  This puts independent developers at a disadvantage.

Additionally, Sebastien de Halleux of Playfish noted the emergence of well-known brands in social gaming over the last year and projected that eventually over 50% of the top 10 games will be recognizable IP. Sebastien anticipates that brands and strong franchises will increasingly play a larger role in social gaming because they’ll be a big draw for audiences and will help drive traffic to games. Branded items are also an emerging trend and many casual games and game portals — which currently monetize through traditional online advertising — can extend their existing advertiser relationships with virtual goods.  Three Melons (who was recently acquired by Playdom) has a particularly elegant execution in their Bola soccer game where users can enter into a virtual sponsorship deal with companies such as Fox and National Geographic.  The player receives Bollars, the game’s virtual currency, in exchange for promotional placement in the user’s virtual soccer stadium.  While it’s clear the larger publishers will likely seize the opportunity to integrate well-known brands into their social games, it’s uncertain that independent developers will have the same opportunities in the mid-to-long term.

Given these factors and examples, we believe Facebook should take a more active role in supporting smaller developers by bringing them opportunities that will help promote and drive traffic to their social applications. There are several ways that Facebook can achieve this, such as bringing the brands to developers. Specifically, provide opportunities for independent developers to bid on work-for-hire development projects or integrate branded virtual items into their existing social applications.  Facebook could also build an Amazon.com-like referral system that promotes social games or virtual goods that the end user may enjoy based on current apps installed or goods purchased. Additionally, Facebook can implement more traditional e-commerce mechanisms to foster their ecosystem, such as merchandising virtual goods and Facebook Credits across the platform.

Facebook Credits were also a primary point of discussion at the Inside Social Apps event in anticipation of Facebook’s F8 developer conference the following day. During Inside Social Apps, our CEO here at Social Gold,  Vikas Gupta, spoke on a panel with other industry experts about the opportunities and challenges presented by Facebook Credits. Specifically, the panelists noted that while there are several strengths of Facebook Credits – brand recognition, consistent user experience, single currency potentially equating to liquidity – there are also just as many weaknesses, such as high costs to the developer, intermediate steps in the purchase process hurting conversion, and less developer control over their currency. Vikas published a blog post following the announcement of Facebook Credits at F8 that further dissects the weaknesses of the currency.  More recently, Sarah Needleman from The Wall Street Journal published an article which calls out that the 30% cut for Facebook Credits can be expensive for independent developers and may drive them to alternative platforms.

Despite these challenges, there is clearly an opportunity for Facebook to support independent developers in a variety of ways and ultimately help drive the growth of their respective ecosystems.