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PYMNTS Voice

Facebook Faces Payment Feud Down on the Farm(ville)

Posted by Karen Webster on 13 May 2010 | 2 Comments

Tags: facebook, zynga, applications, developers, social networks, gaming, farmville, virtual currency, platforms

There’s a feud taking place on Facebook. And, it’s about money. And, like most feuds over money, it’s about who pays whom and how much. And, just like the Hatfields and McCoys, the party that fired the first shot may have aimed at the wrong target and for all the wrong reasons.

You may have read over the last week about two decisions that Facebook made recently and that were directed to Zynga, which developed the popular Farmville game. These decisions were to (1) limit the number of notifications that can be disseminated about Farmville activities via the status updates, and (2) to force Farmville farmers to use Facebook’s payment method to buy stuff for their virtual farms.

The first is controversial given Zynga’s stature as one of Facebook’s biggest advertisers, spending tens of millions last year to drive more farmers to Farmville. As a non-Farmville fan, I secretly applauded this move by Facebook since I was getting pretty tired of having my news feed constantly co-opted by friends’ Farmville updates (I don’t play and never have tried.) But, setting aside my personal bias, Facebook has grown its business because it has been able to attract developers who want to leverage its awesome social graph. It touts, as a selling point, its power to drive messages virally and with great velocity. The notion now that developers have embraced the platform, only now to have Facebook limit how viral applications can become in order to drive their advertising revenues higher seems pretty short-sighted.

It’s the second decision related to payments that I think is the most interesting and potentially the most problematic, but not for Zynga. Facebook wants Farmville farmers to use Facebook Credits exclusively since it wants to charge Zynga a 30% fee for the revenue that flows through Credits. I get that Facebook wants to drive adoption and usage of their payment product. And, when drawn on a whiteboard and subsequently put in a powerpoint deck, the notion of picking one of the most popular applications on their platform as a strategy to make that happen probably seemed logical. But, as many a failed payments company will attest, adoption and usage of new payments products doesn’t happen because someone decides to force it, and especially when the one doing the forcing has picked the wrong side of the platform to strong-arm.

Let’s look at the Facebook payments ecosystem for a minute as it relates to Zynga. There are Farmville fans, who play the game on Facebook and who want to keep their farms pretty and buy stuff to do that. We have Zynga that has created Farmville, and has brought to Facebook a huge base of people now who play the game on Facebook and because they are on Facebook, are available for Facebook to monetize in many other ways, like selling advertising to merchants who want to reach these people and enticing Farmville farmers and their friends to buy other things that are for sale on the site. In fact, Zynga’s games brought with it more than 80 million monthly active users. This was, until recently, a happy little ecosystem. Everybody got something of value.

Now, Farmville farm owners have to establish a Facebook Credits account if they don’t want their artichokes to wither and die. That means that they have to move away from whatever they are doing now and do something they have never done before – create a new account. Some people will probably be okay with doing that but some people might chose not to, for a lot of reasons, including privacy and security. That means that Zynga will lose customers at the same time they are being told to pay up on the advertising side and to pay up on the payments side. In platform speak, this has the potential to become a death spiral, where customers leave, and then their friends who used to plow their fields leave, and then more people leave, and soon, everybody loses, including Facebook.

As I said, I get that Facebook wants to monetize payments on their platform. Who doesn’t? But I don’t understand this strategy. These two decisions have managed to alienate one of their customers – Zynga – and has the potential to alienate their other customer – the Farmville farmer and their friends. The offline analog here is a mall owner telling their store tenants that their customers can only use wampum to buy the stuff that they sell in their stores. And, that they’ll take a third of their revenue. And, that this decision gets a couple of years into the lease period without any prior warning. All of a sudden, customers that were used to using money to pay for things now have to go find wapum, or more likely, find stores that still accept money since that is what they have and that is what is accepted everywhere else they like to shop. Playing this out, it’s not hard to see how the mall owner loses in the end since customers find other places to shop. Stores, logically, follow customers as soon as they can exit – and those who can’t go belly up. The mall loses because stores and customers will find each other again in a more convenient platform where the transactions costs are not as high for either side.

So, I think this is a risky move for Facebook to make. There’s talk that Zynga is looking to create its own gaming social network which doesn’t seem all that far-fetched given the network they have built and the affinity that people have to the game. They just might be able to pull that off. The big question for Facebook is how many developers, entrepreneurs, and merchants - all important customers of their platform, are now looking at this decision and making new plans. We won’t know for a while. What we do know is that we’ve seen this movie on social networks before. The first movie was titled Friendster, the second was MySpace.

2 comments | Read the full post

The Invisible Engines that Drive Innovation and Transform Industries

Posted by David S. Evans on 8 March 2010 | 0 Comments

Tags: invisible engines, mit, payments, applications, software, disruptive technology, credit card, debit card, processing, issuer, code, firefox, facebook, social network, microsoft, windows, apple, iphone, mobile, security, api, youtube, google, catalysts, sdk, developer, development

The use of software platforms to drive innovation and transform industries has exploded since the 2006 publication of my book Invisible Engines with MIT Professor and former Sloan School Dean Richard Schmalensee and Harvard Business School Professor Andrei Hagiu. Around the globe, invisible engines are ushering in a new era of technological change based on software. The Apple iPhone has shaken the mobile phone industry worldwide in part by creating a massive applications business built on the phone's operating system. Firefox has revolutionized the browser industry by encouraging developers to write add-ons and in doing so toppled Microsoft's Internet Explorer from dominance in many countries. Facebook has created a powerful social networking platform by opening itself up to developers. Amazon has started cloud-computing platform that enables entrepreneurs to access its vast software code, hardware and global communication systems over the Internet.

0 comments | Read the full post

Search, Social and Swag

Posted by Karen Webster on 22 October 2009 | 240 Comments

Tags: social networks, search, bing, google, yahoo, myspace, linkedin, twitter, facebok, business, social, networks, commerce, catalyst code, traffic, user behavior, advertising

Lots of people have been talking about social sites cannibalizing search. I've addressed this in a prior post since it comes up a lot. eMarketer published a report today that has two interesting findings. First, Google, Bing and Yahoo have little to worry about. They still represent nearly all (like 97.8%) of the search traffic out there. No big surprise, but, here's the interesting part, those who "search" via social networks are often more loyal customers to the sites that are referred by them.

240 comments | Read the full post

PYMNTS.com launches at Lydian!

Posted by Karen Webster on 19 October 2009 | 7 Comments

Tags: payments, business, financial, credit card, banking, social networks, mobile, social, networks, commerce

What’s PYMNTS.com? It’s an online media channel that captures user-generated and expert-driven commentary, information, news and analysis on “what’s next” in the payments sector, worldwide. It provides a platform for industry professionals to share content related to their latest company and product developments, to tap into the collective commentary and analysis from experts, bloggers and industry pundits, and to interact with industry thought leaders and other influentials on topics of critical importance to the future of the sector. PYMNTS.com .delivers an important "first look" at what’s important to the sector, by those who are shaping its future. Why PYMNTS.com? We’re often asked to help our clients define ‘what’s next’ in the context of the new technologies, new entrants and new business models and observed an opportunity to aggregate user-generated and expert-opinion on those topics in an engaging medium. We believe that PYMNTS.com will play an important role in both stimulating and documenting the exciting developments that have and will enable commerce worldwide. We think it’s What’s Next in B2B communications … but don’t take our word, give it a try!

7 comments | Read the full post

Facebook Hits the Payvment

Posted by Karen Webster on 15 October 2009 | 5 Comments

Tags: facebook, payvment, payment, social, network, social commerce, social network, ebay, paypal, ecommerce

So, here's a development: Paypal has opened up its payments platform to enable developers to easily integrate payment apps into their Facebook apps using PayPal as the enabling payments mechanism. This solution is designed to open up commerce on social networks and tap into the tens of millions of people who hang out there each month. The solution creates many, many winners, some unintended consequences, and one big loser.

5 comments | Read the full post

What Social Networking Means for Business and What the Future Holds

Posted by Karen Webster on 14 October 2009 | 9 Comments

Tags: social, commerce, social commerce, social networks, youtube, facebook, myspace, twitter

I was part of an interesting panel discussion on Saturday on what social networking means for business and what the future holds. This panel was part of the Harvard Business School’s African American Alumni Associations Annual Leadership Summit and included Kevin Colleran from Facebook, Laela Sturdy from YouTube/Google, Julitte Powell, entrepreneur and author of 33 Million People in the Room and myself as panelists. We covered a lot of territory in the 90 minutes we had to interact with each other and those who attended the session. Here are a few of the more interesting issues that we discussed.

9 comments | Read the full post

Flatlining or Finding Equilibrium?

Posted by Karen Webster on 29 July 2009 | 6 Comments

Tags: Digital Media, Internet-Based, Technology, Social Networks, consumers, Web 2.0, Internet, two-sided market

Interesting article yesterday on the notion that time spent on-line by adults in the US is flat, after years of rapid growth. The article cites a Forrester Survey that states web surfing now takes up about 12 hours of our week (double what it was in 2004) but did not see significant growth from last year’s survey. The interview by Ad Age of the analyst who authored the study ties the flat growth to users being more efficient with the web, so they don’t have to spend as much time figuring stuff out.

6 comments | Read the full post

Fact or Fallacy

Posted by Karen Webster on 28 July 2009 | 9 Comments

Tags: Other, Digital Media, Technology, Social Networks, consumers, two-sided market

Everywhere we go, it seems that people believe that MySpace is for young people and Facebook is for an older crowd. Translation: brands perceive there is more value to being on Facebook than on MySpace.

9 comments | Read the full post

/commentary

PYMNTS Voice

Facebook Faces Payment Feud Down on the Farm(ville)

The Invisible Engines that Drive Innovation and Transform Industries

Search, Social and Swag

PYMNTS.com launches at Lydian!

Facebook Hits the Payvment

What Social Networking Means for Business and What the Future Holds

Flatlining or Finding Equilibrium?

Fact or Fallacy

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