July 2011

Facebook Ring-fence Payments

Facebook Ring-fence Payments

Facebook faced accusations of "monopolistic control" following an announcement by the company that all social game developers on the Facebook canvas platform were required to process payments through Facebook Credits.

NFC World Congress 2011

The non-partisan group Consumer Watchdog has demanded an investigation into Facebook - the largest social network on the planet with an audience of 750 million -for engagement of "anticompetitive and unfair business practices".

Facebook, who recently surpassed Google as the most-visited site in the USA in 2010, have spawned a mini-economy of users on their site after games played between friends, where virtual goods are purchased with real money, rocketed in popularity.

Part of Facebook's attractiveness to users is the site's willingness to let external developers create applications on the Facebook canvas platform. It does, however, make commercial sense. Think about it, when Facebook offers games that become addictive, users stay on the site longer and thus, more advertising is sold.


One such game, entitled FarmVille, encourages users to buy agricultural supplies to build farms and grow crops. Although most of the games are free, users can pay for items in a number of ways, either directly via the game's developers or through a third party such as PayPal.

This may sound bizarre but business, like the virtual crops, is growing healthily. The entire market for virtual goods in the USA alone is expected to top $2 billion this year - a 40% increase from 2010.

But, from this month, all games on Facebook will have to use Facebook Credits, the site's virtual currency. Every purchase will include a 30% fee that critics have dubbed a tax on developers who rely on Facebook for the livelihood of their business.

Ten Facebook credits are equal to approximately $1 and founding Facebook President Sean Parker announced that the company anticipated the sale of credits would account for one third of the annual revenue, estimated at over $2 billion. It's rumoured that Facebook have granted an exemption to Zynga Inc, the online game developer who created FarmVille. However, Consumer Watchdog have dismissed the deal as ‘improper’ because Zynga, recently valued at more than $10 billion, is large enough to compete against Facebook independently.

"The agreement between Facebook and Zynga, if published reports are correct, would therefore constitute a conspiracy between competitors and further extend Facebook's already overwhelming monopoly power," the group said.

Responding to the announcement about Facebook's rule changes, Consumer Watchdog director John Simpson stated that the company were taking advantage of their monopoly position with ‘predatory policies’ that force developers to fall in line and accept Facebook Credits as a global currency.

Consumer Watchdog may be claiming victory in its campaign to have the Federal Trade Commission investigate Facebook's virtual money programs, but the real loser here is the consumer who will surely face increased prices when using Facebook applications in the future.

By Tom Tainton, Smartcard & Identity News

ID World International Congress 2011


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