How Facebook Reaches $20 Billion in Revenue
A Payments System and Social Ad Network Will Take It to a $100 Billion Valuation
Facebook, at over 500 million users, has transformed the web, and indeed the planet, by connecting us all in ways we weren't before. At their current growth rates, they will finish this year at around 600 million users and will be larger than Google by the end of next year (if they aren't already, see here). (As Facebook's head of growth once told me, the nice thing about growth being truly viral is that it becomes very easy to predict your future growth. Facebook actually employs several epidemiologists to measure and predict growth.) Once Facebook has a true web-wide view (i.e., is connected with nearly all 1.1 billion people on the web), their scale becomes completely un-ignorable by all major advertisers. They are already at this point today in many markets, but this will become true next year in essentially all online geographic markets.
Today, we understand that Facebook generates about $2 to $3 per user per year in revenues. Google, however, generates about $25 per user per year (more than $25 billion in revenue from about 1 billion users). The gap is considerable, but Facebook is just getting started with their monetization efforts. Their main forms of revenue today are engagement ads and self-service ads. The non-self-service ads are sold by a large and competent sales staff around the world that caters to brands and agencies. They are selling these ads largely on a CPM basis. That is, they are not positioned as performance-oriented ads, but sold more like TV. Reach and frequency are the main measurements and selling points. Self-service ads are sold more to the mid-tail of advertisers and are sold more like Google AdWords on a CPC basis. These ads allow for extremely rudimentary targeting. The targeting criteria is based on the info you, the user, have put in about yourself. I am a male in my early 40s in New York City and I like tennis. So, I see ads targeted at these keywords.
There are pros and cons to these forms of advertising. First, Facebook's reach is undeniable and advertisers love the idea of appearing on everyone's Facebook page for an entire day. The CPM ads are targeted more at brand advertisers that are less interested in demand fulfillment and more in awareness generation and demand creation. As Sheryl Sandberg has pointed out many times, this "brand advertising" market is many times larger than search/display "performance" marketing. They have their eyes set on TV.
I think the main reason they are focused on this is because, quite frankly, ads on Facebook don't perform very well. We know that the effective CPM of these ads on Facebook is well under $1. Advertisers understand that social media has proven, thus far, to be a place where people don't seem to want to be interrupted to click an ad. In addition, the performance of rudimentary ad targeting doesn't nearly beat the efficacy of search targeting or good display behavioral targeting for that matter. That makes it less attractive to advertisers who measure performance by clicks, and also to a company who expects to be paid per click. Hence, sell CPMs! Facebook has lots of growth in these two ad strategies. But that is not what will get them to $20 billion in revenue quickly.
What will? Two things: payments and off-site social targeting.
Facebook payments, with Facebook getting 30% of all virtual good sales, will generate several billion dollars a year once it is ramped. This can become a $4 billion revenue line for Facebook within three years. But the other often under-discussed opportunity is an off-site socially targeted ad network.
We know from our investment in Media6Degrees that the most effective form of ad targeting after search is social targeting. These are ads that are targeted essentially at the friends of a brand's existing customers. Your customer's friends show extremely similar brand affinities as you. Of course, these prospects don't have to be the actual friends of your customers...they just have to have similar social signatures to your customers. And Media6Degrees is the leading company pioneering this form of targeting. Other companies exist trying to do the very same thing. Frankly, the results are staggeringly good.
The issue for Facebook is that applying this advanced form of targeting on their site would be uninteresting, owing to the lack of performance of advertising on social media. This is where Facebook Connect comes in.
Already, more than 2 million sites have implemented Facebook Connect. I believe what Facebook will do is to offer to every one of those sites essentially an AdSense replacement. Pull out your AdSense ads and replace them with socially-targeted Facebook ads. When a friend of a brand's existing customer appears on a publisher's site, they can see ads for that brand. I believe these results will perform considerably better than AdSense's contextual/semantic targeting and hence provide publishers with larger payouts than Google provides them. Facebook already has the large social data set to understand the connections necessary for this targeting. Of course, this will further encourage more sites to implement Facebook Connect and Like buttons, since Facebook can make these requirements to be in the social targeting ad network.
By the way, this form of targeting is proving to work equally well for video. Video is likely to be the most important form of ad creative deployed for brand advertisers. But to whom do you show the commercials? The friends of your existing customers.
At scale, with, say, 5 million sites in this network, Facebook could operate the largest off-site ad network (display and video) that outperforms all others. At this scale, I can see this generating $15 billion a year in revenue.
What's stopping them today from doing this? Well, first, they don't have to. They have plenty of headroom left in growing the existing businesses. In addition, the data science necessary to pull this off at scale is profoundly challenging. It's not as easy as it sounds, particularly if performance matters -- there is a cost to showing an ad to someone who may be connected to a customer, but not close enough. It takes years to perfect this form of targeting. Finally, the current privacy scrum needs to further settle out. I think we could see Facebook launch products like this in the second half of next year. This will get them to $20 billion in revenue and worth at least $100 billion in market cap. Stay tuned.
Thursday, December 16, 2010
Thursday, December 9, 2010
Report: Driven By Video, Display Ad Spending To Close Gap On Search Within Two Years
Report: Driven By Video, Display Ad Spending To Close Gap On Search Within Two Years
The unrivaled rise of paid search could end as soon as 2014, according to revised forecasts from eMarketer. By then, according to the research firm, growth in spending on online display ads will outstrip that for paid search, although search will continue to take a greater share of dollars.
This year, both search and display are on track to outpace overall U.S. online ad spending, estimated by eMarketer at 13.9%.
Between 2011 and 2014, however, eMarketer projects that online display spending will grow faster than overall online spending, while search spending will lag slightly behind.
The increase in display advertising will be driven partly by the dramatic rise predicted in online video advertising, set to grow by at least 34% every year through 2014. Banner ads will experience more moderate gains of between 7% and 16.2% annually, while rich media spending will stagnate.
"The growth of display doesn't necessarily mean that advertisers are spending less on search," said David Hallerman, eMarketer principal analyst. "Much of the display ad spending gains are new dollars coming online -- which is part of a bigger trend towards more spending on branding, rather than spending focused on direct response alone."
In 2010, eMarketer estimates U.S. advertisers will spend $12.37 billion on paid search, compared with $8.88 billion on online display ads. Search will still get the most dollars in 2014, at $18.84 billion, but display will have closed the gap somewhat and will reach $15.92 billion in spending that year.
Display ads like static banners have a bad reputation for low click-through rates, according to eMarketer, but still serve an important branding purpose.
"Banner ads today mainly have subliminal effects on the audience," said Hallerman. "That makes banners difficult to measure directly. However, the uptick in search results due to banners from the same advertiser is a long-standing pattern seen by sophisticated digital marketers."
eMarketer predicts branding-oriented online advertising will increase its share of the U.S. total from 36.3% this year to 41.4% by 2014, with direct response making up a commensurately smaller part of the pie.
Display's high growth rates, and especially the dramatic growth expected in online video advertising, will be the main factor behind this trend.
Continued economic uncertainty will inspire advertisers to rely more heavily on digital channels, according to revised spending forecasts released earlier this week by eMarketer. Next year, U.S. online ad spending will increase 10.5% -- followed by double-digit growth every year through 2014, when spending will reach $40.5 billion, eMarketer predicts.
In particular, online video advertising will remain the fastest-growing format throughout the period -- while search will continue to get the most dollars, according to Marketer, which forms its forecast by performing a meta-analysis of research estimates and methodologies from various tracking firms.
The unrivaled rise of paid search could end as soon as 2014, according to revised forecasts from eMarketer. By then, according to the research firm, growth in spending on online display ads will outstrip that for paid search, although search will continue to take a greater share of dollars.
This year, both search and display are on track to outpace overall U.S. online ad spending, estimated by eMarketer at 13.9%.
Between 2011 and 2014, however, eMarketer projects that online display spending will grow faster than overall online spending, while search spending will lag slightly behind.
The increase in display advertising will be driven partly by the dramatic rise predicted in online video advertising, set to grow by at least 34% every year through 2014. Banner ads will experience more moderate gains of between 7% and 16.2% annually, while rich media spending will stagnate.
"The growth of display doesn't necessarily mean that advertisers are spending less on search," said David Hallerman, eMarketer principal analyst. "Much of the display ad spending gains are new dollars coming online -- which is part of a bigger trend towards more spending on branding, rather than spending focused on direct response alone."
In 2010, eMarketer estimates U.S. advertisers will spend $12.37 billion on paid search, compared with $8.88 billion on online display ads. Search will still get the most dollars in 2014, at $18.84 billion, but display will have closed the gap somewhat and will reach $15.92 billion in spending that year.
Display ads like static banners have a bad reputation for low click-through rates, according to eMarketer, but still serve an important branding purpose.
"Banner ads today mainly have subliminal effects on the audience," said Hallerman. "That makes banners difficult to measure directly. However, the uptick in search results due to banners from the same advertiser is a long-standing pattern seen by sophisticated digital marketers."
eMarketer predicts branding-oriented online advertising will increase its share of the U.S. total from 36.3% this year to 41.4% by 2014, with direct response making up a commensurately smaller part of the pie.
Display's high growth rates, and especially the dramatic growth expected in online video advertising, will be the main factor behind this trend.
Continued economic uncertainty will inspire advertisers to rely more heavily on digital channels, according to revised spending forecasts released earlier this week by eMarketer. Next year, U.S. online ad spending will increase 10.5% -- followed by double-digit growth every year through 2014, when spending will reach $40.5 billion, eMarketer predicts.
In particular, online video advertising will remain the fastest-growing format throughout the period -- while search will continue to get the most dollars, according to Marketer, which forms its forecast by performing a meta-analysis of research estimates and methodologies from various tracking firms.
Mobile and TV
Yahoo plans to release research Thursday supporting why traditional media buyers might want to pull time on broadcast TV to allocate budgets to mobile advertising. Supporting consumer behavior, the data accompanies the rollout of three rich media formats: Yahoo Mobile Screen Takeover, Yahoo Mobile Customized Expandable Ads, and iPad Tap to Video Ads.
Traditional advertisers who remove one or two TV ads from their mix will not notice any difference on the performance of that campaign if they allocate those funds toward mobile to find new audiences, according to Paul Cushman, senior director of mobile sales strategy at Yahoo. "A creative director who says he can't do anything with mobile is last year's story," he says. "HTML5 will become the major driver for scale and engagement within mobile. The ability for it to provide an app-like experience is significant and should not be underestimated."
Cushman, a mobile evangelist, says brands continue to waste ad dollars. The numbers revealing this trend sit behind Yahoo's firewall in mail and Front-Page data, Yahoo's "crown jewel," of which third-party companies can't gain access. The critical data suggests that consumers reach for their mobile devices while watching TV during a commercial break.
Yahoo supports between 49 million and 50 million unique mobile Internet users monthly. Commercial breaks during live TV events drive mobile Internet use, according to Cushman. Yahoo's analysis of consumer activity across the company's network found a correlation between TV commercial breaks and spikes in mobile Internet use. During commercials that ran with the 2010 Academy Awards, traffic and engagement on the Yahoo Mobile site increased on average 12%. Browser activity rose 125% on Yahoo News. Users consumed 39% more content on Yahoo Front Page, search rose 13%, and users checked and sent email 6% more.
Similarly, for the 2010 World Cup, traffic and engagement on the Yahoo Mobile site rose on average of 10% during commercials. Browsing activity rose 57% on Yahoo News, 24% more users consumed content on Yahoo Front Page, and search activity rose 12% on Yahoo Search.
Yahoo has offered the expandable ad format for more than a year, but customized the offering and began designing the other two formats during the past year to create a package for advertisers. Consumers are becoming more comfortable with mobile ads. Research from Yahoo Mobile and Nielsen suggests that the immediacy and portability of the mobile phone drives conversions. When consumers use their mobile phone to do research, about half the time they plan to make a purchase.
Yahoo isn't the only ad tech company capitalizing on mobile. Google also touted Wednesday high returns on investments for mobile ads on Google's network. Dai Pham, who supports Google mobile ads product marketing, writes in a blog post that Roy's restaurant managed to achieve click-though rates 539% higher on mobile than on desktop by investing in mobile-specific campaigns and hyperlocal advertising.
Traditional advertisers who remove one or two TV ads from their mix will not notice any difference on the performance of that campaign if they allocate those funds toward mobile to find new audiences, according to Paul Cushman, senior director of mobile sales strategy at Yahoo. "A creative director who says he can't do anything with mobile is last year's story," he says. "HTML5 will become the major driver for scale and engagement within mobile. The ability for it to provide an app-like experience is significant and should not be underestimated."
Cushman, a mobile evangelist, says brands continue to waste ad dollars. The numbers revealing this trend sit behind Yahoo's firewall in mail and Front-Page data, Yahoo's "crown jewel," of which third-party companies can't gain access. The critical data suggests that consumers reach for their mobile devices while watching TV during a commercial break.
Yahoo supports between 49 million and 50 million unique mobile Internet users monthly. Commercial breaks during live TV events drive mobile Internet use, according to Cushman. Yahoo's analysis of consumer activity across the company's network found a correlation between TV commercial breaks and spikes in mobile Internet use. During commercials that ran with the 2010 Academy Awards, traffic and engagement on the Yahoo Mobile site increased on average 12%. Browser activity rose 125% on Yahoo News. Users consumed 39% more content on Yahoo Front Page, search rose 13%, and users checked and sent email 6% more.
Similarly, for the 2010 World Cup, traffic and engagement on the Yahoo Mobile site rose on average of 10% during commercials. Browsing activity rose 57% on Yahoo News, 24% more users consumed content on Yahoo Front Page, and search activity rose 12% on Yahoo Search.
Yahoo has offered the expandable ad format for more than a year, but customized the offering and began designing the other two formats during the past year to create a package for advertisers. Consumers are becoming more comfortable with mobile ads. Research from Yahoo Mobile and Nielsen suggests that the immediacy and portability of the mobile phone drives conversions. When consumers use their mobile phone to do research, about half the time they plan to make a purchase.
Yahoo isn't the only ad tech company capitalizing on mobile. Google also touted Wednesday high returns on investments for mobile ads on Google's network. Dai Pham, who supports Google mobile ads product marketing, writes in a blog post that Roy's restaurant managed to achieve click-though rates 539% higher on mobile than on desktop by investing in mobile-specific campaigns and hyperlocal advertising.
Wednesday, December 1, 2010
More Advertisers Tap Virtual Goods for Casual Gamers
More Advertisers Tap Virtual Goods for Casual Gamers
WildTangent Releases New Platform for Tapping Into Social Games
Posted by Irina Slutsky on 11.17.10 @ 12:29 PM
If you spend money on your virtual cabbages in Farmville, you're in the minority. While players can spend real dollars to enhance the experience, very few actually do.
But a new generation of advertisers is willing to help pick up the tab for tractors, weapons, experience points and other virtual goodies. Game marketer WildTangent is entering the fray with its own way for advertisers to reach 350 million casual gamers by paying for their virtual goods.
"In the social game space, less than three percent of users are spending real money, so there's a 97% opportunity here for advertisers to sponsor social game access," said Dave Madden, CEO of WildTangent.
The company, around for 11 years in Redmond, WA, designed an advertising platform for social games with a set of APIs that game developers can use to allow advertisers to tap into the games. As of this week's launch, six Facebook games, including The Price is Right, Happy Pets, Happy Aquarium and It Girl are using the platform.
It's a strategy similar to SVNetwork's network on Zynga, which also allows users to earn game credits in exchange for engaging with ad experiences, and a way to bring the mechanics of game play into the ads themselves.
WildTangent has made deals with brands -- just finalized this week is Microsoft's Kinect -- for sponsorship inside the games. The basic exchange goes like this: A player watches a 30-second sponsored video and then gets a coveted virtual item or extra playing time. Kinect is a sponsor of The Price Is Right game, a brand in and of itself, both in Facebook and in real life.
According to research, WildTangent and the advertisers it's working with -- Trident, Microsoft, Cheerios, Honda and others -- are on the right path. Though the virtual goods market is expected to grow to as much as $2.1 billion in 2011, there is plenty of room for advertising. Yet ad spending in social games is still nascent, a $192 million market in 2011, according to eMarketer.
WildTangent is participating with large game creators like Playdom, Crowdstar and Ludia, producer of The Price is Right Facebook game.
The Price Is Right has been mixing game play and commerce on TV for 38 years; now they're taking that experience into Facebook. "The Price Is Right game on Facebook is the ultimate social game to provide an even deeper opportunity for brands to participate with our millions of players and reward them at the same time," said Alex Thabet, founder and CEO of Ludia. "We look forward to bringing the fans of our Facebook games these extra bonuses from relevant brand advertisers."
WildTangent Releases New Platform for Tapping Into Social Games
Posted by Irina Slutsky on 11.17.10 @ 12:29 PM
If you spend money on your virtual cabbages in Farmville, you're in the minority. While players can spend real dollars to enhance the experience, very few actually do.
But a new generation of advertisers is willing to help pick up the tab for tractors, weapons, experience points and other virtual goodies. Game marketer WildTangent is entering the fray with its own way for advertisers to reach 350 million casual gamers by paying for their virtual goods.
"In the social game space, less than three percent of users are spending real money, so there's a 97% opportunity here for advertisers to sponsor social game access," said Dave Madden, CEO of WildTangent.
The company, around for 11 years in Redmond, WA, designed an advertising platform for social games with a set of APIs that game developers can use to allow advertisers to tap into the games. As of this week's launch, six Facebook games, including The Price is Right, Happy Pets, Happy Aquarium and It Girl are using the platform.
It's a strategy similar to SVNetwork's network on Zynga, which also allows users to earn game credits in exchange for engaging with ad experiences, and a way to bring the mechanics of game play into the ads themselves.
WildTangent has made deals with brands -- just finalized this week is Microsoft's Kinect -- for sponsorship inside the games. The basic exchange goes like this: A player watches a 30-second sponsored video and then gets a coveted virtual item or extra playing time. Kinect is a sponsor of The Price Is Right game, a brand in and of itself, both in Facebook and in real life.
According to research, WildTangent and the advertisers it's working with -- Trident, Microsoft, Cheerios, Honda and others -- are on the right path. Though the virtual goods market is expected to grow to as much as $2.1 billion in 2011, there is plenty of room for advertising. Yet ad spending in social games is still nascent, a $192 million market in 2011, according to eMarketer.
WildTangent is participating with large game creators like Playdom, Crowdstar and Ludia, producer of The Price is Right Facebook game.
The Price Is Right has been mixing game play and commerce on TV for 38 years; now they're taking that experience into Facebook. "The Price Is Right game on Facebook is the ultimate social game to provide an even deeper opportunity for brands to participate with our millions of players and reward them at the same time," said Alex Thabet, founder and CEO of Ludia. "We look forward to bringing the fans of our Facebook games these extra bonuses from relevant brand advertisers."
Facebook, Google and Yahoo! are Top Sites While Watching Big TV Events
Facebook, Google and Yahoo! are Top Sites While Watching Big TV Events
March 16, 2010
Americans are getting into the habit of going online while watching television, with 10% or more of viewers visiting social networks, searching the web and browsing content during major TV events.
Recently, when 29% of the U.S. population tuned into the Academy Awards on March 7, more than 13% of those viewers spent time on the web at the same time. For the 2009 Oscars, 25.6% of the population tuned in and 8.7% surfed the web simultaneously. A large percentage of those watching TV and surfing the web visited Facebook, Google or Yahoo!, a trend also seen in this year’s Super Bowl Super Bowl.
Simultaneous Viewing Summary By Event
2009 Super Bowl 2009 Academy Awards 2010 Super Bowl 2010 Academy Awards
% of Population Watching Event 49.10% 25.60% 47.40% 29.10%
TV Viewers Also Going Online 12.80% 8.70% 14.50% 13.30%
Source: The Nielsen Company
2010 Academy Awards
Top 10 Domains by Simultaneous Usage
RANK Domain % of Simultaneous
Visitors Simultaneous Mins Per Visitor
1 facebook.com 39.5% 15.7
2 google.com 35.1% 3.0
3 yahoo.com 31.0% 5.8
4 msn.com^ 10.7% 1.9
5 aol.com^ 10.0% 3.0
6 comcast.net^ 6.6% 3.0
7 myspace.com^ 6.3% 9.8
8 live.com^ 5.9% 5.1
9 wikipedia.org^ 5.5% 3.9
10 youtube.com^ 5.2% 3.5
Source: The Nielsen Company
^Small base sizes; for directional purposes only
Top Domains by Simultaneous Visitors and Time Spent
Super Bowl XLIV
RANK Domain % of Simultaneous
Visitors
Simultaneous Mins
Per Visitor
1 Google.com 36% 3.8
2 Facebook.com 34% 18.6
3 Yahoo.com 30% 6.5
4 aol.com^ 21% 2.4
5 msn.com^ 11% 2.4
6 live.com^ 7.8% 3.6
7 youtube.com^ 7.3% 16.7
8 comcast.net^ 6.1% 3.6
9 ebay.com^ 5.3% 3.7
10 myspace.com^ 5.3% 14.5
Source: The Nielsen Company
^Small base sizes; for directional purposes only
March 16, 2010
Americans are getting into the habit of going online while watching television, with 10% or more of viewers visiting social networks, searching the web and browsing content during major TV events.
Recently, when 29% of the U.S. population tuned into the Academy Awards on March 7, more than 13% of those viewers spent time on the web at the same time. For the 2009 Oscars, 25.6% of the population tuned in and 8.7% surfed the web simultaneously. A large percentage of those watching TV and surfing the web visited Facebook, Google or Yahoo!, a trend also seen in this year’s Super Bowl Super Bowl.
Simultaneous Viewing Summary By Event
2009 Super Bowl 2009 Academy Awards 2010 Super Bowl 2010 Academy Awards
% of Population Watching Event 49.10% 25.60% 47.40% 29.10%
TV Viewers Also Going Online 12.80% 8.70% 14.50% 13.30%
Source: The Nielsen Company
2010 Academy Awards
Top 10 Domains by Simultaneous Usage
RANK Domain % of Simultaneous
Visitors Simultaneous Mins Per Visitor
1 facebook.com 39.5% 15.7
2 google.com 35.1% 3.0
3 yahoo.com 31.0% 5.8
4 msn.com^ 10.7% 1.9
5 aol.com^ 10.0% 3.0
6 comcast.net^ 6.6% 3.0
7 myspace.com^ 6.3% 9.8
8 live.com^ 5.9% 5.1
9 wikipedia.org^ 5.5% 3.9
10 youtube.com^ 5.2% 3.5
Source: The Nielsen Company
^Small base sizes; for directional purposes only
Top Domains by Simultaneous Visitors and Time Spent
Super Bowl XLIV
RANK Domain % of Simultaneous
Visitors
Simultaneous Mins
Per Visitor
1 Google.com 36% 3.8
2 Facebook.com 34% 18.6
3 Yahoo.com 30% 6.5
4 aol.com^ 21% 2.4
5 msn.com^ 11% 2.4
6 live.com^ 7.8% 3.6
7 youtube.com^ 7.3% 16.7
8 comcast.net^ 6.1% 3.6
9 ebay.com^ 5.3% 3.7
10 myspace.com^ 5.3% 14.5
Source: The Nielsen Company
^Small base sizes; for directional purposes only
Social Gaming Pushes Deeper into the Mainstream with Zynga, AmEx Deal
Social Gaming Pushes Deeper into the Mainstream with Zynga, AmEx Deal
Click to enlarge Zynga, the maker of such games as FarmVille, CityVille and Mafia Wars, has scored a coup for its corner of the social world via a new partnership with American Express. Social gamers can now use rewards from American Express credit cards to buy virtual goods.
The deal is significant not only because it is the first social game to link up with a major credit card but because it will go far in convincing mainstream consumers that virtual goods do indeed have value in the real world, Venture Beat notes.
This move follows the recent roll out of Facebook Credits in-store gift cards. Now on sale in $10, $25, and $50 increments at Best Buy and $5, $10, and $25 at Wal-Mart, Facebook Credits effectively pushed its own online currency into bricks-and-mortar stores in time for the holidays.
Tangible Examples
Eventually bricks-and-mortar retailers will follow suit with their own virtual goods promotions, predicts Scott Silverman, Ifeelgoods.com’s co-founder and VP of marketing. (via eConsultancy). At that point true mainstream acceptance will be reached.
Silverman gives a hypothetical promotion on a retail webpage - buy two pairs of jeans and save $20. Now contrast that with a virtual goods incentive of buy two pairs of jeans and get 20 free Facebook credits. Which is more appealing to the consumer - obviously the additional bargain of 20 Facebook credits. In truth, this offer costs the retailer next to nothing, Silverman said. "Each Facebook credit is worth 10 cents, so the cost to the retailer is $2, or 20% off of an order that might be $50-$60. But 20 feels like a pretty significant number to consumers…We believe that'll have a high perceive value to consumers, and it will help drive them to make that purchase."
Click to enlarge Zynga, the maker of such games as FarmVille, CityVille and Mafia Wars, has scored a coup for its corner of the social world via a new partnership with American Express. Social gamers can now use rewards from American Express credit cards to buy virtual goods.
The deal is significant not only because it is the first social game to link up with a major credit card but because it will go far in convincing mainstream consumers that virtual goods do indeed have value in the real world, Venture Beat notes.
This move follows the recent roll out of Facebook Credits in-store gift cards. Now on sale in $10, $25, and $50 increments at Best Buy and $5, $10, and $25 at Wal-Mart, Facebook Credits effectively pushed its own online currency into bricks-and-mortar stores in time for the holidays.
Tangible Examples
Eventually bricks-and-mortar retailers will follow suit with their own virtual goods promotions, predicts Scott Silverman, Ifeelgoods.com’s co-founder and VP of marketing. (via eConsultancy). At that point true mainstream acceptance will be reached.
Silverman gives a hypothetical promotion on a retail webpage - buy two pairs of jeans and save $20. Now contrast that with a virtual goods incentive of buy two pairs of jeans and get 20 free Facebook credits. Which is more appealing to the consumer - obviously the additional bargain of 20 Facebook credits. In truth, this offer costs the retailer next to nothing, Silverman said. "Each Facebook credit is worth 10 cents, so the cost to the retailer is $2, or 20% off of an order that might be $50-$60. But 20 feels like a pretty significant number to consumers…We believe that'll have a high perceive value to consumers, and it will help drive them to make that purchase."
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