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David Strachan - DRS Advisors LLC

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Facebook's Micropayment Non-Strategy

28 April 2009  |  8536 views  |  0

Rumors continue to swirl concerning the deployment of a Facebook payments system. Recently the company unveiled that it was beta testing (via the VentureBeat and Facebook networks) functionality which would enable users to engage in small transactions using Facebook Credits, the network's nascent virtual currency, via comments to news feed items. Users can reward each other for useful or entertaining commentary. Whether this structure is practical or will be widely used to this end remains to be seen, but we see broader applications. At the moment the only way to purchase Facebook Credits is through the gift shop, and this means having to first purchase a gift. The maximum purchase for now is $10 (for 1000 credits).

While Facebook engages in sleepy R&D, movements are clearly afoot in the social payments space which present a mounting competitive threat. The most recent event: PlaySpan’s acquisition of competitor SpareChange. With this single acquisition PlaySpan managed to garner access to over 1,000,000 users and 700 applications spanning Facebook, MySpace, and Bebo. Moreover, this acquisition comes on the heels of an agreement with Hi5 to white label 2 of its global payment services - PayByCash and Ultimate Game Card - to enable Hi5 users to purchase Hi5 Coins, the network’s virtual currency.

There is a serious time-to-market issue which Facebook needs to address. Rather than focus on in-house development, Facebook should be looking outside (or inside) for systems to quickly integrate and deploy. SpareChange was clearly a logical choice, and the company's failure to act may have been costly, but not fatal. Facebook should look closely at AceBucks, a virtual currency platform/application from Buddy Media which enables users to accumulate currency through games, referrals, and surveys, and to spend it on real-world items via a virtual shopping mall. Facebook could also look to acquire PlaySpan - a bold strategy which in one move would not only solidify its position as the dominant payments-enabled social network, but could effectively shut the door on Hi5, Bebo, and MySpace.

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name

David Strachan

job title

Senior Managing Director

company name

DRS Advisors LLC

member since

2007

location

Maryland

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I am the founder and Senior Managing Director of DRS Advisors LLC, a boutique advisory specializi...

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