IndustryGamers - Informing the Games Industry

Opinion: Facebook Announces Their Commitment to Sucking at E-Commerce

Posted July 12, 2010 by Alex St. John

Facebook announced last week that they are shutting down their virtual gift store officially on August 1, stating that they want to "focus" their resources on the Facebook Credits online payments system instead. Their Credits system gives third-party companies who run games and other applications on Facebook a uniform currency for selling virtual items on the network. “We made the decision after careful thought about where we need to focus our product development efforts,” said Jared Morgenstern, product manager at Facebook.

Those parties who understand e-commerce recognize this announcement from Facebook as a declaration of defeat. Clearly, if Facebook was GOOD at e-commerce and selling virtual gifts, they wouldn't be shutting down their storefront; they would be staffing up to do both. Additionally, the apparent assertion by Facebook that managing a virtual goods store and offering a virtual currency (like Credits) are mutually exclusive makes no sense whatsoever. In fact, these two initiatives are not only complementary, but they are fundamentally essential to the business success of the other.

The question that developers should be asking right now is: if Facebook can't run their own virtual goods store successfully, what makes them think they'll be better at selling other people’s virtual goods? If developing the Facebook Credits system and monetizing other developers’ virtual goods is such an important strategic effort, why is the group working on it so strapped for resources that they can't maintain their own virtual goods store? (Which, by the way, is the only e-commerce laboratory Facebook controls to learn how to effectively monetize their own audience?)

Last week’s announcement from Facebook should tell social game developers everything they need to know about the future of virtual goods monetization on Facebook platform and the likely effectiveness of Facebook Credits as a payment vehicle. It’s evident that Facebook isn't committed to virtual goods and currency monetization – they don’t plan to “eat their own dog food,” so to speak – and they don't plan to leverage their own virtual goods to increase the penetration of Credits, and thereby make transaction barriers lower for their partners. The Facebook Credits system is a naive approach to taxing the revenues of social media game developers while bringing negative value to them by limiting their monetization potential to Facebook’s self-imposed level of e-commerce ignorance.

Facebook is in the process of repeating a common mistake made by other leading destination sites on the Internet, which is making a half-hearted investment in e-commerce. Does anybody else remember when Yahoo, Google and Microsoft's various commerce initiatives were "poised" to dominate the Internet? Historically, only companies whose primary business focus is e-commerce really succeed at it, and last week's announcement is a clear indication of Facebook's "commitment" to e-commerce.

Alex St. John is the President and CTO of hi5 where he leads all product strategy, design, development and operations. Previously, he was CEO and co-founder of WildTangent. He was also one of the principal creators of Microsoft's DirectX technology, which became the foundation for all Windows multimedia applications, 3D graphics, media players, and casual multiplayer games, as well as thousands of PC and Xbox games.