Facebook Gets Out of the Way in Payments Battle

By Jon Matonis

Either lead, follow, or get out of the way. Facebook chose the third route.

I don't really understand the benefits of this latest move by Facebook to accept PayPal, but then again I wasn't present at the meetings, so it could be that I am missing part of a 'grander' strategy. It's a great deal for PayPal to acquire new subscribers. On the one hand, it paves a road for Facebook to demand Facebook Credits and 'push out' the virtual currency platform companies. But, on the other hand, it opens the door for a universal virtual currency that has the ability to move both in-and-out of the Facebook gaming environment.

Paypal is simply a VISA/Mastercard/bank account intermediary and Facebook is certainly free to develop and to extend those credit card association relationships on their own, especially with Peter Thiel on the board of Facebook. This is a layer on a layer on another layer to purchase Facebook Credits. Facebook needs revenue and their most promising path to revenue had seemed to be via exploiting the payment platform space!

With its incredible trust factor and customer brand loyalty, an international Facebook currency would be a tremendous force in the market. Any attempt now by Facebook to extend payment transactions into the non-Facebook universe would effectively nullify the non-exclusive partnership with PayPal. Instead, they chose to enrich the PayPal proprietary database with potentially millions of new subscribers. Maybe this latest move will give new juice to the freely-convertible, universal currency notion now that Facebook is out of the way.

For further reading:
"Facebook Said to Offer More Payment Options for Items in Games", Ari Levy, Brian Womack and Joseph Galante, Bloomberg, February 19, 2010
"Facebook Announces Partnership with PayPal for Ad and Credits Payments", Eric Eldon, February 18, 2010
"PayPal Integration Shows Facebook Wants to Play in Currency, Partner for Payments", Justin Smith, February 18, 2010
"Facebook’s Increasing Focus on Credits Prompts Developer Speculation", Eric Eldon, February 18, 2010
"Facebook's PayPal Killer Now Accepts PayPal", Nick Saint, February 18, 2010
"PayPal Becomes A Facebook Credits Payment Provider", Nick O'Neill, February 18, 2010
"Facebook, PayPal partner on advertising, virtual goods payments", Kim-Mai Cutler, February 18, 2010
"Facebook's New Payments System Is Increasing Virtual Goods Sales By An Impressive 25%", Rory Maher, February 9, 2010
"Facebook Cut Of Transactions Could Be High As 50%", Virtual Goods News, January 13, 2010
"'Virtual currencies' power social networks, online games", John Sutter, CNN, May 19, 2009
"Why Facebook Wants A Virtual Currency", Michael Hickins, InformationWeek's Digital Life, May 18, 2009