Virtual Goods Fuel Top Facebook Apps

The majority of the Top 40 apps on the Facebook platform (by reach) now monetize through sale of virtual goods, as reported by Inside Facebook. This is the first time the virtual goods model has dominated the Facebook platform since its launch in 2007. Generally these social games monetize by encouraging users to purchase virtual currency, which they then spend on in-game items that may customize an avatar, give an edge in competitive gameplay, or make achieving a particular goal consume less time.

Users who want to buy virtual currency in social games and other apps that use it generally have the option to either buy directly or to accept ad offers. Either way, the developer receives the funds directly and usually ends up monetizing at a much better rates than an ad-supported model would generate. As a result, top Facebook developers like Zynga, Playdom, and Playfish are thriving despite the hard times facing traditional game developers. All companies mentioned above are hiring for new positions and most are believed to be profitable.

Social games on Facebook are now advertising aggressively on the social network to try and draw users to their games (and possibly away from some new, similar competitor). Right now the bulk of Facebook's revenue is generated by fees paid to advertise on the site. This means that Zynga's virtual goods economy is effectively supporting Facebook whenever it spends for major ad campaigns like its currently-ongoing Mafia Wars campaign, which was in part a response to a similar major campaign by Playdom that supported Mobsters 2: Vendetta. Non-gaming apps that use virtual goods like Zoosk are also frequently Facebook advertisers.

Facebook itself is positioning itself to take advantage of the virtual goods boom, with its own universal virtual currency in development and a new emphasis on generating revenue by selling virtual gifts. The Facebook universal virtual currency, Facebook Credits, would serve as one of many alternatives to paying through credit cards available to Facebook gamers. When users opted to pay with Credits, Facebook would get a cut of the transaction to keep. While Facebook may be an ad-dominated now, the transition that's already occurred on Facebook's platform may signal the beginning of a transformation in store for the entire social network.

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