Now that Facebook is a public company, it’s under pressure by its shareholders and investors to show that it has a plan to generate revenue. The company’s latest plan is to expand its system for virtual payments — the use of credits to buy add-ons to games — to include direct, real payments.
Facebook seems to be as much a part of a young person’s life as email had become for the slightly older generation. Since the company is so ubiquitous without any legitimate competing social networking website with an audience of customers as wide as its own, it’s hard to see how this plan will fail. The company’s executives are betting on the willingness for the site’s users to provide credit card information in order to seamlessly pay for who-knows-what online in their own currencies, with Facebook taking a nice cut from every transaction. (After all, there’s no competition in this space, and probably no regulation applies, so Facebook could take as big of a percentage of each transaction as they want.)
With 900 million users worldwide, Facebook only needs a small percentage of users accepting this new technology in order to build a significant revenue source. In fact, if this catches on well enough, there’s no reason Facebook couldn’t become one of the most profitable businesses in the world. I wonder how history will look back on those of us who said Facebook’s IPO at $35 or so a share was wildly overpriced. It’s true that most of the 900 million users globally do not have access to credit cards, but this is probably only a temporary barrier. Access to credit will eventually grow in developing nations, but even if it doesn’t grow quickly, Facebook can surely find a way to serve users who want to spend their cash.
There is a general feeling in the media that people over-share on social media websites like Facebook, and a very vocal minority wonders why people are willing to share the most intimate details in their lives with a computer database that churns the information and presents it to marketers as a goldmine of data enabling companies to better sell their products. People wonder why someone would take things they create, like photographs, music, and essays, and provide the right for Facebook to keep this information and redistribute it in any form the company determines might increase profits for its shareholders.
If you use Facebook in this way and don’t see any sign of it dissipating, it makes sense to own some shares. that way, the company might be profiting on the details of your life, but you will, too.
Back to the issue of credit cards, up until this point, users have shared quite a bit of personal information with Facebook despite the company’s many gaffs related to privacy. The sharing of credit card numbers, however, needs to be held up to a higher scrutiny. A database of the world’s credit cards could wreak havoc in the wrong hands. And like companies that offer barely-visible subscriptions, such as those that perpetrate the trial offer scam, Facebook could easily take advantage of the less financially-savvy selection of users who might not notice their Facebook credit card charges or who might notice the charges but not consider how the expenses add up over time.
If you’ve purchased anything online in the past, Facebook will find a way to offer exclusive products that are interest to you, and linking your credit card to Facebook may be the only way to acquire whatever it is you desire. Facebook could easily emulate iTunes, Amazon, Spotify, and other revenue-generating sites. They could emulate Target and Wal-Mart, companies that offer unique products only available in their respective stores. The more I think about it, the more inevitable I think Facebook’s success will be with this plan. There just aren’t enough users willing to protest Facebook’s grab for credit card numbers for dissent to make a difference.
Will you provide your credit card number to Facebook to make it simple to buy products online? It’s hard to answer this question until Facebook shows what they have to offer, but it’s inevitable that a company as large as Facebook will be able to determine exactly what their users want and offer it to those users in a way they can’t acquire it elsewhere.
Published or updated June 20, 2012.