Facebook's Virtual Currency Ambitions

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Facebook's expansion plans have moved into the realm once reserved for central banks and kings: creating its own currency.

Details on Facebook Credits emerged at last week's f8 Facebook developer conference, although the news was obscured by the network's plans to extend its reach and an ensuing privacy debate. Credits can be used to purchase virtual goods, such as items in games, and at least one company seems to have already benefited. Facebook's mobile payment processor of choice, Palo Alto-based Zong, today announced $15 million in new venture funding.

The marketplace for virtual goods is on a tear. Domestically, it is expected to reach $1.6 billion this year and possibly $3.6 billion in three years, according to an analyst cited by Bloomberg. The founder of the 28-year-old video gaming giant Electronic Arts is much more optimistic: He expects the market to hit $100 billion within the decade.

Whatever the numbers, Facebook is positioned to reap huge rewards from the expanding market. Credits will be the only currency allowed on Facebook and the company will take a massive 30 percent cut of all transactions. Its users currently engage in roughly 800 million game sessions a month, Facebook Credits manager Deb Liu said last week.

Zynga, the company behind popular Facebook games "FarmVille" and "Mafia Wars," is expected to make $460 million this year in revenues, ninety percent of which will come from the sale of virtual goods. Under the Credits plan, Facebook's cut would be roughly $125 million.

Facebook doesn't see Credits as a money-maker right away, Facebook founder and chief Mark Zuckerberg told VentureBeat. "You may not believe me when I say this," he said. "We are doing it for developers. But it's not a revenue opportunity anytime soon. Ads are a very good business."

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Niraj Chokshi is a former staff editor at TheAtlantic.com, where he wrote about technology. He is currently freelancing and can be reached through his personal website, NirajC.com. More

Niraj previously reported on the business of the nation's largest law firms for The Recorder, a San Francisco legal newspaper. He has also been published in The Hartford Courant, The Seattle Times and The Age, in Melbourne, Australia. He's also a longtime programmer and sometimes website designer.
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