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Why Facebook won’t charge 30% for payments and leave billions of dollars on the table
“Pay with Facebook” is coming.
It’s already live on Happy Aquarium from Crowdstar. Later this week, it’s coming to Farmville, the most popular application on Facebook with over 70 million monthly players.
It’s big news. And most commentators and industry insiders are expecting Facebook to charge 30% commission to companies using “Pay with Facebook”.
And I think they’re wrong. Facebook would be leaving billions of pounds on the table. I don’t believe that Facebook would be so short-sighted when there is a far bigger prize at stake.
I have no doubt that Facebook could charge 30%. Hell, it could probably charge 50% and few people would complain. Developers would get a trusted payment system on a distribution platform that is second to none. I’d expect the lower payment friction to lead to significant growth in virtual goods sales, more than enough to offset Facebook’s costs.
Anyone who thinks that Facebook is going to do this is small-minded. Think bigger, guys!
Do you really think that Facebook’s future is predicated on taking a 30% slice of a limited pool of virtual goods revenues. Can you defend a $15 billion valuation on the basis of 30% of a market estimated to be $1.6 billion in 2010 (that’s the US only, but still).
I don’t think so.
But how about if they were shooting to become the de facto payment system on the web. A business that would be simpler than Paypal and more effective than Western Union. A business that would compete with Visa and Mastercard.
Now that’s worth doing.
So I think that Facebook will price its service cheaply. I think it will be under 5% and probably 4%. And we will very quickly see Facebook trying to tie up retailers with “Facebook” money” so it is as widely dispersed as Facebook Connect, perhaps even more so. Companies like Amazon, Walmart and then a long tail of smaller partners.
That would make it more valuable than Paypal (acquired by ebay for $1.5 billion in 2002). It could even make it more valuable than VISA, a listed company with a market capitalisation of $69 billion.
That would make it bigger than Google.