Thursday, July 29, 2010

The Bootstrap: Facebook Passes Even More Costs Onto Developers

Over poker and beers last night, a developer and colleague of mine was wondering why no one in ye olde blogosphere has written about this. So here I am, about to run my mouth.

Facebook is attempting to get developers to use their currency, Facebook credits. (Facebook takes a 30% cut of all money used to purchase these credits, but more on that later.) Facebook is also trying to get users to adopt this new currency. Their latest scheme is a wide grant/seeding of nearly every user 10-25 credits. Here's the rub: When a user pays in free/imaginary/government-cheese credits, the cost is borne by the developers. Long story short: If Joe User pays with free credits to play your app, you get nothing, nada, zip.

In July so far, we've been paid in 7% free credits, so we haven't been hit very hard. I imagine other apps may be hit harder, especially the more popular apps. However, it's quite possible that Zynga, CrowdStar, et al. have a special arrangement with Facebook to get paid on this.

This could really hurt the smaller developer in the end. While CrowdStar's Peter Relan is right, that credits do offer a certain liquidity in the Facebook economy, does Facebook really need to pass along more costs to the developer?

Back to costs, and Facebook's 30%. There has been a bit of hubbub regarding the fee structure. People are crying "But PayPal and CC fees are only 5%? Why is Facebook charging 30%?" Well, those fees are 5%. But PSMS fees are usury, somewhere in the 50% range. And considering 70% of Facebook's audience is international --- where paying via PSMS is much more common --- I imagine that Facebook is taking a large hit via mobile. (Though I wonder what kind of sweetheart deal they've arranged for PSMS...) My initial estimation was that Facebook was incurring ~15% in fees, maybe 2% in fraud, with the rest being the gravy.

But of course, Facebook passes the fraud onto the developer as well. From section 4.4 of the Credits Terms:

"You will be liable for all Chargebacks relating to transactions we learn about within 90 days of the transaction."

Thanks, Facebook, for squeezing every last penny.