After its disappointing IPO last month cast doubts on the company’s ability to monetize its vast user base, Facebook today announced a subscription pricing model - potentially adding a recurring source of revenue for itself - and for developers of Facebook apps.
The new service, announced on Facebook’s Developer Blog this afternoon, will launch in July.
Subscriptions will bring Facebook app producers a recurring revenue stream that will ideally normalize an app’s overall revenue stream, instead of depending on the spiky ups and downs of one-time payments for virtual items. The new system will be launched on both the Web and mobile versions of Facebook.
Altimeter Group analyst Chris Silva sees subscription-based pricing as a real value for app developers to offer to users. “A subscription that buys me access to specialized content rather than a virtual item with maybe a more fungible value is a more successful way for developers to bring in revenue,” Silva said today. Specialized content is more of a value-add to users, he believes.
Subscriptions have already been tested by popular game producer Zynga for its FarmVille and Pioneer Trail games. Kixeye, a smaller game developer, will sell exclusive items in its Backyard Monsters game for a $9.95 monthly fee - with Facebook picking up 30% of every subscription.
Local Currency Pricing
At the same time, Facebook is also moving away from its Credits payment system to pricing that supports local currencies.
“By supporting pricing in local currency, we hope to simplify the purchase experience, give you more flexibility, and make it easier to reach a global audience of Facebook users who want a way to pay for your apps and games in their local currency. With local pricing, you will be able to set more granular and consistent prices for non-US users and price the same item differently on a market-by-market basis,” Facebook Product Management Director Prashant Fuloria told developers in today’s blog.
That last point contains the real gem in the move: setting market-to-market pricing will let app developers maximize their revenue by lowering prices in markets where their items might be too expensive, or charge more if the market can bear it.
The new subscription program will support local currencies, and apps that use the Credits system will be flipped over to local currencies automatically.
“We hope new features like subscriptions and local currency pricing help you monetize more effectively and reach more users globally,” Fuloria added.
Generating alternate and optimized revenue streams is pretty much Job #1 for Facebook after the lukewarm reception investors gave its IPO this month. And for Fuloria, it’s personal - this is why he was hired away from Google in 2009.
The Mobile Conundrum
On the mobile version of Facebook, there are no ads and Facebook is seeing phenomenal growth. A recent report revealed that nearly a third of Facebook’s users in India access Facebook exclusively through mobile devices. The local currency and subscription changes will make it much easier for developers obtain revenue from mobile customers in developing countries.
That’s critical for Facebook’s future: Facebook’s mobile platform “must be front and center with the massive growth in mobile users in the US - and more so, abroad,” wrote Silva earlier this year. “Facebook should expect the device, be it feature phone, smartphone or tablet, to be the central interaction point for users. It’s going to have to adjust its monetization model to match if it wants happy investors because mobile matters.”
Today’s announcement is a fulfillment of Silva’s prediction: an adjustment of Facebook’s monetization model to start getting stronger and more predictable revenue streams from mobile users, and those in developing countries. And it won’t hurt the revenue channels from the rest of Facebook’s users, either.