Posted in: facebook, social networking, web20

Why Social Nets are Shying Away from Payments

I was reading Justin Smith’s good post on Faecbook’s delayed payment system and I thought I’d share a slightly longer version of what I left in the comments on his blog:

I do think most of the major social networks have looked at payments and decided it’s a tricky business for them to tackle for the following reasons:

Payments generally don’t work as a side business – It’s pretty hard to run payments as a side business. Most people who have tried to do it have met with some real challenges. There is a lot of management overhead, regulatory requirements, and domain-specific knowledge required to run a payments business. Most companies don’t have the expertise to be good at what they’re doing as their core business and bootstrap an in-house payments initiative at the same time.

Facebook Connect can and should reduce friction for developers looking to accept payments– I do think there’s potential for Facebook Connect to reduce the friction associated with taking payments on social networks by allowing user to use their social network IDs to authenticate themselves when using payment mechanisms. I expect that most of the major monetization engines on social networks today (incentivized offers, micropayments, PayPal, PayByCash, etc.) are all looking at whether Facebook Connect can lead to a more seamless payment experience on social networks.

Developers are already cracking the payments nut without help from the platforms – Developers are actively experimenting with payments products today. Most of the top social games on social networks are already using some combination of MyOfferPal, SuperRewards, PayPal, SpareChange, Zong, Mobillcash, and other alternative payment technologies to enable their users to pay them directly. Unless there is some strong incentive to adopt a solution provided directly by the platform provider (Facebook, MySpace, hi5, etc), I’m not sure that most developers would adopt it.

In spite of all of that, I do think there are some real benefits to seeing a payments offering blessed and endorsed by the social networks themselves:

The current methods of payment on social networking applications are not well integrated into the flow of user behavior. Topping up a wallet, buying something, or otherwise transacting in many games is an out-of-band experience that often times takes the user out of whatever he or she was doing in order to transact. Presumably the payments offerings from platform providers would enable developers to tighter integrations into application flows. Make transactions more integrated into the flow of the game / app has been shown to improve conversion in more classic web e-commerce and gaming applications – why should it be any different on social networks?

Having a wallet or payment system offered and promoted by one of the major social networking providers would help lift the boat of any app developer who chose to integrate with it. Presumably Facebook / MySpace would provide meaningful promotion for whatever payment product they endorsed. Having an official payments solution being promoted by the social network itself should increase the number of payment-enabled customers on social networks. I have to assume that there are some users who are not transacting with app developers today but would transact if there were a blessed, trusted solution for payments provided by the social network itself.

We shall see how this all turns out in 2009.