I'm sitting in New York Penn Station. I've downloaded the Amtrak mobile app so now I can check the train schedule without having to race to the display board every time there is an update. Train is delayed. Ugh. I realize that I'm on the regional train and not the faster Acela. I peer over at the long waiting line and my heart sinks. I return to the Amtrak app and see if I can change my reservation. Yes! A few clicks and a lighter wallet, my transaction goes through.
I look at my twitter feed. Markets in turmoil. I check LinkedIn. Lots of transition. I switch over to Facebook. I've been invited to play Farmville, the current popular social game. I notice the teenager seated next to me is absorbed in harvesting his crops in Farmville. He’s not happy with his withering tomatoes, and uses real money to purchase “farm cash” to rejuvenate them. For the sake of productivity and my purse (I know how those small payments can add up), I choose to stay away.
Today we are at an inflection point. The advent of connected devices, mobile web, and application stores, is transforming social commerce and fueling opportunity in payments innovation. Specifically, “social gaming” based on interactive social platforms is catalyzing a different payment instrument, the social currency --also known as digital currency or virtual currency. The emerging virtual economy has generated a virtual market for micro-payments that involve low-dollar payments less than $25.
Social currency is not new. Introduced in the days of online virtual world, Second Life with its internal economy and currency, the digital currency is exchanged for virtual goods and services. The virtual goods micropayments market, estimated to be a multibillion dollar global industry has attracted online
As people spend more and more time on social networking sites, online and offline commerce will inevitably merge, and social currencies will have the potential to become as valuable a payment instrument as real currency. With Facebook and Google both poised to broaden their revenue streams beyond their core advertising source, they are going to challenge the established banking industry when it comes to processing and delivering consumer payments.
...How? Before I dive into that, let me provide some context with a background on the battle between the Social Platforms: Google versus Facebook.
The convergence of mobile and social is a key piece of plans for future payments innovation for the online giants. With Google’s scope and brand, it tried to leverage its dominance in search to penetrate the social network market before. The challenge for Google is that while it has proven to be a social utility for search, it has struggled to be a social tool for connecting people. Users generally go to Google to be directed elsewhere. In contrast, Facebook is a destination with a massive captive audience.
Although the launch of Google+ in June saw impressive adoption rates (10 million users within the first four weeks), it is still unclear whether Google can sustain its popularity. One challenge for Google as a social media platform is in switching costs. Current Facebook users have spent considerable time building their profiles with the myriad of photos, media and other personal information they’ve uploaded.
After Google’s first failed attempt to enter the social network space with Google Buzz, it learned a fundamental lesson – that a critical ingredient to success lies in user engagement, which can be facilitated through building interactive and retention elements with social games and applications. To that end, in 2010, Google made a series of acquisitions designed to challenge the social network behemoth Facebook. Among them, it picked up social content startup Angstro, social game developer Slide, virtual currency provider Jambool, social game company SocialDeck, mobile payments company ZetaWire, and online retailer Like.com. Google also invested $100 million in Zynga, the largest developer of social games responsible for the popular FarmVille and MafiaWars.
What are the plans with all these acquisitions? Stay tuned for next week’s installment of a 3-part blog series when I discuss the different business models of Google versus Facebook in transforming payments…