Not Coming Soon: Facebook Holding Off on Plans for Platform Payment System? (Updated)

facepalIt was one year ago last week that Facebook announced the beta test of its Facebook Platform payment system that would allow applications to start accepting payments from users directly inside their Facebook apps. However, one year later, Facebook has not developed the system, and some signs from the company point to the project being on hold altogether while it focuses on other priorities.

Originally billed as a way for developers to conduct e-commerce transactions without the need for third party payment platforms like Paypal, a Facebook payment solution would make purchasing both virtual and physical goods and services inside Facebook apps much more integrated with the Facebook experience.

Facebook Payments also has the potential to become a significant revenue generator for Facebook through commissions, as well as a way for Facebook to get a lot more credit cards on file for future direct transactions like the purchase of Facebook’s own virtual gifts.

However, Facebook has apparently decided not to get in the middle of third party transactions so far, leaving merchant solutions to other payment processors. Developers can continue to choose between established providers like Paypal and new entrants like Spare Change and Zong.

When asked directly about the future of a Facebook Platform payments system this afternoon, a Facebook spokesperson said, “We’ve been excited by advertising and payments solutions provided by the market, and we currently do not have anything to share around a Facebook Payments system at this time.”

Update: For further analysis see our 12/30 post Why Facebook Opted for Platform Growth Over Platform Monetization in 2008.

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38 Responses to “Not Coming Soon: Facebook Holding Off on Plans for Platform Payment System? (Updated)”

  1. Dave McClure says:

    interesting… in the chinese sense of the word.

    i’m continually amazed:
    1) that FB didn’t have a backup plan B that included partnering with an established vendor (like PayPal or Amazon), at least for some initial period of time.
    2) that payments isn’t a higher priority for the company, given the benefits / opportunities of a FB-branded payment system, & likely higher conversion than a 3rd-party offering
    3) that failing either of the above alternatives, FB hasn’t made a stronger statement [earlier] to encourage more 3rd-party development to fill in the gap.

    what’s surprising is that this is possibly the biggest error in Facebook strategy & execution over the past 2 years, and hardly anyone is paying attention to it.

    contrary to all the other “big” issues FB gets accused of screwing up (privacy, monetization, data portability, etc) — which i generally think are over-emphasized and Facebook has gotten right — this one continually gets overlooked or underemphasized, probably because most of the press don’t understand it well.

    imho, it certainly seems like a missed opportunity that the rollout of Facebook Connect didn’t also include an integrated payment option. whether this was via an internally-developed payment system, or an external partnership, in either case it’s significant.

    in short, it’s surprising that FB hasn’t done any of the typical build/buy/partner options in this area. and if they weren’t planning to do anything at all, then an earlier statement of encouragement to 3rd parties should have been more clear.

    count me as a huge fan of most other FB strategy & initiatives, but on this one seems like they took their eye off the ball. hope they come back to the table in 2009 with a plan.

  2. Sachin Agarwal says:

    @Dave, I disagree. There’s so much competition in the space, and the issue for all PayPal competitors is traction. That’s the one thing that Facebook can bring. When the time is right, they can easily purchase a vendor to integrate into the platform.

    Building it themselves would be a costly and painful exercise. Facebook has no expertise with issuing merchant accounts, dealing with chargebacks, international transactions, or myriad other issues. Dealing with those issues takes a large and dedicated customer support operation that Facebook just doesn’t have.

  3. Mona Nomura says:

    @Sachin Agarwal With Facebook connect, their partnership with Salesforce, and their user base, this could’ve potentially been one of their biggest monetization opportunities.

    Wow, this is quite interesting. So the question remains: wtf are they planning and why are so many people backing them?

  4. Susan Beebe says:

    Wow what happened here?!! That is huge change in course!

  5. Dave McClure says:

    @Sachin: “Facebook has no expertise with issuing merchant accounts, dealing with chargebacks, international transactions, or myriad other issues”

    absolutely not the case. i personally know FB employees who are ex-PayPal colleagues who are some of the most experienced people in the field. they’ve also hired plenty of folks who have or could have that expertise, either from Google or eBay. if anything, they have an advantage in this area over other folks, *including* PayPal who these days probably have tough time retaining good talent.

    re: competing with PayPal, you’re completely missing the point. most all of the FB regular userbase are captive audience, and some % of audience use whatever FB preferences (whether it’s their own solution, private-labeled, or 3rd-party approved). and combined with FB Connect there’s a big opportunity for off-network payments as well.

    re: purchasing someone, sure always an option. point is they’re wasting time while there are no standards for 3rd-party payments and the market is still developing. you can always purchase a winner AFTER you’ve missed the boat (re: eBay & PayPal), but why not try to own that space early? worst case, work with the 3rd-party market to help it develop.

  6. William Kasel says:

    @dave – i 100% agree with you – this is a big fault on facebook – larger than they know. I have something much larger than this brewing – and damn i wish i could say, but their mistake is going to cost them severely.

  7. Nick Punt says:

    If true, this is very disappointing. Without a payment platform Facebook is missing a key tool to bring the higher quality apps they really do want. Further, the web needs a better payment system, and a follow-on from Connect is the best chance at a legitimate (and superior) competitor to Paypal. Managing identity is the in-road to managing financial transactions, because identity is the best tool against fraud. Identity is also the in-road to a huge amount of web activity, and that may ultimately be the winning business model for Facebook.

    I think this represents a change in feature launch strategy @ Facebook – they’re not going to just release it the moment the engineering seems good enough. The initial app platform and Beacon showed Facebook they need to invest serious time in thinking about what they do before they do it, because a lot of trust is at stake, and trust is the bedrock of their service. The user base is too big to turn on a dime nowadays, and I think they’re probably looking at those launches, looking at the strategic implications such as those above, and then realizing the gravity of this decision.

    Nick

  8. Anonymous says:

    Dave is 100% correct. We are one of the largest app developers and this is an enormous missed opportunity on facebook’s part to generate significant revenues. Our data suggests this would end up being the largest revenue stream for facebook based on their current revenue streams and tests on our own apps.

    It’s astounding that this hasn’t been a top priority, and shocking that there’s been no progress on this at all it seems. Top developers who are earning significant money via transactions would tell you how large the opportunity is here for facebook, but using 3rd parties leaves an enormous amount of money on the table.

  9. Mark Rose says:

    I think Facebook is focusing on its core which is building a great social network and ecosystem for application developers to thrive on.

    Certainly payments is a huge needs for developers and consumers, otherwise Spare Change wouldn’t in existence. However, the reality is there are existing payment solutions out there (and more of them).

    I am especially excited for the Facebook connect service, which we’re just beginning to see the fruits of. This extends Facebook beyond the boundary of Facebook.com, and gives a great experience for users. Making this post via Facebook connect, for example is a breeze.

    I think Facebook (pure speculation on my part) is pursuing a grander strategy of “identity”, which in the scheme of things is much bigger then payments.

  10. Daniel James says:

    I wholeheartedly agree with Dave. This is madness! We are a small company and have implemented, deployed and operated microtransaction wallet and subscription services for years (admittedly at much lower volume than FB would, but one would hope that the support costs etc. would scale fairly linearly). It’s not *that* hard.

    My guess is that they had an ambitious plan that included person-to-person money movement (i.e. they were gunning for PayPal — which was probably a mistake, they’d have been better off focusing on one-way app purchases, although those would have fraud leakage problems too) and they hit the fraud wall.

    I’ve got to believe that they’re still working on it, though.

  11. Facebook Indefinitely Postpones Payments System — Smart : VCsAndAngels - Venture Capital / VCs, Angel Investors, Startup News, Etc says:

    [...] ‘We’ve been excited by advertising and payments solutions provided by the market, and we currently do not have anything to share around a Facebook Payments system at this time,” a Facebook rep told Inside Facebook. [...]

  12. David Kaye says:

    I’m with Dan here. Calling bullshit on this – I bet we will see something emerge sometime in 2009.

  13. Tech Predictions for 2009 | Technosailor.com says:

    [...] extremely easy for third parties, and it will most certainly happen in 2009. (Yes, despite what others are saying about FB’s party [...]

  14. SearchCap: The Day In Search, December 30, 2008 says:

    [...] Not Coming Soon: Facebook Indefinitely Scraps Plans for Platform Payment System, Inside Facebook [...]

  15. Facebook delays its own payments system | Startup Meme - Technology Startup and Latest Tech News says:

    [...] to a Facebook representative: We’ve been excited by advertising and payments solutions provided by the market, and we [...]

  16. Why Facebook Opted for Platform Growth Over Platform Monetization in 2008 says:

    [...] there was a lot of discussion after we noted that Facebook has not launched the Platform payments system that was announced over one year ago. [...]

  17. Ali Moiz says:

    @ Mark Rose:

    “I think Facebook (pure speculation on my part) is pursuing a grander strategy of “identity”, which in the scheme of things is much bigger then payments.”

    Mark – I agree. That is probably that most spot-on comment here. FB has chosen to fight the identity war which has much bigger stakes (and more money) than simply running payments. The problem with the payments business, coming from someone who is in this business, is its VERY low-margin (2 – 4%). Facebook would have to generate several billions in sales of virtual goods, applications or ecommerce before they’d even equal what they’re making with advertising right now.

    Compare that to the opportunity provided by being the central hub for identity – if FB wins the identity war, than all authentication (including most ecommerce in the tens of billions of dollars) would flow through them. Small percentages then start to make sense.

    Remember that facebook will need to generate revenues of $1 billion or higher to even come close to justifying the last-round valuation. Whatever they choose to do has to move the needle for them and their investors – and the identity play does it much better than simply making a better paypal at this point.

  18. Markus Weichselbaum says:

    @Dave, spot on. Increased conversion of an FB-branded integrated payment system would trump most other concerns.

    @Dave& @William: Agreed. I think both the press and Facebook itself are unaware (or at least appear unaware, let’s hope they surprise us) of how large that pie really is if they were to make a serious effort to get on some of the $revenues that the top apps are producing via transactions.

    @Ali, I have only recently had the opportunity to explore virtual currency and digital goods on social networking sites in other parts of the world (ie China).

    I believe that if Facebook were to use its reach to present THE integrated one-click payment option, they could get away with VERY high margins that would make this a very worthwhile revenue stream for them, right now, as opposed to after they’ve won the identity war.

    Users already trust Facebook now, and they’d probably trust Facebook with their credit card information as well.

    For app developers, Facebook’s own payment system may well turn out more lucrative despite their possibly higher commissions than other payment system, simply because of the improved conversion rate.

    @Mark & Ali. I think the market for 3rd party payment providers will continue to exist as customers will always like a choice, and nothing’s ever perfect.

    @Daniel. Agreed. They MUST be working on this – there’re very smart folks over at FB and I’m sure they’ve seen the light. Let’s hope an integrated solution comes out soon!

    @Anonymous: What you said. :)

    @Facebook: “Connect” rules. First time I’ve used it and it’s great!

  19. daniel kremsa says:

    i hoped that they will kill the project, the task is a huge one and outside of their competency. We have partnered up with a global card provider and will be bringing global payment system to facebook.

    If you have a facebook app and want to become one of the beta testers please send me an email through: http://www.kremsadesign.com/contact.php?ref=global

  20. Top 5 Facebook Predictions for 2009 says:

    [...] that the company had internal conflict about whether or not to launch the service. Justin Smith suggested that the payment system was postponed indefinitely. Yesterday I argued that the company needs to [...]

  21. Charles Hudson says:

    Good post, Justin.

    I think Facebook realized how hard it would be to build a Facebook-scale payments platform (especially considering the customer service, fraud, and chargeback issues that they would have to confront if they had even 10% of their active users interact with the payment system). The ex-PayPalers on this thread must know how much overhead is associated with a 3rd party payment system that involves real money and the potential for real fraud. I am not sure that Facebook would have really “won” by trying to do this on their own.

    Stuff like Zong, PayPal, and Spare Change is already working for developers. At this point, what’s the incentive for an app developer to add in a Facebook-sponsored payment initiative unless it offers some real benefit in terms of visibility, distribution, or ease of use. I do believe Facebook will continue to look at payments, but won’t do anything until a) the scope of the problem seems more tractable given their scale or b) there is an unmet need that they see.

    I’m really surprised that Facebook didn’t integrate with Zong, SPC, or PayPal to allow existing FB users to authenticate and pay for things app developers offer. I assume this is in the works and will happen at some point.

  22. Facebook scraps in-house payments solution project - BuildaSkill.com says:

    [...] seems the project has been shelved or scrapped entirely.  Justin Smith of the Inside Facebook blog posted on Dec 29th that, “one year later, Facebook has not developed the system, and some signs from the company [...]

  23. Dave McClure says:

    @Charles: “what’s the incentive for an app developer to add in a Facebook-sponsored payment initiative unless it offers some real benefit in terms of visibility, distribution, or ease of use”

    well actually i think those *are* the incentives — both higher conversion (immediately) & greater distribution (eventually), not to mention trust.

    a FB-direct (or FB-approved, if 3rd-party) implementation would likely have better conversion, both for practical reasons, as well as potentially trust/brand reasons.

    and altho maybe not immediate, the potential distribution benefits off-platform via FB Connect could also be significant, at least in the long run.

  24. iPhone, MySpace, Facebook Race To Micropayments In 2009 says:

    [...] coming. Facebook promised the product would be released by September, but it never came and it is clearly on the back burner for now. MySpace announced their product in November 2008, but won’t way [...]

  25. iPhone, MySpace, Facebook Race To Micropayments In 2009 | My Blog Channel says:

    [...] coming. Facebook promised the product would be released by September, but it never came and it is clearly on the back burner for now. MySpace announced their product in November 2008, but won’t way [...]

  26. iPhone, MySpace, Facebook Race To Micropayments In 2009 : VCsAndAngels - Venture Capital / VCs, Angel Investors, Startup News, Etc says:

    [...] coming. Facebook promised the product would be released by September, but it never came and it is clearly on the back burner for now. MySpace announced their product in November 2008, but won’t way [...]

  27. iPhone, MySpace, Facebook Race To Micropayments In 2009 « ArticleSave says:

    [...] coming. Facebook promised the product would be released by September, but it never came and it is clearly on the back burner for now. MySpace announced their product in November 2008, but won’t way [...]

  28. 今年はiPhone、MySpace、Facebookがいよいよマイクロペインメント・サービスの提供へ says:

    [...] 大まかに言って、アプリケーション・プラットフォームというコンセプトは定着したと思う。Facebookのプラットフォームが登場したのは2007年だったが、今や数万のアプリケーションが登録されている。MySpaceは主としてGoogleのOpenSocialプラットフォームを採用しているが、4500のアプリがあって、2億1100万回インストールされている。iPhoneのApp Storeがローンチしたのはほんの最近、2008年の7月に過ぎないが、1万以上のアプリが登録され、ダウンロードは3億回を記録している。こういったアプリケーション・プラットフォームはメインストリームのコンピュータの利用にも大きな影響を与えていく可能性がある。AndroidはネットブックPC上で動作するよう改良が試みられている。また現在AppleはApp Storeプラットフォームが作動する大型のiPod Touchを準備しているものとわれわれは見ている。将来Microsoftがこのような方式のソフトウェア配布メカニズムをWindowsに直接組み込むことさえ考えられないわけではない。しかし、これらのプラットフォームにはきわめて大きな機能の穴がある。どのプラットフォームも、アプリケーション作成者がユーザーから直接集金できるようなマイクロペイメント機能をサポートしていないのだ。現在、FacebookやMySpaceのアプリ・デベロッパーは、きわめて低い単価(CPM)で広告を掲載することで収入を得ている。iPhone/iPodのデベロッパーは、ユーザーにアプリケーションをダウンロードさせる際に課金することができる。どちらの方法もソフトウェアでビジネスをするには良い方法だ。しかし収益化の三本柱の最後の一本―ギフトその他バーチャル・アイテムを販売する際に必要とされるマイクロペイメント・サービス―は、現在まで事実上無視されている。サードパーティーの支払いシステムを利用することで問題の解決を図ろうとするFacebookアプリも登場している。Spare Change(PayPalを利用)やSocialGold、Zongその他のサービスがユーザーの資金をシステムに受け入れており、Mob Warsのようなアプリはマイクロペイメントを通じて月$1M(100万ドル)もの売り上げを得ている。プラットフォームの運営者は皆、システム内で直接マイクロペインメントを可能すると約束してきた。Facebookは昨年9月までにそういったシステムを提供すると約束したが、結局約束は守られず、そのプロジェクト自体、今や優先順位が高くないようだ。MySpaceも2008年11月にマイクロペイメントのサポート計画を発表した。しかし実現の時期に関しては明言を避けている。私の見るところ、MySpaceもFacebookも直接支払のためのプラットフォームを実現する気はない。支払いシステムにはあまりにも厄介な問題が山積している―詐欺、引き落とし不能、セキュリティー等々の問題に対処するには膨大なコストがかかる。リスクもとてつもなく大きい。PayPalが築いたようなインフラを一から作り直すのはコストパフォーマンスがよい仕事ではない。MySpaceもFacebookもマイクロペイメントに関してはおそらく実績あるサービスを提供しているサードパーティーと提携することになるだろう。これは今までにも例がある。(FacebookとMySpaceは案内広告を、たとえばOodleに委託している)。いちいち自分でシステムを構築する手間をかけずとも、収入の一部を吸い上げられればそれでよいわけだ。しかしAppleは間違いなく自前でシステムを作ってくると思う。Appleはすでに基本的な支払いプラットフォームをiTunesで確立している。これにマイクロペイメント機能を付加するのはさほどの手間ではあるまい。[原文へ](翻訳:Namekawa, U) ShowListings(“arc3″); ShowListings(“arc2″); AddClipsUrl = ‘http://jp.techcrunch.com/archives/20090102iphone-myspace-facebook-race-to-micropayments-in-2009/’; AddClipsTitle = ‘今年はiPhone、MySpace、Facebookがいよいよマイクロペインメント・サービスの提供へ’; AddClipsId = ’2CBE02C952CFE’; AddClipsBcolor=’#78BE44′; AddClipsNcolor=’#D1E9C0′; AddClipsTcolor=’#666666′; AddClipsType=’1′; AddClipsVerticalAlign=’middle’; 前の投稿へ トラックバック [...]

  29. The Scripts Zone » iPhone, MySpace, Facebook Race To Micropayments In 2009 says:

    [...] coming. Facebook promised the product would be released by September, but it never came and it is clearly on the back burner for now. MySpace announced their product in November 2008, but won’t way [...]

  30. Mobile and Telecom dna » Blog Archive » washingtonpost.com > Technology * About * More Headlines iPhone, MySpace, Facebook Race To Micropayments In 2009 says:

    [...] coming. Facebook promised the product would be released by September, but it never came and it is clearly on the back burner for now. MySpace announced their product in November 2008, but won’t way [...]

  31. Desperate Wealth » Blog Archive » iPhone, MySpace, Facebook Race To Micropayments In 2009 says:

    [...] coming. Facebook promised the product would be released by September, but it never came and it is clearly on the back burner for now. MySpace announced their product in November 2008, but won’t way [...]

  32. FACEBOOK CHARITIES AND THE NEED FOR MICROPAYMENTS « HONESTLY. says:

    [...] they still working on that, as promised? Hmm… it looks like they’re taking their time. (I recommend reading the comments on that one; thanks to Dan Taylor for the link.) Possibly [...]

  33. Charles Hudson’s Weblog » Blog Archive » Why Social Nets are Shying Away from Payments says:

    [...] 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 [...]

  34. Facebook Starts Alpha Testing In-House Platform Ad Network says:

    [...] Facebook focused on Platform growth over Platform monetization in 2008: the company largely focused on launching the profile redesign and Facebook Connect instead of other monetization initiatives. [...]

  35. Facebook Considering Virtual Currency System? says:

    [...] Facebook’s Gareth Davis said at the GamesBeat conference in San Francisco yesterday that the company is “looking at” a virtual currency system of its own, according to the LA Times. However, despite what the LA Times suggests, it may be a little premature to assume what that means exactly, given that the company has been “looking at” doing a Platform payment system since late 2007 that has yet to launch. [...]

  36. Facebook Platform Payment Providers Report Strong Growth in Q1 says:

    [...] the lack of announcements from Facebook has led many to conclude that building a payment system is not currently a high priority for the company – a move that many in the industry have questioned, citing the overall strength of [...]

  37. Will Facebook Take a Cue from Apple on Payment Fees for Developers? says:

    [...] fees would also likely earn Facebook praise from critics who have said the company should have been monetizing the platform more aggressively since the beginning, instead of focusing on platform growth as it largely [...]

  38. Top 5 Facebook Predictions for 2009 - AllFacebook says:

    [...] that the company had internal conflict about whether or not to launch the service. Justin Smith suggested that the payment system was postponed indefinitely. Yesterday I argued that the company needs to [...]

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