Today at our Inside Social Apps InFocus 2011 conference, Deb Liu of Facebook Commerce Product Marketing announced that the company would soon roll out two new ways to use its virtual currency Facebook Credits — Buy With Friends and Frictionless Credits Micropayments.

Buy With Friends will allow users to share that they’ve made an in-app purchase to their stream. Friends can then make the same purchase using Credits, sometimes at a discount, in-line from the news feed. Developers will be able to set the discount level and which items trigger the sharing feature.

Over the last few months, it has been testing these systems with the aim of making spending virtual currency a social, seamless part of the Facebook experience.

For instance, if a user bought monster food for a certain number of Credits, their friends who play the game would be given the option to buy the same monster food at 40% off. When prompted to Buy With Friends, 50% of users chose to share the news of their in-app purchase with friends.

The Frictionless Credits micro-payments system will allow users to make purchases of up to 20 or 30 Credits without having to go through an approval and success step. This allows them to spend currency without interrupting the game. Without the approval or success step, spending Credits is much faster and less distracting, and users are more likely to convert.

Frictionless micropayments will be especially helpful when users are just a few Credits short of making a larger purchase, and might decide not to buy if they had to stop the game action to go through the traditional Credits purchase flow.

Liu says these new features will continue being tested over the next few weeks. Frictionless micropayments is already live in OMGPOP’s Draw My Thing.

In our second panel of the day, industry expert Eric Goldberg is moderating a panel comprised of the leaders on other social networks, as well as payment provider PayPal and cross-platform developer PopCap Games.

The panelists

Manu Rekhi, GM Games & Platform, MySpace
Carey Kolaja, Senior Director, Digital Goods Operations, PayPal
Geoff Cook, CEO, MyYearbook
Dennis Ryan, EVP Worldwide Publishing, PopCap Games
Eric Goldberg, Managing Director, Crossover Technologies (moderator)

The live transcript (paraphrased in parts and edited for brevity)

EG: How do you decide where to develop, Dennis?

DY: Opportunity cost. How does market fit of platform apply to your game? Second, what about game portfolio? Active, passive, open, closed? Depending on interest, may align or not align.

EG: What about small devs?

DY: MyYearbook is meeting new people, so if we were to develop there we’d think — how can we meet new people?

GC: When I think of social networks, I think social graphs. Facebook owns real-life friends but plenty of other interesting ones. Topics (quora), content (MySpace), professional (LinkedIn)…. how does this given social network enable this?

EG: Manu, what about opportunities for small developers?

MR: Look where growth is coming from. When tide rises takes everyone forward. Other places. Not that much competition on other places. If you go to build on Android, you don’t have competition like on iOS. Not too many people building games in Spanish, for example.

EG: Carey, now that we’re talking about growth.

CK: What I’d like to share first. How do you go assessing from a financing and monetization perspective the types of social networks you’re looking at. We have the privilege to look across types of social networks, international too — some sort of currency that can engage users. Large rise in virtual currency. Reason developers make their own currencies is to help increase conversion. Challenge is distributing across real currencies in different countries. What about direct versus indirect payments.

EG: You made an element argument for a universal payment system, you know where to find one. What about Paypal and Credits.

CK: I’ll take a step back. Lot of discussion about us and our relationship with Facebook. We announced Paypal as a dominant form of payments for Credits. In October, Facebook was implementing new checkout experience that PayPal launched. Allowed you to not leave. PayPal can be used to distribute revenue from Facebook to developers. You don’t want to necessarily be contained to payment method. You have to look across the spectrum of what you want to achieve. The in-context experience — we’re testing it.

EG: Asks about drop-off in users.

CK: Deflects question.

EG: So are there SNSs — what social networks have graphs that aren’t easy to replicate or they have no strategic reason to replicate?

GC: Everyone other than your real friendships or relationships are ones that Facebook isn’t seeking an advantage in. So with asynchronous games — one of the reasons they’ve taken off compared to synchronous games — is that it’s hard to find real friends to play with at any given time. But synchronous games can work with graphs that don’t involve your real friends.

Gives examples of other social graphs. Twitter. Quora. Interest-graphs.

EG: Asks Manu about its switch from being an SNS and going to social entertainment. What kinds of opportunities are there in social entertainment?

MR: Music was always a really big part of what MySpace did. Can analyze likes of artists. There’s nothing you can do on Facebook except see all the other people who like Lady Gaga. We’re asking if we can find relevant content for you — her music videos, articles, news pieces. You can get connected to that with one click.

EG: That’s useful for celebrities. But what about non-celebrities? Things that people here could make use of.

CK: You mentioned LinkedIn. LinkedIn is for me a fantastic community and for connecting with professionals. But it starts and stops there. And you think about applying mechanics in that community and it could be endless. That’s a little bit where things are going. There’s a company like EPIC, if I remember that correctly. They take to-do lists and they make it a game. Someone was asking about the ‘Under 13′ age group and being the mother of two boys, I think about how fascinating their ability to learn and play is.

EG: One of the key takeaways is you can use game mechanics in service. But you have to go to what the SNS actually is. LinkedIn is about networking. Quora is about knowledge. Start with figuring out what the purpose of the SNS is and start building from there. I wanted to move onto international. Asks about PopCap attacks international audience.

DR: So we approach it from the perspective of which countries we were interested in — it broke down to Korea, China and Japan. In Korea, we deployed against Cyworld. In China, RenRen. In Japan, Gree. In terms of market fit, it required looking through the lense of PopCap and then looking through web and mobile. Dealing through that lense.

EG: As a small developer, a company that’s been making a lot of noise is ngmoco:), which is now part of DeNA. Which opportunities are worth pursuing for a small developer?

DR: Everyone has a limited skill set and limited resources. You need to make sure you’re making the right platform investment. Small and large opportunity cost is where it comes down to.

EG: Asks Manu Rekhi, how would you go about getting an outside audience?

MR: You launch the game and it becomes the fact that you’re approach an audience that’s non-English speaking. Our APIs allow you to customize the experience. If you look at a lot of games, the biggest number of people coming to games is outside the U.S.

EG: Will MySpace provide assistance to developers looking to reach out to international markets?

MR: We launched a project called GameLabs and we help them understand how to use viral marketing. The program was launched six months ago.

EG: Carey, Manu talked about international audiences having a lower per capita rate. Can you give us a very broad view of which countries have a higher per capita rate?

CK: What we’ve been able to see in our stats is when you look at the average volume per user, you see it higher in APAC than you may see it in the U.S. There’s a couple theories as to why that may be, what they’re willing to spend money on and also with PAC buying virtual currency that’s bundled. China, Japan, we see a lot of activity there. We tend to see the average volume is a bit higher.

EG: There’s a fair bit of data. It’s notable that Tencent was the first company to do a billion dollars in virtual goods when the entire U.S. virtual goods market was less than that. So the next three to four years, you can see a backwards lift as developed countries will get used to paying for virtual goods. Right now, while the Philippines might have lower per capita, China might have the biggest if you take into account 3 to 400 million people.

CK: Why is it that the U.S. is less comfortable in spending or less aggressive in their monetization techniques. I try and think about what we can learn from APAC. EU also amazingly enough has pretty decent volumes. We’re seeing people experiment with different revenue streams on the mobile device. In-app payments is something that we’re seeing a rise on. Someone was saying that in-app payments maybe accelerating at a higher rate than actual paid apps. What we’re seeing with networks like PapayaMobile, it’s going to be interesting to watch.

EG: Can anyone add anything about mobile monetization?

DR: We have a mobile version of Bejeweled Blitz in addition to canvas app. Monetization per user is comparable to what we see on Facebook. It wasn’t at the beginning but it is now. It took 3 to 6 months.

EG: What made it work?

DR: Reliably? We were kind of pioneering among some other developers using mobilize. It’s different latency issues, getting the back-end right as well as the user experience. We have a lot of data. Just some interesting data. U.K. and U.S. is identical. Australia is higher. We recently deployed a localized German version and it has increased monetization dramatically, not equal to U.S. counterpart, but approaching.

GC: The key way we monetize is through brand advertising, reaching a 13 to 19 audience in one place. One third of our visits are on mobile devices.

EG: How do you deal with these users not having credit cards?

GC: We heavily emphasize our movie trailer option. The fastest growth is on the virtual currency side.

CK: One of the topics that doesn’t get enough attention is fraud prevention. In digital goods, you see a higher risk of fraud than other types of businesses that are done online. The risk and fraud models need to be different. We’ve seen a lot of well-intended spirited efforts. Unfortunately, their businesses dissolve. When choosing an SNS partner, a geographic element comes into play. You’ve got to consider that sooner than later. The second area. Dennis talked about consumer user behavior. What are you doing around data? What does the data infrastructure look like?

Audience question: Aside from lucking and going viral, what produces the best bang for your buck in terms of attracting users?

DK: The community and players the platform serves up to you.

GC: Effective use of the viral channel.

Audience: In the course of development, when you would recommend jumping to another SNS or localize?

DR: So you’ve been thinking about this problem? Later than you ideally might like. The answer through our lense. We address the broadest market and Facebook is our dominant platform. We tend to wait until we have confidence in the game until we deploy the integrated local version of the service.

EG: Can the panelists recommend SNSs that the developers should look at that aren’t Facebook, MyYearbook or MySpace?

MR: Mixee in Japan. They will be very powerful as well. I would definitely look at Japan. There’s a risk in being in Russia. But there are a couple sites including Vkontakte that are doing well.

GC: Instagram is interesting. It might be too early. I don’t know if beyond Japan and China there aren’t big dominant social networking players that are being taken over by Facebook.

If any consensus emerged around the state and health of the Facebook platform, it was that the future of it is clearly on mobile devices.

Facebook chief technology officer Bret Taylor said today that his primary focus in 2011 will be building out the platform’s mobile presence. Top executives from the ‘Big 4′ developers — Zynga, Disney’s Playdom, Electronic Arts’ Playfish and Crowdstar — also said they’re moving their attention to mobile platform this year in a panel earlier today at our Inside Social Apps conference in San Francisco.

While Facebook has permeated half of the top websites in the world and fueled the growth of multi-billion dollar gaming companies like Zynga, its platform lags behind in reaching even the very best-selling mobile applications.

Taylor said the company had tremendous engineering challenges in ensuring an even experience across its all of its web and mobile presences. He said every time the company rolls out new features, it has to add them to seven versions of the same product: Facebook.com, m.facebook.com (which is optimized for low-end phones), touch.facebook.com (for higher-end, touch-enabled phones), the iPhone app, the Android app, Blackberry and numerous custom integrations of Facebook on other mobile devices.

“It’s incredibly challenging,” he said. “You end up picking and choosing platforms even though your goal is to reach everyone.”

At the same time, phones are inherently social. They’re single-user devices that come filled with a person’s contacts and friends. Plus, their primary function is as a communications device, he said. On top of that, they have access to location.

So far, Facebook has been gradually building out a set of tools that mobile developers can use to populate their applications with people and their friends. Taylor said Flixster’s integration of single sign-on, a quick way for users to sign-up for apps and import their friends, drove a 300 percent increase in sign-ups.

One way Facebook will be tackling the problem is HTML5, which will make it easier for engineers to quickly iterate and release features to a broad set of users without having to go through an approval process.

“We’re still maybe a little ahead of that curve, but we’re making a huge amount of investment,” he said. “Most people in Silicon Valley view HTML5 as the future.”

At an earlier panel, executives from the very biggest social gaming companies also said they’re starting to invest more in mobile platforms. Crowdstar chief executive Peter Relan said one-third of the company’s production will be focused on mobile.

Playdom co-founder and Wild Needle chief executive Rick Thompson said that if he were a smaller, less capitalized developer today he would opt for mobile first.

“Long-term, I couldn’t be more bullish on Facebook,” he said. “But if you have lower budget and quicker need for success, go mobile.”

Kristian Segerstrale, the chief executive and co-founder of Playfish, said that Facebook’s platform had much to improve on with its capabilities for mobile developers.

“The Facebook mobile experience remains high-friction in terms of actual DAUs,” he said. “I think they have a place. But Facebook, the handset providers and service providers will get better at merging. I think consumers will choose the best social experience — and it would be surprising if it didn’t turn out like social on Facebook.”

Facebook announced today that it has acquired Seattle-based stealth hyper-local mobile advertising startup Rel8tion. The team and technology could help Facebook start to shows ads to its 200 million mobile users.

So far, Facebook has only monetized mobile users through its location-based promotions system Facebook Deals, which shows users and their friends discounts at local businesses when they check-in through Places. With advertising on the web interface generating the bulk of Facebook’s revenues, it is reasonable to believe mobile advertising could become a similarly important stream.

Facebook has been pushing users to list their current city as well as their work place and other personal info lately. This info could be used to power location-based advertising.

Rel8tion’s engineering team will join Facebook’s Seattle office, and one of its founders, Peter Wilson, will become an engineering director. Wilson was formerly formerly a Google engineering director and a long-time Microsoft employee.

Other Rel8tion team members include founder Scott Hannan, previously the VP of Business Development at Pelago — makers of location-based social network Whrrl, and CTO Nat Brown, formerly the CTO of iLike.com and VP of Technology at MySpace’s Seattle office.

One obstacle to monetization of Facebook’s mobile users is that they access the site through a wide variety of interfaces, apps, and devices. Without a consistent space other than the news feed in which to serve ads, Facebook will have to come up with an innovative way to put Rel8tion to work.

Facebook chief technology officer Bret Taylor is on stage here at Inside Social Apps. He’s being interviewed by Inside Network founder Justin Smith.

The live transcript (paraphrased in parts and edited for brevity)

JS: How was the last year?

BT: Going in, we were trying to build a scalable solution to distribution and spam. Not all users liked how it had worked. We cut the number of policies in half, cut spam by 95%. Also cut human interaction with app developers at the same time. Went into the year with those goals. Coming into the end of the year, we doubled down to reintroduce growth. We added changes to communication channels [Ed. like third party notifications]. There were successes like CityVille.

JS: Can Facebook do a good job for people who want it to be a games platform, and those who don’t?

BT: We’re closer to that vision by an order of magnitude. People who play games on Facebook aren’t self-described gamers. Just like people who play solitaire don’t describe themselves as hardcore gamers. Not just partitioning. Way to make sure that every piece of content, every interaction has quality we can provide. Even though you might not be a hardcore gamer, you might like to play a lot. Added in notifications because we felt more confident about our systems. We’re largest source of traffic now for the most sites on the web.

JS: Does Facebook want games on Facebook?

BT: Absolutely. It’s about baking social into core interactions.

JS: Many developers are focused on mobile. Obviously Facebook has spent a lot of time building mobile relationships. At the same time, some challenges with making social really work well in mobile app environment. What does Facebook plan to do?

BT: Mobile is primary focus for our platform this year. People who use mobile are twice as active as those who just use on desktop. That portion of our user base is growing quite a bit. Really like to extend Facebook to all mobile devices. Either building console game on Playstation 3, building iPhone app, or mobile web site, web site, Facebook available for all of them.

About reducing friction. We launched single sign-on a few months ago. Next time you go to another app, you don’t need to re-implement password. Flixster has seen 300% increase in signups just from that change. People building canvas, also building mobile version, can bring with high conversion rate.

JS: Any other product stuff?

BT: What else is changing for developers? How can devs make sure users don’t bail out when they come to Facebook? When we update Facebook, we ahve to update seven different versions: Facebook.com, m.facebook.com, touch.facebook.com, iPhone app, Android app, Blackberry app, and a bunch from people who have built custom versions into their own OSs. Incredible challenge. You end up picking and choosing platforms even though your goal is to reach everyone. Most people in Silicon Valley believe in HTML5. Maybe we’re a little ahead of the curve. 125M using HTML5 with mobile Facebook already. Compelling, even graphically compelling, become more mature platform. We’re going to be investing a lot in investing in HTML5 products, releasing more tools here for developers. Help people get distribution.

JS: So, you’re cleaning up HTML5 for developers?

BT: We want to make sure that user experience is awesome. Lots of quirks with newer techs like HTML5. Thanks to tremendous investment by Apple and Google into Webkit, but still a ways to go. We feel that this is really the direction we want to go.

JS: Anything in particular that Apple and Google are doing?

BT: Can’t say enough about those two investing in browsers. Really great.

JS: Anything in particular?

BT: Still a number of things you can do in native apps that you can’t do in browsers. Latest iPhone gives mobile apps access to accelerometer for example.

JS: Facebook has emphasized different things, from canvas in 08 to open graph last year. Mobile for 2011?

BT: Doubled down on canvas. Built social apps. This year we view the growth of mobile as something we want to invest in more, building the team around it.

JS: What about Deals? How’s the working?

BT: Happy with it.

JS: Without more details on those products, what should developers be thinking?

BT: Mobile is inherently social. Already filled with contacts. Primary function is communication device. Location. My sense is those that build experiences with platforms in mind. Applications that are optimized for mobile and social altogether — we’ll continue to see really innovative apps. Really fluid integration.

JS: Open Graph launched months ago. Has meant that Facebook is getting a lot of data about people’s interests across the web. How is Facebook using that data for ad targeting, search, other information?

BT: Not about Facebook getting the data, about helping people share. About helping people connect.

JS: People thinking about building for social commerce, Ads API. Any more context around other opportunities?

BT: Two primary ways to help people use the social platform. Use distribution. But also personalization. You can use Likes and Interests to personalize site. A little less sexy than growth rate, but about creating sustainable business. That’s really compelling. Really great for all the apps you do. Clicker is a good example.

JS: What about what Facebook is planning?

BT: Making life easier, helping developers to do the right thing. To the degree that we can build APIs. Simplest way to use them is the right way to use them.

JS: Obviously Facebook’s approach to the platform has had to evolve. Some people in the audience have spoken with the policy team, Friday at 5:30.

BT: Automating detection, like controlling spam. Over time, we’d like to continue to increase. Really simple feedback, emails from people, like regulating interactions. Think we’ve made a lot of

JS: Some pretty severe punishments on developers in October. Seen a decrease since then?

BT: Last year we reduced spam by 95%, reduced other, also reduced enforcement actions.

Audience question: With latest round of funding, IPO, interesting to me that Microsoft has been pretty absent in terms of conversations. If you had a chance to sit down with Bill Gates.

BT: Did a good job of building developer team, always focused on that. We think about it the same way. Gates would also ask me “who are you?”

Audience question: Been a lot of growth of video platforms, users using video. What is on the roadmap to raise that growth. Lot of photos. What more opportunities?

BT: What new products? Build new products into Facebook that will have more impact to the platform. Why we built location. Why we felt it would have impact. In terms of video, enabling people to share privately more effectively. One of the most common uses — family groups, mailings lists, lots of photo and video sharing. As we hone sharing, we’ll see increased sharing.

Audience question: How is Facebook going to improve location, such as making it searchable?

BT: High quality location databases has been a painpoint for developers; I worked on Google Maps and it was a pain then, pain now. We’re looking to provide a suite of location services that makes it easier to develop on.

JS: How long for it to build usable database?

BT: No intuition, but something that is core focus of team as we expand internationally. One of the interesting things is that a lot of locations being added by users.

Audience question: Advice for small and medium sized developers in face of lack of documentation on API.

BT: Improving now, long way to go as illustrated by the clapping in the API. In the spirit of building up the platform team, that’s one of the teams that we’re building up — also working on forum posts and bug reports. Hopefully significant improvement in last six months.

We’re kicking off our Inside Social Apps conference today with our first panel, focused on the future of social gaming. It’s focused on key questions for the industry in 2011 — the emergence of Credits as the mandatory virtual currency on Facebook, the rise of mobile social gaming, and more.

Inside Network founder Justin Smith is moderating. The panelists include:

Kristian Segerstrale, CEO & Co-Founder, Playfish (now part of EA)
Peter Relan, Executive Chairman, CrowdStar
Vish Makhijani, SVP Business Operations, Zynga
Rick Thompson, Co-founder, Playdom (now part of Disney)

The live transcript (paraphrased in parts and edited for brevity)

JS: How healthy is social gaming?

RT: I’m an investor in three social gaming companies. Last year was a good time to look for exits, people thought — however, I was bullish. Still am. But what we’ve seen are the huge challenges faced by smaller developers — cost of acquisition has gone way up, and we have Credits looming. There will be a 30% revenue tax. Things have gotten close to the breaking point. The ecosystem is terribly damaged but there are reasons to be optimistic. Credits is great, even though painful. Facebook now cares about developer revenue.

VM: Given how Zynga’s doing with CityVille… Rick’s point is well-taken. Perhaps Facebook is not as open now versus when it was before? Game developers are getting more nuanced, better. 2010 had its bumps.

KS: Market is maturing. It grew at crazy pace. If you look at games over the last 30 years, fastest ever. Bigger, more immersive, branded experiences will emerge.

PR: Very challenging last year for a lot of people. Simultaneously unbridled distribution of 2008, 2009 were gone. Credits kept coming in to take the revenue margin down. Questionable. In the long-run, if you look at Facebook, Zuck’s long-term philosophy is that it is going to be healthy. We were always a big believer in Credits. We had our challenges last year. Vish, they had a monstrous launch with CityVille. Can others replicate? My guess is that by the second half of this year, ecosystem will have stabilized from last year, year and a half.

JS: What can Facebook do to make the ecosystem work for small to mid-sized developers?

PR: I was interested to see the article in TechCrunch saying that Vish was paying Facebook $30 million a month [Vish smiles]. That must mean their total revenue is huge.

RT: Two years ago we had pretty much free access to users. The philosophy was iterate your way to success. Inevitable that Facebook dialed back virality. How can they dial virality back up? Heard the phrase “targeted virality” coming from folks at Facebook. That would be win-win for all. Other initiative is better targeting: those developers who are able to develop a high ARPU game, also able to target users. If you have half a million DAUs, you can actually target users. Those are two good tech trends. Third: sense of curation. Facebook will be under tremendous pressure to diversify revenue and have 10-12 successful developers.

JS: Peter, why will Credits help small developers?

PR: In the attempt to get Facebook Credits to be more pervasive, there will be an attempt to help developers who sign-on through incentives, other efforts. I don’t know the details. Not just have 3-4 of us, but the entire ecosystem. There are a bunch of developers that need the help. The tax is there so you need help.

VM: In our adoption of Credits over past months, the Facebook brand is good, trusted. The Credits team has continued to work to improve.

JS: Acquisitions — how will they help big brands? What evidence?

KS: Based on my experience also in mobile, the first big titles tend to be new IP — what happens with every platform as skillsets become common knowledge, two things happen. Quality rises to the top. All other things equal, consumers tend to choose things they recognize. Allows you to acquire customers cheaper and keep them longer because you can reach them across platforms. Just harder versus those folks who can leverage.

JS: Evidence that this is already happening?

KS: Seen some in sports. Didn’t really exist a year ago. Now, FIFA All-Stars and Madden All-Stars, other Playfish games are examples. Same time, it is the most dynamic game platform in the world right now in terms of how it’s evolving.

JS: If you were a competitor to Disney and EA — what would you do in 2011?

RT: Evolving quickly and slowly at the same time. Take time to develop high-quality property, make those be commercial successes. Disclaimer is that I’m part of Disney or Playdom.

JS: What’s going to happen with acquisitions? Lot of media companies interested. Peter, you’re part of the “big four,” what do you think is going to happen this year?

PR:  Once business goes beyond making a string of hits, you need the whole production process. Monetization, retention. We’ll be acquiring very select assets to add to our games. I see some consolidation. I look at mobile this year as well. I don’t think we’ll be doing quite what Playdom did last year, which was quite a bit of acquisition. Primarily to leverage platform. Quite pervasive, as ecosystem stabilizers this year, and gets healthy.

JS: So Vish what do you think?

VM: We’ve been quite acquisitive, but mostly around small teams. Awed and humbled, mostly constrained by not having enough talented people. Acquired something like 9 companies in the last 8 months. We’re thinking about mobile, international expansion.

JS: Back in the day, 2007, 2008 you were building other platforms. Now building for mobile, Asia. Are the same guys dominating social going to be the same dominating mobile?

VM: No presumptions of success. Building our team, going our classic way that Mark has run the company. Where the opportunity is.

RT: Invested social and mobile. Encouraging those in social to look at mobile. Mobile is still a greenfield. Suspect large players will be successful, but also smaller.

KS: Seldom large companies who are able to adapt to new platforms first. But we’re fortunate as we have the biggest mobile publisher in the world. EA. Good hold in the market. Will pose challenges to everybody. Small team today, good place to be.

JS: Peter why have you guys been focused on Asia lately?

PR: Mobile. We’ve run an incubator, we have investments, announced a deal to launch OpenFeint in China. Some visibility. Got into Japan over a year ago, not in a big way. Through partnership. Know freemium model came out of Asia. Can tell you that we’re planning to double in size — developers, etc. One third of production will be mobile, because it’s a young new platform. Doesn’t have the Facebook layer quite as strongly with the viral distribution in 08, 09. But there are other ways. Trying hard. Bullish, we have to earn our way on.

VM: We’ve had a couple of launches in Japan, we haven’t figured it out yet. We’re working very hard to do so.

JS: If you were a developer starting today, trying to figure out where to build — Facebook, Android, iOS.

VM: iOS and Android for us.

RT: Throw a dart. Follow your heart. Hard to predict. Long-term, couldn’t be more bullish on Facebook. But if you have lower budget and quicker need to success, go mobile. My investments committed to a primary market.

PR: If I had a startup, which startup? If you want to take a chance, contrarian, Android. Get an early start. Doesn’t have quite the download volume of iOS. But all those people on 07,08 did well. iOS is crowded. You need venture financing, buy way into distribution. If you want to build a very very targeted high-ARPU, almost nichey (can be 30M users on Facebook). Facebook still has a huge. Just market very big. Analyst reports. Facebook just dwarfs others. iOS is Facebook-style games.

JS: One of the things you guys didn’t say was the other traditional platforms. Also didn’t say building off Facebook using Connect. Those omissions intentional?

KS: Grown quickly on Facebook, internationally? In very varied set of platforms. Facebook remains incredibly important. See it in new environments. What platform? Good way to look at it. What do you think the world is going to look like? Focus on content, like Angry Birds guys. Didn’t really matter which ones they started on.

[Ed. Panelists did not answer the question.]

JS: So what’s going to be different about games this year?

PR: We went from sim games to focus on Flash RPGs. First RPGs were good in terms of visuals, performance, but not really there. CrowdStar is doing Flash RPGs. Very much focused on immersiveness. But not trying to manage. Every year we’ve seen it go from simple apps to HTML RPGs to sims to Flash RPGs. Going to see evolution.

KS: See triple-A games launches on the platfrom. Tighter mobile-social. Quality is going to continue to rise to the top? Also break-outs from categories we didn’t even know existed.

Audience question: What about the article on Inside Social Games yesterday showing the rise of smaller developers even though larger ones have flattened?

PR: Weird financial phenomenon. When you’re a small developer, you have venture capital. Propensity to spend on customer acquisition — risk of spending is higher. Can spend if you have it, which a lot of developers do. If you’re a larger developer. Same financial profile. Has certain costs on Facebook. Have to be more disciplined. Amount of capital flowing into social gaming industry is having dramatic impact on ability for smaller developers to get an audience. That’s one.

Audience question: To Kristian, felt that Connect would carry elsewhere. But we don’t see social evolving on the mobile side.

KS: Mobile is one of the most social devices in the world. I think social and mobile fit quite well together. I think the Facebook mobile experience remains high-friction. Actual DAUs. In terms of mobile usage. Dwarf any other social network or mobile by some margin. Of course there are game-specific verticals being built. I think they have a place. But as Facebook, handset providers, and service providers get better at merging, I think consumers will choose the best social experience — would be surprising if it didn’t turn out like social on Facebook.

JS: So what can Facebook do to improve that?

Peter Relan: Single sign-on helped. We put one of our Facebook games on mobile (Happy Island). Played on mobile. Those players dropped out when they came to Facebook. Facebook players went to mobile, though. Mobile gaming is not stumble-upon gaming. How will social gaming be played on mobile? We’re doubling, putting one third on mobile.

Audience question: What about games for kids?

PR: Pass-back market. Send back to kids in the backseat. Mobile and tablet is superb. OpenFeint has 60 million users, half are iPod Touch (which tends to be kids, younger).

Audience question: What about cross-promotion across platforms?

VM: Focusing on relevance of user experience. Very small thing. Start to show friends playing other games as promo in our bar. Started to show increased activity. Personal relevance for users. Expect us to use all these things.

PR: In Silicon Valley we’re focused on tech, but I would argue cross-promo is more about demo than promo.

Audience question: Analytics is hot. What important discoveries have been made? What’s hot?

VM: We’ve invested in analytics, data. We continue to learn that social games is just as much art as it is science. How do you drive great experiences?

Audience question: How can you integrate Facebook tools with games?

VM: Ripe for innovation. How do we tie in — 7-11 campaign worked well.

Musicians made up half of our of Top 20 Fastest Growing Pages this week, although we had some games, movies, TV shows and football/soccer-related Pages. We compile this list with our PageData tool, which counts the number of Likes added to Pages over time. To make the list this week Pages needed to add between 310,500 and 689,700 Likes.

Top Gainers This Week

	Name	Fans	Gain	Gain, %
1.	Texas Hold’em Poker	33,436,681	+689,705	+2.11
2.	Black Eyed Peas	10,275,432	+632,909	+6.56
3.	Call of Duty: Black Ops	4,366,123	+603,152	+16.03
4.	Rihanna	21,690,031	+534,174	+2.52
5.	Shrek	7,041,975	+503,448	+7.70
6.	Harry Potter	15,539,033	+472,728	+3.14
7.	Shakira	18,805,599	+465,796	+2.54
8.	Eminem	25,971,539	+417,487	+1.63
9.	Linkin Park	21,053,546	+390,391	+1.89
10.	The Simpsons	18,749,803	+370,084	+2.01
11.	Avatar	5,993,571	+365,407	+6.49
12.	Cristiano Ronaldo	18,264,852	+364,379	+2.04
13.	AKON	15,287,058	+363,886	+2.44
14.	Michael Jackson	27,143,864	+358,531	+1.34
15.	Justin Bieber	18,692,469	+349,568	+1.91
16.	Katy Perry	17,023,227	+328,688	+1.97
17.	Lady Gaga	26,634,627	+324,369	+1.23
18.	MTV	14,256,481	+324,266	+2.33
19.	Manchester United	7,870,948	+321,745	+4.26
20.	Enrique Iglesias	11,232,031	+310,522	+2.84

Zynga’s Texas Hold’em Poker was in first place, having added 689,700 Likes since last week, bringing the Page’s total to 33.4 million mostly by promoting the game. Another game took third place on the list, Call of Duty: Black Ops. This Page added 603,200 Likes to grow to 4.3 million; the Page promoted content availability on Facebook.

Some movie Pages made the list this week, too. “Shrek” was in fifth place with 503,400 new Likes, pushing the Page over 7 million. The “Harry Potter” Page was next at number 6, having acquired 472,700 Likes to create a 15.5 total; the Page has been promoting movie awards and the film’s stars. In eleventh place was “Avatar,” with added 365,400 Likes to push the Page just under 6 million total.

On TV this week “The Simpsons” made tenth place with 370,000 new Likes to move to 18.7 million by promoting the show’s content on Facebook. Then, MTV took eighteenth place with 324,300 new Likes, 14.2 million total, after the premiere of their new show “Skins.”

Then there was football/soccer. Celebrity athlete Cristiano Ronaldo took twelfth place with 364,400 new Likes, 18.2 million total, by promoting his team’s social media, himself, game information and soliciting fan input. At number 19 was Manchester United, with 321,700 new Likes to bring it to 7.8 million total, and the Page shared team-related news.

Musicians made up the rest of the list.

The Black Eyed Peas added 632,900 Likes to reach 10.2 million in all and recently announced the name and cover art of their new single. Rihanna’s Page was fourth after adding 534,200 Likes to reach almost 21.7 million; her singles are currently very popular. Shakira’s Page was at number 7 after adding 465,800 Likes to her 18.8 million; she won some French music awards recently. Eminem’s Page was eighth with 417,500 new Likes to almost get to 26 million. Linkin Park followed, adding 390,400 Likes to surpass 21 million; the band is promoting their tour, new app and downloads on their Facebook landing tab.

Akon’s Page was at number 13 since adding 363,900 Likes to his 15.2 million-strong Page; the landing tab on the Page is still promoting his new phone app. Michael Jackson’s Page rode the wave of his reverence to number 14 with 358,500 new Likes and just over 27 million total. Justin Bieber’s Page was fifteenth after adding 349,600 Likes to get to 18.6 million; he’s been promoting a documentary about himself on the Page.

Closing out the list was Katy Perry at number 16 with 328,700 Likes to pass 17 million; she visited Facebook headquarters recently, is touring and promoting her album’s sale on iTunes. Next was Lady Gaga, who was promoting her upcoming single and album and so added 324,400 Likes to grow to 26.6 million. Finally was Enrique Iglesias, who added 310,500 Likes to grow to 11. 2 million; he’s also promoting a tour and album.

Today, Facebook launches a new ad unit called “Sponsored Stories” that turns Page updates, as well as Places checkins, Likes, and application activity by users into advertisements. Sponsored Stories will allow advertisers to augment viral buzz by giving greater distribution and visibility to posts that endorse their organization or business.

Sponsored Stories will initially be available through Facebook’s managed brand advertising services for display on the home page and profile, and in the coming weeks it will become part of the self-serve performance advertising tool for display across the site. Launch partners for the ad unit include Starbucks, Coca-Cola, Levi’s, and Anheuser-Busch, as well as social good organizations (RED) and UNICEF.

Facebook has been testing the ad unit for a few months and says it has resulted in brand lift and increased engagement, ad recall, and likeliness to be recommended to friends for the organizations that tried it.

When a user checks in to claimed Place, Likes a Page, or shares content to the news feed from an application that has paid for Sponsored Stories, that activity may appear as an advertisement to their friends. The ad is shown in special right sidebar module, and displays the user’s name and photo, any additional context or friends they’ve tagged, a picture of and link to the advertised Facebook Page or app, and the Likes and comments from the original post.

Similar to social context ads and Ads for Applications that Facebook launched this year, Sponsored Stories increases the relevance of advertisements to users by displaying a recommendation from one of their friends. Seeing that a friend has checked in at Starbucks is a much more compelling reason to visit than a standard advertisement telling a user to go get a coffee.

Jim Squires of Facebook Product Marketing says “all privacy settings are honored”, so the ads will only be visible to those who can see the original post they draw from. This means users will only see Sponsored Stories by their friends who haven’t restricted them from viewing their shared content. Advertisers can overlay any of Facebook’s standard demographic targeting parameters to further refine who sees a Sponsored Story.

Facebook plans to educate users about how Sponsored Stories respects their privacy through a blog post and explanation in the Help Center. However, there won’t be any link to this information within the ad unit. Some users may not want their content turned into ads, and since there’s no way to opt-out or turn off Sponsored Stories, some protest should be expected.

Page post Sponsored Stories are more straightforward. Pages can buy greater distribution for their latest news feed update, ensuring an audience for a particularly important link or announcement. Users who Like the Page will see the post in Sponsored Stories without having to Like it or take any other action.

Sponsored Stories co-opt a user’s actions, voice, and identity to create ads that resonate with their friends. While Twitter has diluted its content stream with promoted tweets in order to make money, Facebook may have found a significant new revenue stream without selling out the beloved news feed.

A few of the campaigns we looked at this as part of our weekly campaigns post required video uploads as a condition of entry — that resulted in not so stellar results. Elsewhere, Microsoft in Hong Kong is running an interesting campaign to promote the newest version of Internet Explorer in the city. A few of the campaigns are listed here, the rest are part of Inside Facebook’s Marketing Bible.

Microsoft Hong Kong’s Switch to IE9 Daily Giveaway

Goal: Engagement; Page Growth; Network Exposure; Product Use

Core Mechanic: A game allowing users to turn a Chinese candy box every 15 minutes to win prizes such as an Xbox 360 4GB Console, a Microsoft Arc Keyboard and Mouse.

Method: A Facebook game allowing users to play every 15 minutes, thus promoting constant engagement. The Chinese candy box is easy to turn and shows participants if they win fairly simply. The idea is to get users engaged with Microsoft and get them to using the new version of Internet Explorer, IE9.

Impact: It’s somewhat hard to tell what the exact impact of the campaign is because it’s in Chinese, however, PageData shows the Page has about 17,500 Likes.

I Told Congress About Transportation

Goal: Engagement, Network Exposure

Core Mechanic: Discussion board comments and YouTube integration.

Method: Through the Page of the American Association of State Highway and Transportation Officials (AASHTO) the U.S. Congress is hoping to gather information about highway and transportation systems. The interface was designed by Digital Hill.

Impact: Thus far the Page has received 46 posts on the “I Told Congress About Transportation” thread but none of the YouTube videos appear to be fan-generated.

The Valentine’s Day Diamond Dig

Goal: Engagement; Network Exposure; Sales Growth; Page Growth

Core Mechanic: Video contest on the Topps Facebook Page and vote to win a $10,000 engagement ring on the landing page on its own tab.

Method: Users may submit a video from Jan. 18 through Feb. 3 to explain why they should win a $10,000 engagement ring from Topps, makers of sports trading cards. The Votigo-powered sweepstakes culminates on Valentine’s Day when Topps will give those selected a chance to dig for the ring in a 30-foot diamond ball pit and the person who finds the ring may propose to their loved one at Grand Central Station in New York City.

Impact: Not very successful thus far, there’s only one entry, perhaps due to how cumbersome the entry and contest rules are.

To see the rest of campaigns, check the Cases section of Inside Facebook’s The Facebook Marketing Bible.

Facebook, and social gaming, appears to be a vastly different place for game developers today versus just a year ago. While social gaming visibly grew at astounding rates through 2009 and into early 2010, producing massive successes like Zynga, growth seemed to suddenly stop in the spring of 2010 as Facebook began limiting the viral channels that made big gains possible.

Since then, Facebook itself has repeatedly changed the rules that app developers play by, and has increasingly forced usage of Credits, a virtual currency that skims 30 percent of in-game sales when used, leading some developers to conclude that Facebook is now too difficult to work on.

Growing a game on Facebook is certainly more difficult today than it was in 2009. However, the view that succeeding is too difficult, and that growth has ended on Facebook, is belied by the experience of savvy developers, and hard data about Facebook apps from our AppData tracking service.

Our own view of the Facebook market considers each facet of the market separately. Here’s what we’ll cover below, in brief:

1. Overall audience size for large developers has declined on average, but this is not necessarily cause for concern
2. Small and medium-sized developers are steadily growing
3. Good game design is increasingly important and effective
4. Monetization is improving in several ways

Large Developers

Before we can look at the performance of games across all Facebook developers, we should split out data for what were considered the “top 5” developers on Facebook in early 2010: Zynga, Playfish (now part of Electronic Arts), CrowdStar, Playdom (now part of Disney) and RockYou. This is because views that Facebook’s heyday has already ended are largely based on the performance of this handful of companies.

The trouble for these developers began last March, when Facebook made the first of several viral channel changes that would end their fast-paced growth:

The above table is not an entirely straightforward measurement of how any of the five developers listed is doing, since MAU / DAU measurements alone don’t directly predict revenue; CrowdStar and RockYou also lost significant amounts of traffic from non-game quiz and gifting apps. Even so, only Zynga is arguably doing about as well as it was in early 2010, and only with the massive success of its brand-new game CityVille. Its four competitors lost 30 percent or more of their DAU, which is the best publicly-visible predictor for success.

If Zynga, with over $500 million in venture capital, can’t continue growing on Facebook, what chance do smaller players have? This question has clearly resonated with the wider community; many Facebook developers are now shifting their attention to smartphone games, and investors have by and large ended their investment in pure-play web-based social gaming.

In our view, however, the market still offers healthy opportunities. Expectations were distorted by the outsized success, over just a year or two, of Zynga and its peers. Before the social gaming boom, it typically took several years to build successful companies; now that the “boom” is over, this reality has resumed. The fact that more players of Zynga’s size have not popped up in less than a year of Facebook’s matured social gaming market is neither remarkable or distressing.

This view proceeds from real market data, which we dive into in the following two sections.

> Continue reading on Inside Social Games.