Facebook’s top developers say the company’s payments infrastructure and virtual currency Credits is converting fewer paying users than they had hoped a year ago.

Facebook made it mandatory for developers to use its payments platform in canvas games in July. That meant developers on the platform had to start handing over a 30 percent revenue share to the company, mirroring a similar split on Apple’s iOS. The hope was that a single, universal currency would make it more frictionless for users to start paying for virtual goods.

“We thought that conversions would go up and be around 15 or 20 percent,” said Kevin Chou, the chief executive of Kabam, a social gaming company that targets a more hardcore demographic, at the Inside Social Apps conference in San Francisco. “But it turned out to be around 5 to 10 percent, meaning that we’re taking a 20 percent net tax.”

For comparison, Facebook’s biggest developer, Zynga, revealed in its prospectus that it had 3.4 million unique payers during the third quarter of last year. That’s out of 152 monthly unique users in the same time period, suggesting a 2.2 percent conversion rate.

Anil Dharni, who co-founded Funzio, which has had hits on iOS and Facebook like Crime City, said the move to Credits ended up being roughly even for the company.

“Facebook credits is a wash for us,” he said. “It increased the conversion rate but we actually saw a gradual decrease in average revenue per paying user. It’s hard to know why.” Funzio has since moved its focus to iOS, where it has launched Crime City and Modern War, both titles that reached the top of the grossing charts.

Continue reading on our sister site, Inside Social Games.

Revenues from Zynga games accounted for 12 percent of Facebook’s 2011 revenues, the social network’s S-1 filing reveals. No other customer represented more than 10 percent of total revenue in 2009 or 2010. Facebook reports that social game devs — most of all Zynga — are currently responsible for almost all revenue derived from Payments.

Aside from in-game transactions conducted with Facebook Credits — of which Facebook gets up to a 30 percent cut as part of a special agreement with the social game giant — and ads bought by Zynga, the CityVille developer also generates a large chunk of pages where Facebook displays ads. While Zynga is locked into Facebook Credits until May 2015, Facebook points out that any trouble in paradise with its biggest game developer could harm its bottom line.

Consumers can now earn Facebook Credits for purchases they make at brick and mortar locations by signing up for Plink, a loyalty program that officially launched on Thursday.

Plink connects offline transactions with people’s online profiles without placing additional onus on consumers or businesses. And because people are rewarded with Credits, businesses do not have to devalue their products through discounts. To reach mass audiences though, the demand for Credits will need to expand beyond social game players. As more goods become available for Credits, Plink can build partnerships with more restaurants, retailers and other businesses.

Facebook users connect their accounts with Plink and register a credit card with the site. Plink then matches users’ purchases with offers they qualify for. Users will receive emails to connect Credits they earn to their Facebook profile.

Plink users can earn Credits when they use their credit card at Taco Bell, Quiznos, 7-Eleven and a few other national chains. For instance, spending $10 at Taco Bell results in a reward of 12 Facebook Credits, the equivalent of US$1.20. Most in-game items typically cost anywhere between one and 50 Credits, but select premium items can be valued higher.

Plink’s biggest selling point is that consumers don’t need to carry coupons or rewards cards. They use their credit card as they normally would and the Credits add up, similar to how people earn Frequent Flier Miles. Members have to provide their online banking credentials when they sign up for Plink, which might turn off some users, but the company provides a disclaimer about how it uses the information and why users’ information is safe.

For businesses that partner with Plink, there is no change to the transaction process so staff does not need to be trained and sales aren’t slowed down, as they are with prepaid coupons or check-in deals. Restaurants and retailers pay Plink a percentage of the sales generated by Plink members.

Film studios and musicians have started to experiment with offering content in exchange for credits, but currently the market is dominated by in-game purchases. If Credits take off like Plink CEO Peter Vogel predicts they will, the company provides a unique way for Facebook users to earn them by taking actions offline.

 [Editor's note: This is a guest post by Peter Vogel, co-founder of Plink, which lets consumers earn Facebook Credits for dining out and shopping online. He argues the rise of Open Graph applications will push Facebook Credits beyond social games and one-off experiments to become a major source of revenue for Facebook and developers.]

Although Facebook Credits is still primarily an in-game currency, in 2011 we began to see a glimmer of what Credits will look like when it grows up.

Movie studios like Miramax, Warner Bros. and Paramount Pictures, not to mention BBC Worldwide began offerings movies and TV shows for rent on Facebook. As an example, in promotion of “Mission: Impossible, Ghost Protocol,” the series’ first three movies were made available for rent on Facebook for 30 Credits per rental. In addition, to promote the launch of “Tower Heist,” Universal Pictures gave away 1 million Facebook Credits ($100,000 value) in an online scavenger hunt. DJ David Guetta began selling MP3s on his Facebook Page (19 Credits per track) and U.K.’s “Big Brother” and “The X Factor” began allowing fans to vote for contestants using Facebook Credits.

These examples, however, were few and far between in 2011 and it’s fair to say that even most Facebook users don’t know what Credits are for. 2012 is the year this will change.

Prediction 1: Facebook adds subscription billing as an option for Facebook Credits

Currently companies who sell virtual goods or products on Facebook can only accept one-time payments via Facebook Credits. For example, a player can use a small amount of virtual currency to buy a new cow in Zynga’s FarmVille. But media companies such as Netflix and Spotify would need a monthly billing plan. Consumers could agree to pay 100 Facebook Credits for monthly access to movies or music and would agree to be billed monthly. Until Facebook adds a monthly billing feature, it will be difficult or nearly impossible for many of the largest media providers to accept Credits.

Facebook will continue to improve the Credits platform in other ways as well to make it more functional and profitable for developers to use. Credits is the primary way, if not sole way, most developers generate revenue, so you can be sure that Facebook is truly committed to making Credits as flexible and effective a currency as possible.

Prediction 2: Open Graph Partners, including Spotify and Netflix, start to accept Credits

During its F8 conference, Facebook announced 17 music partners who would integrate Open Graph, allowing users to share their listening and other behaviors with friends. Spotify initially gave users a six-month free trial. Now, though, the nearly five million new members who’ve been getting unlimited free music will be limited to 10 hours a month and only five plays per song — not that much for a real music fan. Look for Spotify to add Facebook Credits as a payment option for these new users, potentially even offering special introductory rates to entice users to commit to a year-long membership.

In addition, a few notable facts lead me to believe something big is coming from a Netflix/Facebook partnership.

1. Netflix’s CEO Reed Hastings joined the Facebook Board of Directors in June of 2011.
2. Netflix recently signed deals with BBC, DreamWorks and Disney to increase the quality of available streaming content.
3. A piece of legislation cleared the House and is on its way the Senate that would reverse a law enacted in 1998 that forbids public disclosure of video rental records. This would prevent the sharing of movies being watched between Facebook users. Much as users now have “Like” or “Listening to …” labels, it’s widely anticipated there would be a “Watching” tag as well.

This increased level of sharing could dramatically increase the number of Netflix movies watched and shared on Facebook, leading to a Facebook-only Netflix plan that could be paid for with Facebook Credits.

Prediction 3: The size of the Facebook Credits economy will double every year for the next five years

Similar to Moore’s Law, which famously predicted that the number of transistors than could be placed inexpensively on an integrated circuit doubles every two years and Mark Zuckerberg’s Law that (scarily to some) states that people will be willing to “share” twice as much each year, I believe the Facebook Credits economy will double every year for the next five years.

This is based on the staggering amount of new ways that people will be earning and spending Facebook Credits over the coming years and the international growth, which will follow innovation in the U.S. This is conservative based on reports we’ve already seen that global revenue from Facebook Credits more than tripled in size from 2010, $140 Million, to $470 million in 2011. By 2016, Facebook Credits could be a $15 billion business.

What’s driving this? One example is the efforts by Milyoni, one of Facebook’s leading commerce and video streaming platforms. This year, Milyoni was responsible for hosting the first ever movie available for rent on Facebook, Warner Bros.’ “The Dark Knight,” at a cost of 30 Facebook Credits. Milyoni also hosted the first ever live pay-per-view concert on Facebook, “Widespread Panic” live from Austin, Texas, at a cost of 50 Credits. This year, according to Dean Alms, VP of strategy and marketing at Milyoni, they have deals in place with 13 movie studios and expect to offer 3,000 movies for rent on Facebook. That’s compared to less than 100 films offered in 2010. In addition, the company has plans to stream 40-50 live concert and events available on a live pay-per-view basis, compared to just two in 2010. Multiply this by other innovative companies and you get an idea of what’s to come this year and beyond.

Final Take:

Facebook has proven that the Credits model can work in social gaming, which represents between 25-30 percent of Facebook users, and will now utilize the same model to first enter the business of music, movies, TV and any other shareable media, before entering larger industries like financial services and health care in the coming years.

While still relatively unknown, Facebook Credits will emerge and begin to mean very real cash to a quickly expanding group of first-mover entrepreneurs and innovators who are just starting to get a whiff of the opportunities presented by the Facebook Credits economy.

It’s for real and it’s here.

Peter Vogel is co-founder of Plink, a Facebook Credits-based loyalty program that rewards Facebook members for dining and making purchases at their favorite restaurants and stores. Reach him via email at peter@plink.com or follow him on Twitter @pvogel.

Lionsgate has made its 2011 thriller “Abduction” available for streaming on Facebook for $3.99. This is the first time a studio has released a film on DVD and Facebook simultaneously.

Users can purchase 48-hour access to the movie that will stream from a Facebook canvas app, Lionsgate Social Cinema. The app accepts credit cards and PayPal, but does not include Facebook Credits as an option, even though it does so for a number of older titles. Facebook takes 30 percent of transactions with Credits.

Warner Bros. was first to bring movie rentals to Facebook in March 2011, when it made The Dark Knight available for 30 Credits, or $3. It later offered “Inception,” two “Harry Potter” titles and other films for streaming. Lionsgate has made popular films like “The Blair Witch Project” and “Saw” available for Facebook rental, but no studio has offered a release as new as “Abduction” on the social network.

The action movie had weak box office performance and was widely panned by critics. Lionsgate is probably hoping to capitalize on star Taylor Lautner’s large online following. As of this writing, though, there was no mention of the rental on Lautner’s official Facebook page. The Abduction page has made two posts today to its more than 991,000 fans, but getting a mention on Lautner’s page with more than 12 million fans could give the effort a huge boost.

Like other Facebook rental plans, “Abduction” is available to users for 48 hours, during which time they can pause, rewind and play as many times as they wish. Users can leave Facebook and come back to the movie, but they have to do so using the same account. People who rent the film will also get access to trivia and an exclusive interview with Lautner.

Facebook announced today that it will give developers the option to provide in-app offers in their native currency, the company announced in a blog post Friday.

The change should help developers since users are more likely to complete offers that involve the unique currency of the game they’re playing. Completing offers in units of Facebook Credits might not be as easy to understand for users who have to do the math to know what Credits convert to. “In-app offers,” as Facebook noted in its announcement, are an important way for developers to monetize users who might not otherwise buy virtual currency. In these cases, advertisers cover the cost of the currency in return for the app bringing them customers.

By completing advertiser offers, such as signing up for a subscription service or shopping in an online store, app users can earn virtual currency. Since thetransition to Credits, which was made mandatory in July 2011, all offers have been done in Facebook’s universal currency, except for games by a few large developers who Facebook allowed to provide offers in their native currency. Now, the company is allowing all developers who prefer transactions to be in their own in-app currency to offer them. Before the launch of Credits, many third party offer networks provided offers to developers in native currencies.

Facebook will leave Credits offers as an option, which developers can use instead of or along with in-app currency offers. The new offers documentation supports Offerwall and Dealspot. Details are available on the Facebook Developer site.

Black Friday features prominently in our campaigns this week as Toys “R” Us offered its catalog for download on Facebook and Walmart used an app to help users locate their nearest stores — and the deals to be had there. Macy’s also released an app designed to involve users in the company’s annual Thanksgiving parade, GLAAD’s Thanksgiving effort to promote LGBT equality, movie streaming, free handbags and more.

Below is an excerpt of this week’s full Featured Facebook Campaigns entry in the Facebook Marketing Bible, which also includes detailed breakdowns of over 100 other Facebook marketing campaigns by top-performing brands and other organization on Facebook.

The Great Big Toys “R” Us Book

Goal: Page Growth, Product Purchase, Brand Loyalty

Method: The Great Big Toys “R” Us book is available for download as a PDF on the company’s Page.

Core Mechanic: The app allows users to download the company’s toy catalog that includes holiday shopping specials for leisurely perusal. The company first began releasing the catalog on Facebook in 2009; at the time users could only peruse the catalog on Facebook, thus, the download represents the next level in marketing. The app also offers users the chance to sign up for mobile deals or emails.

Impact: The Page currently stands at 2.3 million and shows steady growth according to PageData.

Taco Cabana’s eClub Free Taco

Goal: Email Acquisition, Brand Loyalty, Product Purchase

Method: The Page’s Join Our eClub tab asks users to sign up for the company’s email list, taking them to the website to sign up in exchange for a free taco.

Core Mechanic: The free taco serves as a lure to bring customers into the social media and email offerings the company frequently launches, such as seasonal beverages or foods. The company has also been advertising the offer and its social media presence in-store to boost its email list.

Impact: The Page currently counts about 82,000 Likes and shows steady growth, according to PageData.

Want to learn how top brands are designing their Facebook marketing campaigns? See the Facebook Marketing Bible for detailed breakdowns of hundreds of Featured Campaigns by top-performing brands and businesses on Facebook.

Facebook has announced several updates to Credits today with changes that resolve a known pay flow issue, add additional payment methods for international markets, and restrict applications from transferring Credits between each other without prior authorization.

The pay flow issue deals with one of the three callbacks generated by the Pay Dialog. A recent change to the callback status=settled resulted in some cases in which users were not getting the item that they paid for. To avoid this problem, Facebook is now asking developers to fulfill orders on the callback status=placed instead of waiting around for status=settled. To completely eliminate confusion, Facebook is removing the status=settled callback 90 days from now.

Next up, Facebook Credits now supports additional payment methods in Europe, Asia, New Zealand and Latin America. The new methods added are:

• ELV (Germany)
• MyCard Mobile (HongKong, Macau, Malaysia, Singapore, Taiwan)
• Visa Electron (Argentina, Brazil, Chile, Colombia, Finland, Hong Kong, India, Japan, Malaysia, Mexico, Netherlands, New Zealand, Singapore, Taiwan, Thailand)
• WebBilling Online Bank Transfer (Austria, Germany, Spain, Switzerland)

Find the full list of supported countries and payment methods here.

Lastly, Facebook has updated its Credits policy to restrict apps from transferring Credits between one another without prior approval from Facebook. The new policy:

2.14 You may not accept Credits in one application and deliver or transfer the purchase to the user in another app without our prior authorization. For example, an app solely designed to facilitate transactions is not permitted.

This will affect dubious apps that facilitate illegal gambling, and may also affect certain game developers that attempt to use one type of premium currency across more than one game running on different app IDs — but it sounds like Facebook is willing to make allowances for cases like that if the developer presents them.

Facebook also notes that developers should keep their company info up to date in order to receive payouts. The Facebook Credits documentation has also been revamped to address developer feedback.

German offer provider Deal United today announced it is entering the virtual currency incentives industry with the launch of “Credits Rewards”. The new service allows brands to reward to users with Facebook Credits when they make purchases, registrations, signup for newsletters, enter contests, fill out surveys and more. Because virtual currency is so cheap to distribute and Facebook users may value Credits higher than their actual cost in dollars, they can be a cost effective way for businesses to reward users for following their call actions.

Deal United will be competing with industry pioneer ifeelgoods, a Credits microincentive startup that launched a year ago. The space has plenty of runway, though. As users gain the ability to pay Credits for digital media and content as well as virtual goods, demand for Facebook’s virtual currency will rise and Deal United incentives will become more appealing to users and businesses.

Founded in 2007, Deal United aggregates offers directly from advertisers to provide game developers the ability to let their users pay for virtual goods by shopping. In June 2011, Facebook chose Deal United as one of two European partners that can contribute offers to its official offer walls that are run by TrialPay. The reduced margin associated with having to deliver offers through an intermediary may have pushed Deal United to branch out into virtual currency incentives.

With Credits Rewards, businesses can create a value exchange where they previously had to nag users to follow their calls to action. They can set their own reward value, for example providing two Credits for signing up for their email list, five for following them on Twitter, 10 for filling out a survey, or 50 for making a purchase. These actions don’t cost a user anything, so it’s easy to justify taking a few seconds or receiving some marketing messages in exchange for Credits that help them play their favorite social game, rent a movie, or gain access to a pay-per-view experience.

If the current trend continues, Facebook Credits will be accepted as payment by more and more online companies, and one day they might let users buy physical goods. Social gaming is a booming industry in Germany, with companies like Wooga processing huge volumes Facebook Credits payments. The Munich-based Deal United will be well positioned to attract European brands looking to capitalize on the demand for Credits.

By becoming one of the three companies licensed to dispense Facebook Credits, Deal United has partially tied its fate to the success of Facebook’s virtual currency. If demand continues to rise, and especially if Credits for Websites and HTML5 mobile apps take off, Deal United’s Credit Rewards could become a crucial customer acquisition method.

Facebook has made several developer-focused announcements over the past few days, including that it has released more free tickets to its Mobile Hack event at Facebook headquarters this Friday. This will give more developers the opportunity to learn about building Facebook-integrated native native and HTML5 mobile apps.

Nine new international Facebook Credits payment methods have been added to make it easier for those abroad to buy Credits. Additionally, developers now have the capability to programmatically check if an app is installed on a Page and what privacy setting a user has selected for an app.

Facebook recently launched a blog specifically for HTML5 developers, and there announced it would hold an all-day Mobile Hack event at the Facebook headquarters in Palo Alto on October 28th. The event will cover iOS, Android, and HTML5 mobile web development for the new Facebook mobile app Platform. It will feature: “technical deep-dives, a Q&A, partner presentations, and an opportunity for you and your team to hack on site with Facebook developer team assistance. At the end of the day, awards will be given to the best mobile social apps.”

Developers can register to attend Mobile Hack for free on Eventbrite, though tickets are limited and will likely sell out the same way the mini-f8 Open Graph Technology Days Facebook held around the country did. They may then begin working on their hack project, as apps don’t need to be built from scratch at the event. The schedule for Mobile Hack is as follows:

10:00am – Registration Open
11:00am – Facebook Platform on Mobile
11:45am - New Features: Social Discovery on Mobile
12:30pm - Lunch
1:30pm –   Partner Presentations and Best Practices
2:30pm -  Native Distribution for Web Apps
3:00pm -  Break
3:15pm -  Open Graph and Mobile
4:00pm -  Q&A
5:00pm -  Dinner
5:00pm -  Hack
11:00pm – App Presentation & Awards
11:30pm – Event Close

There hasn’t quite been a blitz of mobile app development since the new Platform opened earlier this month. The launch partner apps show some promise, but traffic has been slow. Creating a healthy mobile app platform is key to Facebook growing mobile engagement and making money through mobile Credits. Facebook is hoping the new HTML5 resource center and Mobile Hack will give developers the understanding necessary to explore the mobile platform’s viral channels.

Alongside the announcement of initial test of Facebook Credits for Websites, Facebook listed that Credits can now be bought with several new international payment methods. The news benefits developers, as users are more likely to become paying customers if it’s easy for them to acquire Credits.

Many of the new payment methods are online payment solutions for Southeast Asia and South America, which have become important secondary markets for developers. Facebook now supports over 80 payment methods in 50 countries. They new methods include:

• Axeso5 (Brazil)
• Join Card (Taiwan, Hong Kong, Thailand)
• Malaysia OBT (Malaysia)
• MEPS FPX (Malaysia)
• MEPSCASH (Malaysia)
• PayEasy (Philippines)
• PaysBuy (Thailand)
• SafetyPay (Mexico, Costa Rica, Peru, Spain, Austria, Brazil)
• WebCash (Malaysia)

The Graph API can now be used to determine if an app has been installed on a Page. An HTTP GET request to /PAGE_ID/tabs/APP_ID will return the IDs of any app installed on a Page when used with a Page admin access token, and whether a particular app is installed when used with that app’s access token. This will allow Page management apps to determine what tab apps have or haven’t been installed  on a Page they oversee.

The new app authentication flow allows users to set the widest possible audience for content shared through that app. Now developers can retrieve a user’s privacy selection via the privacy setting table. This way, when apps present users with subsequent privacy selectors, they can default to a user’s previously chosen privacy setting. This keeps users from thinking their existing privacy settings have been changed.