Investing in Facebook: John Corpus of Milyoni

This week, Inside Facebook asks people who have built businesses on the Facebook platform why they believe in the company. These are the people that are truly invested in Facebook, whether or not they bought stock.

For Part 2 of our series, we spoke with Milyoni founder and CEO John Corpus. Milyoni is the Facebook commerce and social entertainment company best known for making films and live events available for streaming on the social network.

Seeing the potential of Facebook

Three years ago when Corpus was CIO of Mervyns department store, he saw the rapid growth of Facebook as an opportunity for commerce. At the time, the social network had about 150 million users. Although that is far less than the more than 900 million using the site now, it was a major milestone in 2009. Corpus says the growth was especially interesting when compared with trends showing that online display and search conversions were declining.

“The three rules of retail are location, location, location,” Corpus says. “Facebook was where people were spending more time.”

He says it was the amount of interaction and the speed of sharing happening on the site that stood out and led him to want to build a company on the platform.

Developing a business idea

When Corpus founded Milyoni (pronounced “million-eye”) in February 2009, the company was focused on helping businesses sell physical goods. Milyoni offered the “iFanStore,” an e-commerce platform for Facebook, Twitter and MySpace. It was one of the few e-commerce apps that let users stay within Facebook during an entire transaction and then share their activity with friends.

The company gained a lot of entertainment-focused clients, including HBO, the NBA, UFC and The Onion. These companies were selling things like t-shirts and DVDs through the app. But Corpus says that a conversation with Warner Bros., at the end of 2010, led to a whole new market: digital goods.

Milyoni and Warner Bros. were discussing how video was incorporated in the app when an executive asked whether a full feature could be shared on Facebook. The companies decided to try it, and in March 2011, they made “The Dark Knight” available for streaming on Facebook with users paying for the rental using Facebook’s platform currency, Credits. The success of that test and others led Milyoni to develop what it calls “Social Cinema” for movies and “Social Live” for things like concerts and sporting events. The company is now primarily focused on these areas rather than selling physical goods through Facebook.

Confidence in Facebook

Corpus says Milyoni could expand to other platforms in the future, but for now it’s focused on Facebook.

“This is not a fly-by-night type of business,” Corpus says, pointing to Facebook’s latest user numbers and engagement statistics, which includes 300 million photo uploads and 3.2 billion Likes per day. “From a foundational standpoint, they’re here to stay.”

Milyoni’s own success on the platform is further proof for Corpus, who says Facebook users have watched more than 700,000 minutes of Milyoni content in the past three months. The company now offers more than 150 titles from 16 studios available on Facebook, and it plans to bring 700 more titles and 30 more live events to the platform this year.

Facebook’s future

To capitalize on the social network’s growth in users and engagement, Facebook now has to focus on growing its revenue streams through advertising, mobile and commerce, Corpus says. Social games were a good start, but he says there is a lot more opportunity around social entertainment where studios and other content providers can connect directly with their consumers.

Facebook’s payments revenue was $186 million in the first quarter of 2012, up 98 percent compared to the first quarter of 2011 when Credits were not mandatory for social games transactions. However, most of that revenue is still from sales of virtual goods, not digital goods or experiences. Milyoni is one of the few companies helping to pioneer the use of Credits outside the realm of games. Corpus says the social network needs to do more to get users to understand Credits so that they are more comfortable using the currency and spending money within apps. He sites PayPal as an example of another company that took a few years before it was widely considered secure. Corpus says that making it easier for users to see and manage their Credits accounts could help Facebook in this area.

“They have to let people know it’s not just Monopoly money,” Corpus says. “They have to provide people with a level of confidence and security to make it a more trustworthy place.”

Read Part 1 of our series, which profiles Clara Shih of social marketing software company Hearsay Social.

How likely is to Facebook lower its 30 percent fee for developers on the platform?

Facebook acknowledged in a regulatory filing that it might reduce the percentage fee it takes from developers building on its platform if it expands its payments business beyond games.

Currently, the social network requires social games to use Facebook Credits, of which it takes a 30 percent cut of revenue when players buy virtual goods. Some developers have experimented with using Credits for digital goods like song downloads and streaming movies, but Facebook’s currency is not mandatory for these apps.

Monday’s S-1 amendment is the first time Facebook has publicly suggested that it might change its revenue share structure. However, it is important to note that before the company goes public, it is required to include any relevant risk factors and forward-looking statements that could affect its business, however theoretical.

Nonetheless, is widely believed that Facebook will one day change this policy and require non-game applications to use Credits — “Payments,” as the program is known to investors. And while a 30 percent cut is an industry standard for revenue sharing models with developers — Apple and Google take this much from mobile app developers — it might be too high to encourage growth in areas outside of virtual goods.

For example, Spotify requires users to sign up using a Facebook account. The app benefits from prominent distribution across the social network, but so far Facebook doesn’t generate any direct revenue from the music streaming service. If the social network were to one day say to Spotify, as it did to game developers last year, that it would begin taking 30 percent of every $9.99 subscription, the music provider likely wouldn’t be able to sustain its business. However, if Facebook takes a lower percentage, then Spotify and apps from other industries might thrive from the virality of the platform and unified payment processing.

It’s very likely that Facebook’s payments infrastructure will support subscription billing in the near future, and when it does, it could allow developers to retain a greater share of revenue. Facebook has board members Don Graham and Reed Hastings, CEOs of The Washingon Post Company and Netflix, respectively, to provide insight about the type of model that would be mutually beneficial for the social network and other industries building on the platform. Those two companies, along with Spotify, would likely be launch partners if Facebook decided to provide this option.

Exactly how Facebook would decide to distinguish between games and other apps is unclear. What it might do instead is charge different percentage fees for virtual goods like decorations or power-ups versus digital goods like mp3s or livestreams. If Facebook began to support payments for physical goods, those too could fall under a different tier for revenue share. The company could also take a smaller cut of purchases over a certain dollar amount and maintain its 30 percent share of micropayments. Then again, Facebook might simply decide to take a lower percentage fee across all applications. This would give developers more incentive to build on the platform, and Facebook could overcome its loss of revenue share by operating at a larger scale than before.

Facebook roundup: Instagram, IPO, pages, Google+, Pinterest

Facebook’s Instagram acquisition was all Zuckerberg – The Wall Street Journal reports that Facebook CEO Mark Zuckerberg basically acted independently when pursuing the company’s latest acquisition of photo app Instagram. The board was “told” that the company would be bought.

Facebook IPO set for mid-May – TechCrunch reports that Facebook’s IPO date is set for May 17; The San Jose Mercury News reports it could be as early as May 14.

Class-action suit seeks refund for Credits purchased by minors – Arizona-resident Glynnis Bohannon filed a class-action suit against Facebook this week. She is seeking a refund after her young son bought Facebook Credits without her consent.

Facebook replacing corporate blogs – A recent survey found that companies are increasingly choosing to create and manage Facebook pages rather than blogs.

Google+ developer to bring hangouts to Facebook - Mohamed Mansour is a Google+ extension developer who plans to enable Google-like hangouts on Facebook allowing multiple people to video chat at once. Mansour became frustrated with Google+ after a redesign broke some of his extensions.

PinView turns Facebook into Pinterest – A new app, PinView, visualizes Facebook Timeline as a Pinterest board.

Plink raises angel round for Facebook Credits loyalty program

Plink, a Facebook Credits-based rewards program, closed an angel investment round of $633,000 at a $5 million valuation.

Consumers who sign up for Plink can earn Facebook Credits when they use their credit card at brick-and-mortar locations, such as Taco Bell, Quiznos and 7-Eleven. Plink is one of a few companies betting on the rise of the social network’s virtual currency, Credits.

“Facebook Credits are proving to be the missing ingredient that bridges the gap between social media marketing and offline sales,” Plink co-founder Peter Vogel said in a press release.

When Plink launched in January, we applauded how the program connects offline transactions with people’s online profiles without placing additional onus on consumers or businesses. Credits accrue and can be redeemed with ease, similar to Frequent Flier Miles. The idea of Facebook Credits being used as rewards is an interesting one; people who might not see value in spending actual money for the virtual currency can earn Credits through Plink, for example, and then might be more likely to spend those Credits on virtual or digital goods. Brands end up subsidizing transactions that help developers and Facebook monetize.

The dilemma now, however, is that Credits are primarily used among players of social games because Credits are only mandatory for in-game transactions, not other digital goods. Studios that offer movies on the social network can use PayPal, thereby avoiding Facebook’s 30 percent fee. Media companies won’t start offering content for Credits until they see demand, but consumers won’t care about Credits until there is content worth spending them on.

Until Facebook makes a push to make non-gamers aware of Credits and get non-game developers to implement the currency, the efforts of Plink and companies like Ifeelgoods could be the primary drivers of the Credits economy. Ifeelgoods works with brands to offer Credits in return for user actions like watching a video or sharing a marketing message.

Angel investment firm Ahlborg Acquisitions and Matomy Media Group, which offers affiliate marketing and reward-based advertising platforms, participated in the round. Plink says the investment will go toward building the product and developing partnerships with restaurants and retailers. Last week, the company announced a partnership with more than 3,500 Arby’s restaurant locations.

Facebook pushes Credits promotion with in-game units for first-time payers

Facebook developers can now display Facebook-sponsored promotions in their games to encourage players to make a first-time purchase, according to a post on Facebook’s developer blog.

“New payer promotions,” which the social network created in February, give users who haven’t bought Facebook Credits before an extra $4 of in-app currency when they buy $1 in Credits. Facebook has advertised this promotion through offer walls and sidebar modules, but with today’s announcement, it will also get in-game placement.

The offer is meant to turn casual social gamers into paying players. Once users add billing information to their accounts and experience the in-game advantages that come from spending Credits, they are more likely to continue to buy virtual and digital goods within applications. Facebook says early data shows that about 20 percent of the users who make that first-time purchase spend more within a month.

The in-game promotions are available through DealSpot. After developers add a piece of code to their games, players who have not previously purchased Credits will see an icon promoting the offer. TrialPay, which controls DealSpot, says it will test several icons and optimize for performance without requiring any additional actions from developers.

It is unclear how much control developers have over where the icon appears in the game. In the example provided by Facebook, the offer is placed on the right-hand side of the screen, an area used in most games for less game-critical features. This might not be the most optimal spot to get a user’s attention, but it could be more effective than sidebar modules (see below).

Facebook partners with carriers to bolster mobile web-based payments

Facebook partnered with some of the world’s largest carriers to make the experience of paying with Credits more seamless on the mobile web, the company announced today.

The company has done a deal with AT&T, Deutsche Telekom, Orange, Telefónica, T-Mobile USA, Verizon, Vodafone, KDDI and Japan’s Softbank Mobile Corp to let Facebook users pay more seamlessly with Credits through carrier billing. The deal comes at a critical time for Facebook as Apple’s iOS and Google’s Android platforms threaten to cut the social network out of influencing and earning revenue from the mobile app ecosystem.

Facebook’s chief technology officer Bret Taylor said that the current system for making web-based payments has too many friction points to make it useful to consumers or developers.

“Right now, the payments experience on the web is just broken for end users,” he said in a keynote at Mobile World Congress in Barcelona. “Even with operator billing support, most require a step called SMS device verification. That means if I’m in the middle of the game and I want to pay 99 cents, I have to wait for an SMS to arrive.”

After that, the user has to verify that the device is connected to their Facebook account.

“Then I have to awkwardly memorize the code and resubmit the transactions,” he said. “If I manage to make it this far, then I can finally go back to playing the game.”

With the new solution, third-party developers will be able to integrate a single SDK that lets their players charge their monthly phone bills in a single step through Facebook.

Continue reading on our sister site, Inside Mobile Apps. Lead Writer Kim-Mai Cutler is live at Mobile World Congress in Barcelona where Facebook made the announcement.

Facebook roundup: lobbying, engineering, Power.com, Credits, Oscars, more

Facebook loses lobbyists – Politico reported this week that three contract lobbying firms working for Facebook pulled their services after content providers who were also clients raised concerns. The story implies that Internet providers and content creators are at odds, noting that Facebook increased its lobbying expenses 285 percent from 2010 to 2011. [Image via Facebook]

Facebook engineers now designing hardware – As part of its Open Compute Project, Facebook staff has begun to design its own storage hardware, according to a report from Wired.

Facebook wins Power.com court fight – Facebook finally won its case against Power.com, a now-defunct website that used to aggregate data from social networks. The lawsuit began in 2009.

Facebook used to serve legal claims in UK – Facebook may now be used as a platform with which to serve legal claims in the United Kingdom. A judge in a court case recently allowed Facebook to be used in a commercial case where one of the parties was difficult to locate.

Study: users managing privacy controls better – The Pew Internet and American Life Project released a study this week that found that users of online services are becoming more active at controlling their privacy.

Crowdtilt launches funding platformCrowdtilt publicly launched its group fundraising platform this week. The site uses social media platforms like Facebook to allow groups of people to raise money for anything from art projects to vacations.

Miloyni releases Credits whitepaper – Miloyni has written a report called “Facebook Credits 2012: A Merchant’s Perspective” examining the benefits and drawbacks of Facebook Credits.

Oscar buzz on FacebookBanyan Branch put together an infographic with buzz for Oscar nominees ahead of the ceremony this weekend.

Facebook obtains money transmitter licenses in 15 states

Facebook holds money transmitter licenses in at least 15 states, according to an analysis by American Banker.

In it’s filing for an initial public offering, Facebook said it applied for certain money transmitter licenses and planned to apply for more in the U.S. It did not state that it had already acquired any licenses, though some of its licenses had been issued as early as August 2011. This means the company is further along in its payments business than most people knew.

States require companies that accept and transmit currency to have money transmitter licenses, though laws vary across the nation. Generally, businesses that handle money orders, currency exchanges and stored value — funds that are kept, retrieved and transferred electronically — are regulated in this way. Companies like Amazon, Google and PayPal, for example, are licensed money transmitters.

According to online listings discovered by American Banker, Facebook has licenses in Arkansas, Delaware, Georgia, Idaho, Iowa, Kansas, Kentucky, Missouri, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Texas and Washington. The company could have additional licenses that are not available online.

Facebook generated $557 million, or 15 percent of its revenue, last year from payments. Users can buy Facebook Credits to spend on virtual goods and digital media within apps. Game developers are required to use Credits for transactions, of which Facebook takes a 30 percent cut. Many expect the social network to push the use of Credits elsewhere on the platform, including third-party sites. As such, the company needs to ensure compliance with money services laws.

The company wrote in its S-1 filing:

Depending on how our Payments product evolves, we may be subject to a variety of laws and regulations in the United States, Europe, and elsewhere, including those governing money transmission, gift cards and other prepaid access instruments, electronic funds transfers, anti-money laundering, counter-terrorist financing, gambling, banking and lending, and import and export restrictions. In some jurisdictions, the application or interpretation of these laws and regulations is not clear.

Whether Facebook has plans to turn Credits into a wider payment system or is simply being cautious is unknown, but the fact that the company already has licenses in at least 15 states means that it has made progress toward this effort.

Facebook runs promo to convert game players into paying customers

Facebook is running a promotion designed to entice game players to purchase Facebook Credits with a buy $1, get $4 free offer.

The promotion is aimed primarily at players that have never made in-game purchases with Credits. By offering 50 Credits for the price of 10, Facebook can lure users into inputting their credit card information and getting accustomed to using the social network’s virtual currency. Once users add billing information to their accounts and experience the in-game advantages that come from spending Credits, they are more likely to buy virtual and digital goods within applications. This helps developers monetize and increases revenue for Facebook.

Users who have not bought Credits before will be notified of the promotion through in-app offers and modules around the site, both of which are pictured here. If an app has implemented TrialPay’s Offerwall or DealSpot products, the $4 free value will be redeemed as the app’s native currency — for example, City Cash in CityVille. If a developer has not implemented in-app currency offers, the user will redeem the offer as Facebook Credits. If a user accesses the offer through a promotional unit elsewhere on the site, the purchase will again be in Credits. The company will pay developers their full revenue share, despite the 80 percent discount for users.

The social network earned $557 million from payments last year — 15 percent of its total revenue in 2011. About 50 percent of Facebook’s 845 million monthly active users play games, and between 2 and 6 percent of those players end up paying for virtual currency, according to sister blog Inside Social Games. Facebook takes a 30 percent cut of transactions using Credits. For now only games are required to use Credits, but the company could impose the system on other apps, as it noted in its filing for an initial public offering. By getting credit cards on file now, Facebook can make it easier for users to make more purchases in the future.

The company offered some users 80 percent discounts on Credits last year and at the start of 2012. In its blog post to developers, Facebook said it will continue to evolve promotions “to better grow our ecosystem.” At our Inside Social Apps conference in San Francisco last week, some top game developers said Credits were converting at a lower rate than they had hoped. Funzio Co-founder Anil Dharni said that after introducing Credits, his company saw an increased the conversion rate but a gradual decrease in average revenue per paying user. If Facebook cannot improve at converting more paying users, it risks losing developer talent to competing platforms like Apple’s iOS and Google’s Android and Google+.

Developers say Facebook Credits converts fewer paying users than hoped

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.

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