Gamification is at the core of much of what is going into business systems today. It is a concept of taking structures from successful game concepts like World of Warcraft and Farmville and applying them to tasks that people would rather not do. It is forming the basis of systems that require behavioral change to work. At the core of Gamification are reward structures based on games and at the core of rewards may be some form of currency like Facebook Credits that can be used to acquire something the user wants.
Like frequent traveler miles, this currency may be used to buy trips or physical objects. However, it is increasingly used to buy game content and that provides an increasing revenue stream to game makers.
Games themselves are increasingly being tied to a Freemium model, where the initial game is free but additional in-game content, in-game currency, and faster advancement can be purchased. If these systems can be linked, business incentives and miles tied to Facebook Credit-like services, and these Credits tied to in-game currency create the opportunity for increased revenue and should expand significantly. That appears to be what Facebook is putting together and it bears watching.
The opportunity surrounding Facebook Credits is significant. Credits represent currently not taxable income that is earned by performing activities or purchased with cash. There are limited places to spend, at least initially, these credits, which should push buyers to retailers and service providers who will take this currency. This should increasingly focus gamers who participate in programs like Facebook Credits on things that will consume them enhancing the revenue opportunities and profits for games that participate and shifting buying behavior away from games that do not.
Unlike hard goods, in game content has a very negligible fixed cost, which means the user can receive a stronger perceived value at a lower actual cost. This gives the strategic gaming service provider a significant potential cost advantage over physical product alternatives from the standpoint of exchange rate. In short, the gaming companies, if they do this well, could provide a more favorable credit-for-cash exchange rate, which may push the external services that generate these credits to push their customers to game based solutions.
In addition, if in game credits can be exchanged back for Facebook Credits, you will attract players who will play the game to earn these credits. However, like in any other economy you will have to assure the balance of trade remains positive and this represents the danger of this system. People play games for hours and making sure there are compelling reasons to spend the in-game credits in-game so that there is more income than going out would be critical to a bidirectional currency exchange system. Of course, a full bidirectional system reduces the perceived risk to the gamer of getting tired of the game and being left with a mess of earned, but unspent credits. This suggests that, everything else being equal, gamers will likely favor games that have full exchange over those that don’t and you can imagine that Facebook’s own anticipated games will likely increasingly demonstrate this advantage.
As with any new artificial currency, the likelihood that it will fully replace accepted government backed currencies is low. However, Facebook has enough breadth to create a currency that should be significant and companies that can find ways to use this currency effectively will, over time, be favored by Facebook users over those that don’t. While this latest wave is still in its infancy, efforts like Facebook Credits could well define tomorrow’s gaming profits.
About the author: Rob Enderle is Principal Analyst of the Enderle Group, 389 Photinia Lane, San Jose, CA 95127 (Phone: 408-272-8560; E-mail: firstname.lastname@example.org) Rob is an avid MMO gamer and has been covering or playing them since the mid-80s. During his down time he is also the Principal Analyst of the Enderle Group which covers emerging technology and related trends. He spends much of his time providing clients with roadmaps to the future, doing SWAT (Strengths, Weaknesses, Opportunities, Threats) analysis on strategies, and evaluating hardware and software. In short, he gets paid to have a great deal of fun. Rob writes for a variety of publications and appears regularly on FOX Business News, CNBC, NPR, and Bloomberg. He also has a semi-weekly spot on WSJ radio. Prior to forming the Enderle Group he was the Senior Research Fellow at Forrester, VP at Giga Information Group, and Senior Analyst at Dataquest. Prior to becoming an analyst he worked at IBM, Siemens, and ROLM. He holds an AA, BS, and MBA with emphasis on Merchandising, Marketing, Manpower Management, Computer Science, and Business.