In its filing to the US Securities and Exchange Commission to raise $5bn in new funding through its long anticipated initial public offering, Facebook revealed that its payments business accounted for 15% of the company's total revenue in 2011, giving the virtual games payment market an estimated $1.9bn annual value within Facebook's platform alone.
In 2011, Facebook made $3.7bn in revenue, of which $557m came from payments and other fees revenue. Interestingly, other fees were stated as an immaterial source of revenue relative to that generated by the payments business. This is a particularly interesting insight given that Facebook Credits, the company's virtual currency, became the mandatory payment option for all games within its platform in July 2011. In addition, fees related to payments are currently generated almost exclusively from games.
The virtual or in-game payment sector is expected to experience high growth in the coming years, especially with the increasing level of access among consumers to these games through devices such as mobile phones and tablets. In the meantime, Zynga, a social gaming company, became the single biggest source of revenue for Facebook, accounting for 12% of total revenue in 2011.
According to Datamonitor's Financial Services Consumer Insight Survey 2011, one in four consumers surveyed globally have purchased virtual currency to use on websites or in games, providing significant room for growth in years to come. While Facebook remains inaccessible in China due to legal and regulatory complexities, the country represents the biggest virtual currency market, as 58% of consumers with Internet access have used this form of payment.
From a revenue perspective, Facebook has shown potential investors that it has an attractive business case for its payment segment. A total of $577m revenue in payments is generated through the 30% cut-off it charges for all payments on its platform, and this is expected to become the basis for future revenue from its payment business. With the sale of virtual goods expected to double from 2010 to 2014, payments will become an increasingly important growth sector for Facebook. Compliance to different payment regulations in different parts of the world will become the key challenge for business growth in the future, while competition from other virtual currencies will add an extra barrier to Facebook's growth in the virtual payment space.