Imagine this scenario… You are strolling through your favorite store picking up a few items that catch your eye. When you go to the register to pay, the merchant asks, “would that be Visa or Facebook?” “I’ll go with Facebook,” you say, with a Cheshire-catlike grin. “Great,” beams the merchant. “I’ve automatically checked you in as well. By doing so, you saved 10% on your purchase today. Just tap your Facebook PassCode into the keypad, and you’re all set.” If you think the days of Facebook-as-payment-solution are far off, think again. It just makes too much sense for everyone-you, me, Facebook, and its millions of shareholders looking to make a fat profit on future earnings.
At present, the majority of Wall Street analysts are eyeing Facebook’s future profit forecasts with skepticism because they just can’t see how the social network is going to get enough eyeballs on enough ads to generate the billions of dollars needed to justify its IPO valuation without turning off its primary asset: a highly-engaged user base of almost 1 billion people worldwide.
A much better solution would be to create a comprehensive value-added service that encourages users to engage with the site on a deeper level. A universal wallet would do the trick nicely. Steven Weiss makes this very point in a recent article in The Daily Beast:
“All it takes is realizing that Facebook’s value as a business isn’t in how it can get its users to want whatever advertisers are selling during their time on the site, but how it can get them to use the virtual ID they’ve created to buy things everywhere else.”
“PAY WITH FACEBOOK”
Whether it’s a pre-paid credit card or an actual revolving credit account, it just like Visa or MasterCard, it could be used anywhere online or offline. Facebook may have signaled that it is heading in this direction when it recently announced the phase out of Facebook Credits in favor of normal currency accounts. Last year, 15 million people bought Facebook Credits, according to their S-1 filing, so it’s assumed Facebook has close to 15 million credit cards on file.²
As developers add paid apps to Facebook’s App Center, millions of more users will likely store their credit card information with Facebook to buy apps and other digital goods like movies, music and TV episodes.² With every user that entrusts their payment information on the site, a Facebook universal wallet solution makes even more fiscal sense.
As Peter Vogel, co-founder of online loyalty program Plink, asserts in a recent TechCrunch post, from here it is a very short distance to a “Pay with Facebook” icon showing up every time you make an online purchase on and off the site.
ONLINE POWER BROKER
With the Facebook App Center, the social network is trying to become an online power broker by providing a platform where consumers can buy products and applications they find valuable, and developers can generate revenue selling the products they are creating. You better believe that once paid apps are introduced to the App Center, Facebook will begin building up its social commerce network in earnest.²
In fact, Mashable just published a post revealing that the social network is testing a “Want” button, which would allow users to share product purchases, charitable donations or items purchased within Facebook games to profile pages and Timeline.
By expanding into social commerce, Facebook can begin to shift from social facilitator to online commerce broker. With a virtual wallet payment solution, Facebook could leverage its massive user base to take on Paypal; if it rolled out a Facebook Credit Card, the social giant could go after the likes of Visa, MasterCard and AmEx.
As Steven Weiss points out in the Daily Beast article, Visa, MasterCard, American Express, and Discover have a combined market capitalization of $210 billion, annual revenues of $52 billion and profits of $13 billion. All FacebookCard has to do is take away 10 percent of that market share, and it will double its 2011 profits. Keep in mind that the US online retail market is worth over $300 billion, and more than half of Americans already have smartphones and Facebook accounts.¹
Instead of solely relying on a revenue model that is largely dependent on whether or not it annoys users with ads, Facebook could provide a value add that would encourage deeper engagement with its site.
Laura Martin of Needham, one of the few analysts who’ve placed a “buy” rating on the stock, said that while she’s still quite bullish on advertising prospects at Facebook, she was “most optimistic about payments.”¹
If Facebook can figure out how to re-task itself as a social commerce power broker with a seamless universal virtual wallet solution open to all users, I for one would be happy to place a “you better buy” rating on the stock.
I have a sneaking suspicion that others would too.
¹ The Daily Beast, “Universal Wallet: Facebook’s Very Bright Future”
² TechCrunch, “Why Facebook is Folding on Credits and Doubling Down on Payments”