So, Facebook announced they’re making the use of Facebook Credits mandatory.

Starting July 1st, we will require all social game developers on the Facebook canvas platform to process payments through Facebook Credits. All developers keep 70% of the revenue from virtual goods transactions using Facebook Credits. Although we are not requiring developers to use Facebook Credits as their sole in-game currency, we are offering special incentives to those who do (see below for details).

What Facebook is saying explicitly is:

1. Starting July 1st, Facebook Credits must be supported by games, which use the Canvas Page (ie, are embedded inside Facebook)
2. Facebook Credits does not have to be the only virtual currency used in the game
3. There will be special promotions to developers who do use Credits as their sole currency

The statement has been worded quite carefully not to include a word about using third party payments at the same time as using the Credits. Also note the wording of always only discussing the 70% share the developer gets from the credits, and never the 30% commission that Facebook takes as part of the processing.

Facebook has however published a document about the incentives they’re putting into place to get developers fully on board. This document lists the criteria for Facebook considering the Credits integration good enough to earn their full support:

1. Facebook Credits are the game’s premium currency
2. All virtual goods available for purchase with premium currency are priced in Facebook Credits. However, goods can be available through earned currency
3. Items are not priced in local currency or another in-game premium currency

Based on this criteria, I’d assume the use of third party payment processors will be allowed for the time being, but having them present will mean your app will not get any special promotion from Facebook. More on this below.

Now, the speculation regarding Facebook Credits in GDC 2010 was that Facebook’s strategy regarding Credits is roughly as follows:

1. Work a deal with all the big players to drive the adoption
2. Once sufficient mass is already using the credits, make Credits integration mandatory
3. Squeeze the rules of how payment integrations are supposed to work, until Credits are the dominant payment mechanism inside Facebook
4. Disallow the use of third party payment mechanisms for canvas apps altogether

They’ve now made two first steps towards this direction, and the announced incentives are a step into the third.

The counter-argument against Facebook disallowing third party payments has been that US government’s antitrust bodies will not let this happen. While I agree the government would be interested if Facebook did this, I can’t see regulartory bodies interfering given:

1. The rules only govern games, not all apps,
2. Facebook doesn’t have a dominant market position on gaming overall, and
3. The payment mechanisms behind Credits are implemented by third parties, some of which are the ones currently integrated directly by game developers.

So what’s a developer to do? Let’s look at the currently published incentives:

• Partners who use Facebook Credits as their in-game currency can also receive the following:
• Drive new installs and re-engagement through increased access to our distribution channels
• Minimum of 30M impressions on the games dashboard over a month
• Access to new placements and premium ad targeting • Access to exclusive features such as the user’s credits balance
• Beta testing new products throughout the year – early adopters have seen significant
• success in the marketplace
• Get advice and support from Facebook’s games and credits teams

Reading above, I think Facebook is saying that “if you give us a 30% cut of your revenue, we think we can give you back of some of the virality we took away from you earlier”. This might be worth it for some players, and not for some. I’d expect them to announce even more benefits in the future, where the goal of Facebook will be to embrace the games that do use Credits to the point where it’s difficult to operate in the ecosystem without going on board the Credits.

Effectively you have to choose between giving at least 30% of your revenue to Facebook (probably more like 40-50% if you also acquire users through ads) or remaining independent and operating a significantly smaller product than your competition.

The big unknown Facebook hasn’t said anything about is their strategy for allowing Credits to be used on sites that use Facebook Connect. Facebook announcing support for Connect has to be a matter of time, since the total monetization potential of sites is much greater outside of Facebook, than inside their own site. What they probably haven’t figured is, how to squeeze exclusivity deals from developers using Credits on Connect, so how that’ll be done is left to be seen.

Games that operate both as standalone games as well canvas apps are another huge question. This includes Farmville and Habbo. Offering different payment options on the canvas and the destination site might be both unacceptable from Facebook perspective, as well as too much hassle to justify the effort, but if the canvas apps are eventually enforced to go all the way with Credits, a hybrid model of some sorts will have to emerge.

Anyway, I’m eagerly waiting to discuss this with the fellow developers in GDC this year. It’ll be especially interesting to hear Dan’s comment on this, given his GDC talk tagline – How to Survive the Inevitable Enslavement of Developers by Facebook.

Update: Facebook has confirmed they will indeed require that games use Credits exclusively, and not integrate any competing payment mechanism, such as Paypal.