The difference between Twitter and Facebook – and the reason why Facebook will likely be scalable and why Twitter likely won’t – comes down to the medium.
Twitter is ultimately a broadcast medium. Whether 1-1, 1-many, or many-many it invariably stops at just that – the exchange of data. Facebook on the other hand, is an ecosystem. Apart from communication it also creates interaction via “apps”.
The idea of paying real money for symbolic (virtual) value is nothing new – and the latest to pick up on it is Zynga.
On Facebook, people have been, for three years now, encouraged to pay $1 to do a variety of things, from “sending someone beer” (a beer icon, on their facebook page) to feeding your virtual dog (foopets) to buying some designer crop on Farmville.
Zynga is the firm behind Farmville and other games such as Fishville and Cafe World, and is positioned to make a lot of money on Facebook.
I stumbled across this short note discussing their business proposition and model (see below)
In the meanwhile, you can also read this Adweek article, titled “The tweet hereafter”.
I had a real shocker when Farmville published that they managed to raise more than half a million dollars for charity. How did they manage that?
So I did a little research and found amazing things about their business model:
1) Low cost
Creating an application in Facebook is relatively low cost compared to high capital investment industries like infrastructure and manufacturing. You’d just have to outsource the programming to an IT company or even individuals to do so. Moreover, the games are played on a repetitive basis so lesser development goes into building a complex game engine or storyline or graphics (unlike WOW).
2) High Margins
Games like Farmville sell items using a virtual currency. Items are sold on a per item basis. Having an intermediate currency disassociates the buyer from the real price of the virtual good/item bought but at the same time, creating the same level of joy of obtaining as a real item. Essentially, Zynga sells “happiness”.
3) Sticky games
Games developed by Zynga keeps you coming back for more and entrenches you deeper and deeper as you progress. No one wants to lose an empire after spending so much time invested in it. A
4) Customers are the sales force
This has become so much apparent that the feeds on profiles have become spammy in a sense. However, it is tolerable as it works on a permission basis and friends do not mind something if it is posted by yourself. In fact, with the trust set already, the friends looking at the profiles would tend to want to get involved as well. There isn’t a need to even place an advert on Facebook to get more customers. Users do it for Zynga by putting such ads on the highly demanded real estate on their profile page. Another indicator of a strong sales force is the number of reviews outside Facebook itself.
5) Repeat Customers
A facebook user does not only play one Zynga game but several of them at the same time. Essentially, Zynga upsells when they can as well as seen by the ads in the games.
6) Huge base of Customers
Not everyone will purchase something. Just like me. However, you can see that Farmville alone has about 60 million active users. There are more than 10 games and still more coming up I believe. To make a rough estimation. If 1 in every 600 people makes a regular purchase of $1 daily (really a pinch of salt for many of us), it is already a daily revenue of $100,000 for Farmville.