Social Security Payments

Madison Kay spent $1,400 on bushels of Smurfberries. Aside from illustrating the need for Stephanie Kay to keep one-click ordering away from her eight year old daughter, it also illustrates the bushels of money to be made from virtual worlds: with $99 for a barrow load of smurfberries in a game ostensibly for children, what money could be made for more adult products?

There have been many red faces on social networks with the appearance of FireSheep – a simple add in to the FireFox browser that allows anyone to hijack social networking sessions of other users on an open wireless network. The security hole was basic. While the login to Facebook is performed over a secure https connection the subsequent exchanges are then open. These can be eavesdropped and even hijacked: the security credentials are stored in cookies on the client and passed to the eavesdropper.

So was Facebook’s hasty move to implement secure connections, which had previously been too expensive to implement, out of concern for the privacy of their users data?  There is a bigger and more direct motive for Facebook.

Many addicts of Facebook apps, such as Farmville and Bejewelled Blitz will have been tempted to get extra credits for a small credit card payment. Up until now each of these virtual worlds have had their own virtual currency. However Facebook are now making the Apps providers use Facebook credits. The spin is that it’s simpler for the single market and travellers in these virtual worlds. But most lucrative for Facebook who take a 30% commission on the exchange between real currency and Facebook credits.

And Apple makes a similar 30% on payments through its Apps store – and is similarly forcing apps providers to make payments for usage of apps through the Apps store. Which makes easy money for virtual products like Smurf’s Village – even with hasty patching forcing users to input a password for purchases. But is tough on real service providers like Spotify. Even Rupert Murdoch – whose iPad only Daily launched last month in the US – pays 30%.

These may be small amounts individually but enormous in total. The market capitalisation of Zynga, owner of FarmVille is over $5.5Billion – comparable to the merged British Airways and Iberia (IAG) $6,7Billion- so a 30% cut of their revenues is….a lot.