The recent explosive growth in P2P games and services within the Facebook (FB) ecosystem has spurred FB to launch its own virtual currency program (VCP). FB is hoping that their VCP will help them access the growing hundred million Dollar virtual micropayment market within their very own ecosystem. This opportunity is met by a huge demand from developers and companies who are looking for new means to monetize their virtual goods and services. Given its need, the obvious question is whether or not such a virtual currency will gain mass user adoption and become successful.
VCP’s have been around for quite some time. Some examples include airline frequent flyer miles, credit card points, baseball cards and Linden Dollars (from Second Life). Customers often partake in VCP’s to participate in sales incentives and promotions while companies often time employ VCP’s to build brand loyalty and promote prepayment. VCP’s have a new purpose for web 2.0 virtual gaming and service space. Given the small notional value and frequency of virtual transactions, companies have had a hard time encouraging customers to continuously pay for services and products. Current payment options, such as traditional credit cards, Paypal, and reverse SMS billing services, are expensive (50% transactions costs in the case of reverse SMS), cumbersome, and do little to increase overall transaction conversion. However, VCP’s do allow customers to pay for future products and services in one lump sum and not deal with the burden of constant payments. In the past, adoption has been less then impressive due to the key benefits VCP’s do not provide, but traditional hard currencies do.
Traditional hard currencies represent the fundamental unit of value for a monetary system, and allow consumers to transact for goods and services. In the past, currency prices were directly linked to commodities, such as gold and silver, in order to establish an exact value. However, this was an inefficient due to the volatility of commodity prices and changes in supply and demand. Today, currencies are generally linked to underlying and value and stability of a sovereign nation and/or economy, and influenced by their interest rates and money supply of their monetary system. In addition, a currency’s value and overall adoption are linked to its accessibility and liquidity. For instance, the U.S. Dollar is considered hard currency because of the strength of the U.S. economy (until recently). International and domestic consumers use USD because many companies do business in and/or with the United States and the USD is easily convertible to other types of currencies through publicly trade markets. This flexibility is what underpins the fundamental value and stability of the U.S. Dollar.
These characteristics of traditional hard currencies do not exist for virtual currencies. For instance, once a user has purchased Linden dollars from Second Life, she must spend that virtual currency within the Second Life ecosystem. She cannot convert to other virtual currencies, nor can she redeem them back into hard currency. In addition, Linden dollars can only be purchased through Second Life and not through any other vendor or market. Through an economic standpoint, she also wears an opportunity cost if she does not immediately spend her virtual currency because Linden dollars do not pay interest given extended time duration. Furthermore, ascertaining the fundamental value of a Linden dollar is difficult given the utility of the currency is linked to virtual goods and services as opposed to a readily accessible commodity or hard asset.
At Embee Mobile, we have given a lot of thought to the concerns of VCP’s. In creating our own virtual currency, Embee Mobile Minutes, we are trying to solve a lot of these problems by linking its underlying value to prepaid mobile minutes (PPM’s). PPM’s are generally perceived to be terminal assets. However, basing our VCP off of PMM’s allows us to not only extend their life to perpetuity and thereby benefiting our users, but it also allows us to build our VCP off of a stable asset/commodity. In the future, we look to do more with our Embee Mobile Minutes by adding additional features and creating partnerships with other VCP’s and companies, to bring more value to our virtual currency and to our users. Stay tuned!
- Sherwood Yuen
Tags: embee mobile, Facebook, Linden Dollars, micropayment, Paypal, Second Life, virtual currency
