Since opening up its Messenger app to developers earlier this year, Facebook has mostly seen apps based around sending pictures and making people's voices sound funny. Considering pictures and voice are some of the most popular forms of communication on Facebook Messenger, that's not really a surprise. But Facebook isn't satisfied with a few GIF apps.
Continue Reading Below
The Information reports Facebook is in talks with mobile games developers to bring games to the Messenger Platform. Successfully integrating games with the Messenger Platform could enable Facebook to revive its declining payments business and effectively monetize the 600 million-plus users with Facebook Messenger on their phones. Let's look at how.
The old Facebook payments business
Back when people primarily accessed Facebook through desktop computers, the company partnered with developers looking for an audience for their online games (which people accessed primarily through desktop computers). Facebook would help developers monetize their games, like FarmVille, by processing payments from users making in-app purchases.
Facebook grew its payments business to nearly $1 billion in revenue last year. In the company's most recent annual report, however, it noted its expectations that "Payments revenue will decline in the future as usage of Facebook on personal computers continues to decline." Indeed, in the first quarter of 2015, Facebook's Payments revenue declined 5% year over year.
As smartphones become more common, online games will become a smaller source for entertainment. With Apple and Google monopolizing the mobile games payments business, Facebook may eventually see its billion-dollar business evaporate.
The new Facebook payments business
Earlier this year Facebook introduced payments in Messenger, enabling friends to send money directly to each other's bank accounts. Facebook is slowly rolling out the feature and doesn't plan to make any money off of peer-to-peer payments, but Facebook could use the feature as a precursor for commerce on Messenger or payments to developers for their games.
Continue Reading Below
With 600 million users on Messenger, the platform is huge and the number of developers on it is still very small. That represents a massive opportunity for game developers to reach a broad audience with very little competition. If they can take advantage of the integration with Messenger by using its social features, developers could find some easy money just as early app developers on Apple and Google's ecosystems did.
By introducing payments on Messenger as a free utility to send payments to friends, Facebook ought to be able to amass a large collection of debit card numbers. When it finally introduces payments services for other purposes, it will be a seamless experience for its users since they won't have to add another credit card.
There are some risks still
Facebook may run into issues processing payments on mobile, however, due to the in-app purchase policies of Apple and Google. There are clever ways to maneuver around the in-app purchase rules, but rest assured Apple and Google wouldn't like it if Facebook tried to implement a workaround. Considering three-quarters of Facebook's ad revenue comes from mobile, it' would be hard for Facebook to fight back if Google or Apple put the kibosh on processing payments for developers on its Messenger Platform.
Facebook could face threats from Apple and Google directly, or the two mobile giants could make it a lot harder for Facebook to attract developers in the first place by putting pressure on developers. If developers see more downside risk than upside opportunity in developing for Messenger, Facebook won't have any payments to process in the first place.
Facebook has a lot of groundwork to lay before it will be able to monetize Messenger. Attracting game developers first is a clever strategy to make Messenger more engaging and to help differentiate it from other messaging apps. While Facebook relies on the Apple and Google app stores now, it may change as it collects more and more debit card numbers and adds more and more apps on its platform. The ability to process payments for app developers would supercharge its declining payments business, but it needs to tread lightly.
The article Facebook Inc. Could Revive Its Payments Business With Games for Messenger originally appeared on Fool.com.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.