A STEEP-analysis of virtual currencies, and a competitor analysis of Facebook Credits.

1. Group 8b Course 2304 Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix Virtual Worlds and GamingIndustries STEEP analysis of Virtual Currencies in US/Europe and Competitive Analysis of Facebook Credits Instructor: Group 8b: Robin Teigland Charles Florman Johanna Sjöblom Course 2404 Karin Rimbäck Media Management Carl Waldenor

2. Group 8b Course 2304 Executive Summary Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix This is a report investigating the industry of online platforms in the US and Europe that have adopted their own virtual currency. In order to analyze the industry on a broad level an analysis has been made of the Social, Technological, Economical, Environmental and Political (STEEP) trends affecting the industry. On a deeper level, a competitive analysis of the new currency from Facebook was conducted. From the STEEP-analysis we found some trends that in the future will come to affect the online platforms providing virtual currencies, such as growing importance of smart phones and mobile devices, new and better technology together with low COC which enables growth and expansion on the market. However, this growth will also imply larger digital footprint and more legislative and political pressure on the virtual economies. From the competitive analysis, we found that the virtual currency of Second Life (Linden dollars) does not imply a very large threat to the Facebook Credits as of today. What actors that should be kept under close observation are rather Apple and MySpace.

3. Group 8b Course 2304 Agenda Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix 1. Background information of Virtual Currencies 2. STEEP – Future outlook of virtual currencies i. Social ii. Technological iii. Economical iv. Environmental v. Political vi. STEEP Conclusion 3. Facebook Credits – A new economy? 4. Competitive analysis of Facebook Credits 5. Conclusion of Facebook Credits 6. Bibliography 7. Appendix

4. Group 8b Course 2304 Background on Virtual Currencies Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix A virtual currency custom made for a virtual world Virtual money can have real value Needs sources and sinks Can be compared to a contemporary economy Can be used to buy, trade and repair

5. Group 8b Course 2304 Future social trends for virtual currencies Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix In the US it is estimated that 17 % more people will play at least one game on social networks (from 2010 to 2011) The social games industry has a very large and diversified demographic who distribute their time among major titles and many smaller games. Games on mobile devices will continue with a massive growth The newest games will create unique social experiences by tapping into users' real-life interests and hobbies. A diverse range of peopletend to be interested in online gaming, and preferably games associated with real life experiences that could be played on mobile phones.

6. Group 8b Course 2304 Future technologicaltrends for virtual currencies Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix Software development is moving forward New graphicengines like Virtway World Adobe AIR Hardware development is moving forward (Moores law) Telephones Tablets Always connected V.v. Facebook has gone mobile with 200 operators in 60 countries New and better technology together with innovative software and mobile internet will create huge opportunities for exciting and new economies in virtual worlds

8. Group 8b Course 2304 Future environmentaltrends for virtual currencies Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix ”Data centers are among the most energy-intensive facilities imaginable” Facebook, Apple, Google etc are under hard pressure from Greenpeace to use renewable energy sources Example: Facebook’s new plant in Oregon is 300’ sq ft big and could supply about 30’ households with electricity …or is virtual purchases actually good for the environment? As cloudcomputingincrease, so will the environmental pressure on the actorsproviding it as well.

9. Group 8b Course 2304 Future political trends for virtual currencies Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix 3 pressingissues in 2011 and the nearfuture; Larger focus on Cyber thefts and online fraud (e.g. in 2011, 400 million poker chips stolen in Zynga, $30 M Carbon Credits in ETS)  Increasedpressure from regulatory framework in EU and US Expectations of only the U.S market for virtual goods to reach$2.1 Bn in 2011  Taxation debate intensifies in U.S Congress and IRS Localsales tax issues (e.g. in 2011: Resolution interactive, Stardoll) Environmental organisations (e.g. Greenpeace) putpressure in politics The moresimilar to a real economy the more legislative and political pressure What will be the consequences? Legislative and political pressure on virtual economies intensifies We will increasinglysee lawsuits, fines, regulatory order, civil and criminal penalties on the European and American market in the nextyears.

10. Group 8b Course 2304 STEEP Conclusions Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix

12. You purchase them with credit card, PayPal, mobile phone or in physical stores (such as Walmart)

13. The intention is to make it easy for people to purchase games and virtual goods within them

14. However, on every purchase Facebook takes 30 % of the game developers’ revenue

15. Some argue that Facebook Credits will develop into F-commerce while other think it will stay to only games

16. In a study with almost 3000 respondents; Will you be buying and spending Facebook Credits?

17. 17 % Yes, absolutely

18. 58 % No, absolutely not

21. 5th largest social network globallyApple - Mobile platforms- Casual gaming and utilities- Organized payment system; “virtual wallet”

22. Group 8b Course 2304 ConclusionsofFacebook Credits Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix + + = July, 1, 2011, the deadline The prediction of a stable economic environment + advantageous launch of the credits + initial survival of the connected game developers. 600+ mn members  Facebook highly affected of the increase in environmental and political pressure on the industry in general. Competition from Second Life decreases (decline in GDP, small member base) In the future, Facebook is recommended to watch out for Apple and MySpace. Outlook  What if? Predictions of 1 Billion members in Oct, 2011 + Facebook Credits = A New Economy?

23. Group 8b Course 2304 Bibliography Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix Slide 4 http://www.scientificamerican.com/article.cfm?id=virtual-world-economists-on-real-economies (March 2010) http://www.slaw.ca/2010/11/16/virtual-money/ (Nov 2010) Slide 5 http://www.mnilive.com/2011/01/us-social-gaming-market-to-surpass-1-billion-in-2011/ (Jan 2011) http://www.ayeahgames.com/blog/bid/54963/Outlook-for-the-2011-Game-Industry-Good (Jan 2011) http://marketinghub.bayt.com/news/social-gaming-trends-2011 (Jan 2011) http://mashable.com/2010/12/26/gaming-industry-predictions-2010/ (Dec 2010) Slide 6 http://onaired.com/2010/11/virtway-world-3d-virtual-worlds-to-jump-from-pc-to-mobile/ (Nov 2010) http://www.thestarphoenix.com/business/Here+keys+find+right+social+dashboard/4190185/story.html (Feb 2011) http://arstechnica.com/hardware/news/2008/09/moore.ars (Sep 2008) http://www.facebook.com/press/info.php?statistics (2010) Slide 7 http://www.pdfchaser.com/World-Economic-Situation-and-Prospects-2011.html(Dec 2010) http://www.thisismoney.co.uk/news/article.html?in_article_id=521258&in_page_id=2 (Jan 2011) http://www.engagedigital.com/2011/02/02/kzero-39b-global-revenue-from-virtual-worlds-in-2011/ (Feb 2011) http://www.huffingtonpost.com/2011/02/03/news-corp-myspace-sale_n_817977.html (Feb 2011) Slide 8 http://technology.timesonline.co.uk/tol/news/tech_and_web/article5489134.ece (Jan 2009) http://www.datacenterknowledge.com/archives/2010/11/11/facebook-plans-north-carolina-data-center/ (Nov 2010) http://www.greenm3.com/2010/03/greenpeace-targets-cloud-data-centers-environmental-impact-and-use-of-coal-power.html (Mar 2010) http://www.techrepublic.com/blog/datacenter/big-data-centers-big-environmental-footprints/112 (April 2007) http://climateprogress.org/2010/06/21/internet-energy-use-myth/ (June 2010) Slide 9 http://bits.blogs.nytimes.com/2010/09/28/virtual-goods-expected-to-grow-by-40-percent-next-year-studysays http://www.gamestudies.org/0302/castronova/ http://www.networkworld.com/newsletters/2010/051710sec1.html (May 2010) http://www.enisa.europa.eu/media/press-releases/new-guide-on-cyber-security-incident-management-to-support-the-fight-against-cyber-attacks (February 2011) http://themonetaryfuture.blogspot.com/2010/03/currency-design-for-social-networks.html (March 2010) http://www.silobreaker.se/momsregler-kan-tvinga-framgngssaga-att-lmna-sverige-5_2264328670300602415 (February 2011) http://www.jvwresearch.org/page/volume_2_number_4_virtual_economies_virtual_goods_and_service_delivery_in_virtual_worlds (February 2010) www.virtualworldlaw.com/Virtual%20Currency.pdf (2010) Slide 11 www.facebook.com (Feb 2011) http://mashable.com/2009/04/04/facebook-credits/ (April 2009) Slide 12 http://www.readwriteweb.com/archives/second_life_economy_at_record_high.php (Apr 2010) http://www.engagedigital.com/2010/09/10/second-life-q2-economy-nearly-unchanged/ (Sep 2010) http://blogs.computerworld.com/16303/second_life_layoffs (Jun 2010) http://web.nmc.org/files/2010-slpro/tom-hale-keynote.pdf (Feb 2010) http://www.youtube.com/watch?v=bE1PMdcmfBQ (Apr 2009) Slide 14 http://bitshare.tumblr.com/post/2061881391/facebook-will-reach-1-billion-members-in-2011 (December 2010)

24. Group 8b Course 2304 Appendix Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix STEEP - Environmental trend – Renewableelectricity (p. 17-18) STEEP - Political trend – Cyber theftexamples (p.19-20) Facebook Credits – Usage, pictures, examples and quotes (p. 21-27) Interview with Christian Björkman - Chief Marketing Officer, Mindark (p. 28-30)

25. Group 8b Course 2304 Environment - RenewableElectricity Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix

26. Group 8b Course 2304 Environment – RenewableElectricity Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix ” Unless cloud data centres are strategically placed to utilise or be co-developed with renewable sources of electricity, the data centre operators are stuck with the same problem everybody has, and having to accept the mix of clean and dirty energy sources that the electric utilities rely upon”

27. Group 8b Course 2304 Political – Cyber theft 1 Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix

28. Group 8b Course 2304 Political – Cyber theft 2 2011/01/21 Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix

29. Group 8b Course 2304 Facebook usage Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix Facebook users from the U.S. spend 33 % of their online time on Facebook Asians are the most heavy Facebook users devoting 40 % of their online time there (see graph)

30. Group 8b Course 2304 Facebook Credits Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix

31. Facebook Credits Group 8b Course 2304 Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix

32. Facebook Credits Group 8b Course 2304 Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix

33. Facebook Credits Group 8b Course 2304 Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix Facebook Open Source collect customer data even offline the Facebook site By tailoring customer offerings and facilitating the purchase process, Facebook will help businesses increase both transactions andrevenues ” With virtual gifts and games expected to top $6 billion by 2013, the move to secure online is a smart bet on Facebook’s part, especially because not everyone uses PayPal or credit cards online. With the real-world purchased cards (e.g. in Walmart), those people will now have access to virtual Facebook products.”

34. ”F-commerce” Group 8b Course 2304 Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix “From simple, social interactions to true social commerce”1 XXXX http://www.socialmediaexaminer.com/facebook-credits/

35. Quotes about Facebook Credits from 2011 Group 8b Course 2304 Intro Agenda Background STEEP FB Credits Competition Conclusions Bibliography Appendix ”If youcan store somemoney in a Facebookaccount and pay for anything just by clicking a buttontoconnectyourFacebookprofile, this will facilitate a huge amountoftransactions.” Mitch Joel, President of Twist Image, February 4 (4) ”Facebook's payment system could soon compete with credit cards” Danielle Robson, CreditNet, February 2 (3) ”As Facebookgrows and starts to host all sorts of commerce, perhapsit's time to stop thinking of the social network as a company. Maybeit's best to think of it as a country.” Fortune, January, 28 (5) “Think about the fact that Facebook has a population of 500 million people. If even 10 per cent of those start trading Facebook Credits then it would potentially be a more powerful currency than say the Aussie, Hong Kong or Singapore dollars” Brett King, author of "Bank 2.0”, February (2) ”As Facebook achieves world dominancy, it will be evaluated as a critical political hub” Apurba Sen, co-author at Trendspotting, 2011 (1)