This afternoon I was having a discussion with a leading app developer about the future of virtual goods on the Facebook Platform. One thing that came up during the discussion was the idea of a centralized virtual goods system on Facebook. It’s something that I first described when Facebook announced that they were killing the gift shop next month, however it has increasingly become a center of focus for me personally. With all these applications selling virtual goods, why isn’t their an easier way to show off the goods that we’ve purchased?



With Facebook ramping up their Credits product, it’s not completely ridiculous that the company would kill off their gifts product, however the core idea was pretty smart: let people purchase virtual goods as well as receive those virtual goods as gifts from friends and show them off in their profile. The tie between virtual goods and identity is a critical component of any burgeoning virtual goods ecosystem. Somehow, Facebook has a massive virtual goods ecosystem without this key association (the one between virtual goods and identity), however I don’t believe this is sustainable.

The main flaw with the existing system is that when a user stops playing a game (like FarmVille for example), the virtual goods from that game do not transfer anywhere. In other words, all the money that was spent (which will soon be Facebook Credits) ends up being money that was spent on content that was not retained and had no lasting value. Tied in as part of the Facebook profile, those virtual goods can be saved forever. Most obvious is that virtual goods serve as digital artifacts that form a core component of an individual’s online identity.

Given that Facebook profiles serve as the primary representation of an individual’s digital identity, it’s only logical that virtual goods would become integrated and allow the application experience to live on, once the application is gone. This would not only increase the volume of transactions to take place with Facebook Credits, but it would also benefit the entire ecosystem. According to people I’ve spoken to, this concept is something that Sean Parker has personally pressed for, as well as other execs, however Mark Zuckerberg is not as big of a fan of the concept.

However the internal political debate is playing out isn’t really that relevant though. The main point is this: Facebook must provide some sort of central archive for individual virtual goods within the profile to help further the virtual goods ecosystem and accelerate usage of Facebook Credits, something the company is currently focused heavily on.

The changes that went along with the official beta release of Facebook Questions today make it slightly more difficult for users to write a regular status update. For users who have beta access to Facebook Questions, the old status update box is gone and it now takes two clicks to write a status update.



The new publisher tool gives users four tabs across the top - Update status, Ask question, Add photos and Post link. To write a status update, you now need to first click ‘Update status’, then write your status and submit.

The status will then appear in your timeline and friends’ news feeds but it will no longer appear next to your name on your profile page.

Similarly, it now takes two clicks to write on someone’s wall.

The status update has long been a core part of the Facebook experience, forming the backbone of the news feed on users’ home pages. It remains to be seen whether the additional step will discourage users from updating their statuses or not.

A Delaware court has knocked down a claim against Facebook for patent violation made by little-known software company Leader Technologies.



The lawsuit filed in 2008 by the Ohio-based firm alleged that Facebook had infringed one of its patents relating "to a method and system for the management and storage of electronic information." The 2006 patent document says the "invention relates to new structures and methods for creating relationships between users, applications, files, and folders."

After a six-day hearing, the jury ruled in Facebook’s favor today. Ted Ullyot, Facebook’s general counsel, welcomed the decision and called on legislators to reform patent law to reduce baseless claims. "From the day this lawsuit was filed, we said the patent was invalid and the case was without merit and we are gratified the jury agreed," he said in a statement sent to AllFacebook. "Facebook is a strong advocate of legal reforms that would limit baseless patent claims such as this one, and in the meantime we will continue to defend vigorously any patent lawsuit filed against us."

You can read the patent document below for yourself to judge its merit, but as a general comment it seems so-called patent squatting is a growing problem for digital businesses. It’s easy for companies or individuals to take out an overly broad patent and then claim infringement. While the courts would generally throw out baseless claims, it takes time and money to defend the claims and many cases are settled out of court. This is not the first intellectual property claim that Facebook has been forced to defend.

Those with access to Facebook’s Questions feature are seeing a new design of the home page publisher used to share status updates and other sorts of content. Users must now decide whether they want to publish a simple status update, a question, upload a photo, or post a link and website preview. While displaying the different things you can do with the publisher, the design change hides the status update prompt “What’s on your mind?” and the rest of the publisher behind an additional click, which could reduce sharing.

Previously, users were always greeted to the home page with the status update prompt, which folded out to reveal options to post photos, video, events or links. However, a user could simply input a Facebook event URL or a link to a website, and the publisher would adapt to the post. Video and event options have now been removed. If one tries to post an event URL into the status box, it only shows the URL, while posting it into the link publisher returns an error stating “Application sent an invalid response”.

When a user chooses to upload a photo, a status update-esque input field appears prompting them to “Say something about this photo…”. You could add text to be published with the photos using the old publisher, but no prompt explained the relationship between the text and photo.

Using the publisher to post a question instead of the Questions application itself will increase the likelihood that it will be seen by friends, according to a Questions answer by Facebook’s Zach Ritter. In an effort to educate users about the privacy implications of using the Questions applications, the Question input field with the prompt “What do you want to know?” is accompanied by a warning “Your questions will be visible to everyone”.

Splitting up the publisher may help remind users of the different types of content they can share. Facebook wants to strengthen their position as a portal to third-party sites, and placing a “Post Link” button on the home page may increase traffic driven. However, requiring an extra click to use the publisher could decrease sharing and increase spectating, stagnating the news feed.

If you had told developers during the time of the earliest generation of social games on the Facebook Platform – games like Vampires and Zombies, circa mid 2007 – that The Walt Disney Company would be acquiring an app developer for somewhere between $550 – $750 million three years later, most would have been very skeptical, if not incredulous.

But Disney’s acquisition of large social game developer and publisher Playdom yesterday marks another symbolic moment in the evolution of social gaming on Facebook (and MySpace, where Playdom invested early and has had success). Following EA’s acquisition of Playfish last November, Disney is the first media giant to pull the social gaming acquisition trigger in a big way.

It wasn’t that long ago that social games and apps were thought of as just another vast repository of low quality advertising inventory – if not worse. But Disney’s acquisition of Playdom, even more so than EA’s acquisition of Playfish (given Disney’s breadth of brands and media interests, and how careful they are with protecting their IP portfolio from potentially scarring issues), will now validate the virtual goods model to many media executives and investors who were hesitant to believe that something as trivial as inviting your friend to mop your restaurant might be a promising way to build a business on the internet.

As social gaming has become increasingly mass-market throughout the west and – this year – increasingly popular in the east as well, media companies like Disney are betting on the idea that new brands and IP can only take you so far; existing IP will become increasingly important in separating from the pack of developers vying for consumer attention, especially as customer acquisition costs increase.

We continue to hear of many social game developers and media companies interested in talking more with one another. If anything, we’ve been seeing that developers are getting more eager to have conversations than was the case six to nine months ago, but the number of potential acquirers sniffing around has also been increasing throughout the year as well.

Overall, we continue to expect to see more M&A activity in the space over the coming months. There are a lot of companies who are now confident enough that virtual goods inside games on social networks will be sustainable and are trying to figure out what exactly their move will be.

To dig deeper into the social gaming market, check out our recent Inside Virtual Goods reports:

• Inside Virtual Goods: The Future of Social Gaming 2010,


• Inside Virtual Goods: Spending and Usage Patterns of the Social Gaming Audience, and


• Inside Virtual Goods: The US Virtual Goods Market 2009-2010.

Today, we bring you ten Facebook applications that continue to rapidly gain popularity. Some new games to take over your life, phrases to quote, quizzes to create, and more to get the most fun and practical uses out of your Facebook. Be sure to also check out all of our Facebook Application Statistics.