Alternative Payment Systems Power Social Monetization Growth

I've previously blogged about the rise of virtual goods and overall premium services in virtual worlds, social media and gaming, but one key component of this growth in revenue has been the rise of what are generally called alternative/aggregated payment services such as OfferPal, SuperRewards, PeanutLabs, PayByCash, Sometrics, etc.

This occurs because there are 3 components to a successful virtual good-oriented revenue model:

1. Influx of Users with High Repeat Usage and Time on Site - this is true for many community-oriented sites, whether it's forums, social media sites, or MMO's - if a site doesn't have strong engagement, then it will never sell premium services and should stick with advertising
2. Creation of Premium Items and Services - this is where all the site focus generally takes place since it's fun to come up with cool virtual items, although I've blogged before about how it's more important to worry about STATUS, not GOODS- in any case, the site owners must focus heavily on creating services which users will pay for - social gaming service Zynga has some great examples of ways to monetize users.
3. Offer a Wide Range of Payment Options - this is the most underlooked part of the equation, but is crucial for community sites which appeal to US teenagers or anyone outside the US who is not credit card-centric - this is where aggregated payment services enter the equation.

Because the big social media sites can not seem to come up with a shared electronic wallet solution (like logically using one from TwoFish where I'm on the BoD), it means that every application provider or individual site must come up with their own way to collect money from users for premium solutions.  Since many of the users don't have credit cards, or aren't comfortable putting them down, all big sites need to provide a wide array of payment options to maximize potential revenue.

Most important payment options are:

• Credit Card - bulk of users, esp in US
• PayPal - bigger in US than overseas, but generally #2 after credit cards
• PrePaid Cards at Retail - can be really large, like for Maple Story MMO, but is low margin
• Premium SMS/Mobile - is often the largest non-US solution, but very expensive
• Cash In Mail - Gaia Online has 3 people opening envelopes of cash - is often overlooked
• Fill out Surveys - a newish offering which lets users provide information in return for currency
• CPA - e.g sign up for ringtones, and get virtual currency
• 50+ other solutions, especially outside the US - includes bank transfers, additional cards, etc.

At Meez, we offer the first 5 solutions, and each one beyond credit cards has driven up revenue by 5-10%, but it becomes a management nightmare to continue to coordinate with each provider, as well as implement each additional API solution.  That's where aggregated payment solutions come in.  With any of the providers I first mentioned above, a social community site can quickly offer a wide range of payment options with a much smaller amount of work, and by paying only a 5-10% additional fee beyond the core fees for each type of service.  This move generally drives up revenue by 25%+, and opens up the site to a much wider range of users who may be frustrated at their inability to pay for premium services.

At a later time, the site can choose to do individual deals with especially important providers, depending on how a sites' users tend to choose. e.g. if a large percentage of users choose mobile payments, then a site may want to cut a direct deal with a big SMS provider like Zong, MobileCash, etc. to feature them and to cut out the middle man

With alternative payment systems now proliferating along with the monetization opportunities, some of these companies are doing tens of millions of dollars in revenue after being in existence for just a couple of years.  The competition is growing quickly, but so is the emphasis on premium offerings, so it's one of the few growth areas in the sector.  Where is PayPal or VISA in this opportunity?  The short answer is nowhere after multiple failed efforts, but my guess is they will end up purchasing the leaders in the space once it gets large enough, just as PayPal recently did with Bill Me Later.  

Again, if you have a popular social community site and you're not aggressively monetizing it through premium services, you're leaving tons of money on the table, and probably won't be with us in 2010 at the current trend line, so definitely look at the payment services as a way to quickly scale up your offerings.

Comments

[Kevin Higgins]

Publishers using PayByCash get all of your bullet points (alternate payment options) except credit card processing with one integration and one financial relationship--and they also do all the customer support and fraud protection.

The credit card processing, of course, can be done via PayPal--and PayByCash can provide that as a gateway service, too, complete with fraud protection.