Consumer Watchdog Asks FTC to Investigate Facebook Credits
On June 28, consumer advocacy group Consumer Watchdog sent a letter and complaint to the Federal Trade Commission asking it to investigate Facebook for antitrust violations related to its use of Facebook Credits. Consumer Watchdog's complaint is premised on the fact that, starting Friday, July 1, 2011, any purchases of virtual goods on the Facebook platform must be made using Facebook Credits. This means that Facebook members cannot use their own credit cards, PayPal accounts, or other forms of electronic currency to make purchases of virtual goods.
Perhaps you're thinking "so what?" Is one form of electronic currency materially different from another? According to Consumer Watchdog, the answer is "not at this time, but eventually there will be significant consequences for consumers."
In short, Consumer Watchdog sees three problems with Facebook's terms related to the Credits:
- No other form of digital currency can be used on Facebook;
- Game developers and virtual goods merchants who have a presence on Facebook cannot offer lower prices outside of Facebook; and
- Game developers and virtual goods merchants have to give Facebook a 30% cut of any sales for Facebook Credits.
In Consumer Watchdog's view, Facebook is exerting monopolistic control over the digital currency market in order to harm competition. For game devs and digital goods merchants, this would mean lower profits (they have to pay Facebook 30%) and Facebook-dictated price levels (can't charge a lower price off Facebook). For end users, this may mean an increase in overall prices as merchants try to make back the cut they pay to Facebook.
Of course, these are just Consumer Watchdog's allegations at this point. The FTC has not yet made public its intention to either open or deny an investigation. Moreover, according to news reports, Facebook has not yet commented on Consumer Watchdog's allegations, so it's impossible to know its side of the story. Therefore, whether this will end up being much ado about nothing, or be a revisiting of the landmark Windows antitrust litigation from a decade ago remains to be seen. But for anyone participating in the virtual goods space, this will be one to watch. Stay tuned for more information as it develops.
