Farm Cash vs. Hard Cash

Which would you rather get as a reward for doing business with a particular company: frequent flyer miles, cash rewards, or two virtual cows on FarmVille?

Major companies like American Express are betting that you pick Farm Cash or some other type of virtual currency.

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Peter Vogel, co-founder and CEO of a company called Plink, describes the allure this way: "If someone puts $5 into your bank account, it basically disappears into a pile of money and you have no recollection of what happened with that $5. But if we give you the equivalent of $1 or $2 in Facebook credits, and you can go and buy two new cows for your game, or buy a new crop of cherry trees, you get the benefit immediately and you remember that you got it. We believe that a reward of $1 or $2 in virtual currency is more powerful than $5 in cash."

Denver-based Plink's business model works like this: The company offers Facebook Credits to users who make purchases at Arby's, Burger King, Dunkin' Donuts, Outback Steakhouse, Taco Bell, Regal Cinemas, Red Robin, 7-Eleven and Quiznos.

In order to get the credits, customers must register a credit card with Plink and must use that card to make the purchases. Each night, Plink downloads transaction data and sends out Facebook Credits rewards.

Vogel admits that some customers have privacy concerns about giving up login information to their online bank accounts. "There is a fall-off of people who don't want to do that," he says. "But typically, 20% to 30% of people who join do register a card. We do have national brands on our site who are endorsing us - I think that helps build that trust a little bit."

"Tens of thousands" of users have signed up so far, Vogel says. Each user spends, on average 60% to 70% more money with the retailers after joining Plink than they did before. That's because virtual rewards are more immediate, and pack a stronger emotional punch, than frequent flier miles, cash rewards, and other traditional offers.

Facebook threw a bit of a monkey wrench into Plink's business model when it recently announced plans to discontinue the Facebook Credits program. However, Vogel and others say Facebook's move is just a minor bump in the road. Plink will substitute Facebook Credits for regular money in the form of a Facebook gift card, similar to what you'd get from iTunes or Amazon.

"This move is really just a change in name from credits to dollars," Vogel says. "It shows they're serious about payments, taking away a little of the confusion. We're hoping it will expand into all sorts of verticals, not just gaming - movies from Netflix, articles from the Washington Post, hot tunes from Spotify."

Analysts are predicting big things for virtual currencies. In fact, KPMG analysts project that the global virtual currency trading market will reach $14 billion this year.

Ifeelgoods

Another company offering Facebook Credits as rewards, but for online behaviors, is Redwood City, Calif.-based Ifeelgoods, which reports over 80 corporate clients, including WalMart, The Gap, Universal Pictures, Coca Cola, and 1-800-Flowers. Like Plink, Ifeelgoods will also have to adapt its program a bit.

"The change is mostly from a branding perspective," says Ifeelgoods CEO Michael Amar. "Rather than advertising a promotion for 50 Facebook Credits, for example, our advertisers can offer $5 in Facebook Gift Codes."

More than that, Facebook's increased attention to game-specific virtual currencies - like Farmville Farm Cash - can also help advertisers, he says. "Facebook's payments evolution also opens the door to new opportunities to market branded game currencies."

For example, consumers will be able to get in-game currency for subscribing to a company newsletter, or checking in at a restaurant.

"Most of our clients are A/B testing us," Amar says. "And they see a huge increase in click-through rates - sometimes as much as three times higher. And better conversion rates, of up to 30%. And when the end user gets their credits, they're likely to push it to their Facebook friends, with a share or publish rate of over 70%."

That has its own knock-on effect, he says. For example, if someone subscribes to a newsletter and gets Facebook credit, and they post a status update saying, "Hey, I just got credit because I subscribed to this newsletter ... you can also get this," this will add another 30% to the response total. If 1,000 people sign up for the newsletter, another 300 will sign up just from the sharing, Amar says.

Ifeelgoods spent three years developing the platform, which allows corporate clients to set budgets, track responses, and manage their programs. In addition, Ifeelgoods also works to prevent abuse of the system by looking for fake accounts that don't have any friends or status updates.

Clients pay a monthly fee for the program, plus the virtual currency payments themselves. Amar declined to provide additional pricing details.

Other companies are already working directly with game-specific currencies.

Amex goes virtual

In May, American Express began offering FarmVille Farm Cash to customers who sign up for its Serve reloadable prepaid card. It's a departure from the traditional rewards offered by credit card companies - frequent flier miles, for example, or cash backs. "Consumers can get frustrated because they can't earn enough to get a flight," says David Messenger, executive vice president for online and mobile at American Express.

The Farm Cash rewards, by comparison, are immediate and engaging. "There's such a variety of virtual goods to convert them into," he says. "Zynga has great expertise in game mechanics and making things fun."

The way it works is that American Express sponsors a FarmVille tree - specifically, a money tree, which grows Farm Cash. Customers can get Farm Cash for signing up for Serve, for activating the card, and for using the card. Customers can earn up to 360 Farm Cash through July, Messenger says, during the first stage of the project.

"We will have further phases of this partnership coming out to make it more sophisticated - and fun for consumers," he adds.

For example, a third-party company like a coffee shop can approach either American Express or Zynga to sponsor, say, in-game coffee beans, with coffee discounts that are immediately propagated to the customers' Serve cards.

To connect into FarmVille, American Express is using technology from Sometrics, a virtual currency company it acquired for $30 million last fall.

Companies that want to promote their goods with virtual currency used in mobile games have options as well. The leading vendor in this space is TapJoy. For example, Ford Motor Company recently used the platform to entice players of Concrete Software games to watch a video about the new Ford Focus. Concrete is the distributor of Aces Solitaire Pack and other card games, as well as Sid Meier's Pirates.

"If you were planning on signing up for Netflix, you could not only get a Netflix subscription but also have more game play," says Concrete Software CEO Keith Pichelman.

The TapJoy platform also allowed his company to move from paid games to free-to-play games, he says.

According to Christine Lee, TapJoy's vice president and general manager for partner relations, many top-100 advertisers are using the company's services, including Netflix, Ebay, eHarmony, and Pepsi.

"Users are getting the currency within the game, so the engagement is much higher than traditional display ads," she says.

Legal issues

Not all virtual currencies are created equal. Some are more virtual than others, and others are a bit more ... real.

And the more real a virtual currency gets, the more legal hoops its issuer will have to jump through.

On one end of the spectrum are the fully fictional currencies, like the gold coins in Super Mario Brothers. Sure, it would be nice to be able to exchange them for real gold coins but, unfortunately, they exist only inside the video game. You can't buy them, you can't sell them, and you can't give them to anyone else.

On the opposite end of the spectrum are virtual currencies that act a lot like real money - you can exchange them for other currencies on currency exchanges, you can buy real things with them, you can redeem them for real money.

"There are a couple of hundred laws that could trigger or not trigger depending on how the virtual currency is set up," says Deborah Thoren-Peden, a partner with the law firm Pillsbury Winthrop Shaw Pittman LLP.

For example, companies that issue virtual currencies that are redeemable for real money, are, in effect, storing money for their customers.

"If a company is holding money that belongs to someone else, the states want to make sure that there's oversight of the funds," she says. "Generally speaking, you either need to have a bank license or a state money transmitter license, or you have to be an authorized delegate of one of those entities."

And if your customers are located in other countries, you would have to comply with the laws of those countries, as well - not to mention the tax consequences of selling virtual currency to foreign buyers.

There is a middle ground between a purely fictional currency and a fully-redeemable one - a "closed loop" system. This is where the virtual currency can only be used within your platform, is less than $2,000 in total value, and customers can't trade the virtual currency in for cash except where legally required. For example, a prepaid gift card issued by a store that can only be used to buy things from that store is a kind of virtual currency, and if the balance on the card falls below a certain amount, then some states require that the customers be able to get the rest of their money out in cash.

If your virtual currency falls into this middle ground, then you're exempt from certain federal regulations.

"For programs that don't qualify, they either have to qualify for one of the other exemptions, or they have to have an anti-money laundering program under the Federal Bank Secrecy Act, which is a very significant undertaking," Thoren-Peden says.

Korolov is a freelance business and technology writer in Massachusetts. She can be reached at maria@tromblyinternational.com.

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