The Fascinating Way Facebook Phrases Its Credits Tax

I remember way back in 2007 when Facebook first launched their app platform. Developers were free to add their own advertising and user transactions, Zuckerberg said, and Facebook wouldn’t take a cut.

Developers flocked to Facebook and a symbiotic relationship emerged. Some developers got fat and happy on money made from Facebook users, and Facebook eventually started forcing developers to use Facebook’s credit system, where Facebook took a non negotiable 30% fee.

No developers really yelled “bait and switch,” although Zynga came close. If they don’t care I don’t care, and everyone seems to be getting along fine now.

Still, I find the way Facebook phrases its tax fascinating. “Facebook paid more than $1.4 billion to game developers (and other app makers) in 2011,” said Facebook today (this was previously reported too).

That’s sort of like the Federal government issuing a press release that they “paid” citizens whatever they didn’t take that year in taxes. It suggests Facebook’s thinking is that all of the money is theirs, really, and that they passed so much along is worth of a back slap. Or it’s just brilliant PR. Or both.

Awesome.

29 thoughts on “The Fascinating Way Facebook Phrases Its Credits Tax

  1. Adam says:

    Well, Apple terms it in exactly the same way (for better or worse)

  2. Isn’t it also the way Apple phrases it ?

  3. John says:

    Doesn’t Apple state this the same way? Facebook is just following their lead.

  4. Kris M says:

    You’re absolutely right. “Facebook released $1.4 billion dollars of developers’ money to them in 2011″ would maybe be a bit more appropriate. Seems like something few developers will get pissy over though.

  5. I don’t think Facebook taking a piece of the action is unfair in any way. U.S. government analogy is a bit much considering few people could argue that those developers would have a ready-made marketplace of 800 million customers to market to. Sure, it may have seemed like a bait and switch but did those devs really think it would be free forever? Come on.

    • Ryan Szrama says:

      Actually, that’s the exact same rationale you’ll hear from lawmakers… after all, if it weren’t for roads, how could you possibly ever drive to work and earn that money?

  6. Is that really different from how Facebook is positioning the new Premium Ad – you as a brand need to pay them so your fans(which you got/paid for) will get to see your post :)

  7. Steve says:

    Well, your federal government analogy only goes so far. In the case of Facebook, they don’t have a monopoly on the environment in which business is conducted.

    The federal government, on the other hand, can only take (or be given) so much credit for the success of American business. There are no competing environments in which to interact with US consumers.

    Also, Facebook’s language (i.e. “paying” rather than “not keeping”) could stem from the fact that it issues and processes Facebook credits. The common phrasing for PayPal is also “pay out,” even though PayPal is just the processor for many merchants. You use “pay out” because something could go wrong or PayPal could choose to withhold the money (whether or not they could legally defend such an action). The phrasing reflects the fact that the money enters and leaves PayPal’s accounts as they see fit.

    But I do agree that Facebook has excellent PR and would/will spin everything they possible can to make themselves seem like a benevolent god.

  8. Is this not identical to the language Apple uses for the App Store? “Paying developers x amount to date, etc”? I guess what I’m asking is if there isn’t a precedent for this kind of language already.

  9. I think they write it like that because it’s technically true. People pay the government X amount of what they make in taxes every year, the rest of their money doesn’t go through the government. In this case, if I’m not mistaken (never bought a FB Credit in my life), users pay Facebook (they buy credits), and then Facebook pays the developers their share. If this isn’t how the system works I apologize, but I can’t see it working any other way.

    So Facebook *does* pay developers, but written that way it sure does sound like Facebook’s “delivering wealth” to developers, when it’s more like the other way around.

  10. Y.Tadesse says:

    This sounds very similar, if not identical, to the way Groupon defined “revenue” prior to the backlash they received.

    re: http://blogs.wsj.com/deals/2011/09/23/groupon-ipo-revenue-corrected-for-error/

  11. Rishi says:

    How is this any different than what Apple does with their App Store?

  12. Mike, how is this different from the phrasing Apple utilizes regarding the App Store? It is not.

  13. Not sure why the phrasing here is so controversial. Facebook doesn’t just take a “tax”, it processes all Credits payments, handles chargebacks, and generally removes most headaches associated with collecting money. How is this any different than iOS paying out their developers?

  14. I’d imagine they phrase it that way because they actually are paying out that money to developers. Users pay Facebook for credits, Facebook takes its cut, and Facebook pays developers their share.

    Apple uses the same language to describe the size of the App Store ecosystem.

    The federal government comparison breaks down because companies don’t pay the government 100% of an employee’s salary the way users pay Facebook or Apple.

  15. Gabriel says:

    The federal government uses the same phraseology so that’s probably where Facebook got the idea. Any time the gov talks about lower taxes they call that a handout, when really all they’re proposing is stealing less of your money.

  16. jd says:

    Even if it did not offer huge distribution value, 30% is completely reasonable for digital items (ie, zero marginal cost items), even higher priced items.

  17. It is fascinating how accepting the ecosystem is of this right now. I was surprised when Apple first took 30% instead of a more traditional payment-processing fee of <10%, and everyone else followed suit.

    An interesting thing to watch in the coming years will be how much Facebook ratchets up the overall tax rate on publishers using their platform. As publishers increase their use of Facebook's somewhat misnamed Open Graph – first by marking up their content as social objects with OG metadata, then by loading up user actions as graph edges – in order to benefit from social sharing, they're increasing their dependence on the service. Facebook will own, or at least control, a large portion if not all of the data these companies create about their audience.

    However, Facebook has an interest in – and has been – reducing the amount of casual sharing through surfacing things in the news feed, in order to "reduce news feed spam". In return they offer "sponsored stories", which are ways of taking that OG data you've given them and selling you an ad where they present that sharing information to people who wouldn't have otherwise seen it in a news feed.

    Sounds like publishers are setting themselves up for more of what you're describing here. Once you've built your business on their platform, why WOULDN'T they charge you for using it and surfacing the sharing content. Of course, reduces the value publishers get for having given up control over their data in the first place, but too late. Once Facebook is a public company with public company pressures I don't see this getting better.

    I say this as a fan of the Open Graph idea, who sees lots of really good use cases for it, and who is actively building on it, not a knee-jerk critic.

  18. But isn’t that almost identical to Apple’s phrasing: they’ve paid X billion to developers?

    And Apple does not come under fire for that, as they created that market from thin air.

  19. elvirs says:

    but its cool when Apple has been using the same phrasing about their appstore payments to app developers

  20. Rishi says:

    At least Facebook doesn’t charge you to just DEVELOP AND TEST on their platform like Apple does. That’s the craziest thing to me!

  21. Brian Davidson says:

    Don’t give Barack any ideas!

  22. Firefox says:

    Same with Apple. The point is that developers got paid that much money on the platform and it is thus a huge opportunity.

  23. Cat says:

    On a much smaller scale, I’d like to see what you think of crowdfunding to raise money. I wrote some of my thoughts here: http://news.ycombinator.com/item?id=3687835

  24. Pete Austin says:

    Will Yahoo will do the same, after their patent lawsuit?

    Facebook *was* worth 100 billion, so Yahoo might say something like, “Yahoo! paid more than $20 billion to Facebook shareholders in 2012,”

  25. Anton says:

    They are essentially creating new fiat money. And the bitcoin thing is the only alternative.

  26. droidtoday says:

    I’m saddened by the lack of new stuff to read on this unpaid blog in the last 3 weeks.

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