Facebook Establishes Foothold in Virtual Goods Industry

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Facebook, the largest social network in the world with over 850 million users, is making a big push into the virtual goods industry.

Up to now, text and display advertising is its most valuable business, accounting for a major portion of its revenue.

However, revenue from transactions related to virtual goods has become an important revenue stream for Facebook, which offers a virtual currency called Facebook Credits that can be used to conduct economic transactions on Facebook. It takes a 30% cut off all such transactions on its network.

Since the virtual goods industry is expected to expand rapidly in the coming years, we expect Facebook to generate increasing amounts of revenue from Facebook Credits. Facebook competes primarily with other social networks like Google+ by Google ( GOOG) and MySpace in the virtual goods space.

Check out our complete analysis of Facebook here.

Facebook is offering free Credits to new users who haven't bought Credits to get them to start spending money on its platform. Through its New Payer Promotions initiative, it is giving away $5 worth of virtual currency for just $1 to new users. Game developers can use this new unit within their existing games, and offer either $5 worth of Facebook Credits, or $1 worth of Facebook Credits and $4 worth of their in-game currency to users, to sign up more paying users.

Facebook's internal data indicate that once players purchase virtual goods once, they are more likely to continue spending money on virtual items. This initiative could boost virtual game spending, which could directly increase Facebook's revenue from virtual goods transactions, which accounts for nearly 18% of its total value.

We currently have a $82 billion Trefis valuation for Facebook . It is expected to go public with a $100 billion valuation in the coming months.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.