Facebook ad revenue is growing fast, but its currency system, called "Credits," is growing even faster.
Facebook will collect revenue of $470 million this year from Credits alone, according to a new estimate from eMarketer, up from $140 million in 2010.
Facebook in July began requiring that all merchants in its ecosystem use the Credits currency. The social network takes 30% of all transactions.
Strong growth in credits gives Facebook a second significant revenue source and reduces its dependence on advertising. "Facebook's revenue streams will continue to diversify, with ads representing a decreasing proportion of total revenue while other sources such as Credits will grow," said eMarketer analyst Debra Aho Williamson.
Facebook advertising is still in hyper-growth phase, but it's not moving quite as fast as Ms. Williamson predicted back in January. EMarketer is reducing its estimate for Facebook's total ad revenue to $3.8 billion this year, down from an earlier projection of $4.05 billion. That's still more than 100% above last year's $1.86 billion -- in line with a recent Reuters report that Facebook's first-half revenue this year doubled to $1.6 billion -- but marketers appear to be exercising some caution due in part to low click-though rates and a belief among some that you don't necessarily have to advertise to reach your fans on Facebook.
It turns out a significant number of Facebook users declare brand preference on the network. About 64% of Facebook users in the U.S. have "liked" at least one brand, according to a recent survey from DDB Paris and market research firm OpinionWay.
Facebook has also reduced the number of ads it shows on some pages. While it added a fifth homepage slot in 2011, it removed ads from photo pages, which generate a large number of impressions.And the rate of Facebook's ad expansion will be increasingly affected by the law of large numbers. Growth is expected to fall from 104% this year to 51% next and 21% in 2013.
All of those factors mean Facebook will have to work harder to maintain rapid ad growth going forward. "Even though Facebook has spent several years wooing marketers, many of them still believe the ads aren't effective at driving clicks and other actions," said Ms. Williamson. "Facebook must either work to improve its clickthrough rate or show advertisers that advertising on the site is effective even without a click or other action."
Marketers are only just beginning to figure out how social fits into their overall marketing strategy, according to Facebook. "Marketers are in a different stage of conversation; we haven't really scratched the surface with them at Facebook," said Carolyn Everson, Facebook global VP-marketing solutions, at a PaidContent event last week.
And even though marketers can reach their existing Facebook fans without buying ads, the bigger opportunity may be reaching the friends of their fans through Facebook ads called Sponsored Stories, which appear in the news feed, rather than display ads' usual Facebook location on the right of the screen.
"What having fans allows you to do is influencing those fan's friends -- unlocking word of mouth at scale," said Kevin Barenblat, CEO of Facebook marketing firm ContextOptional.
While advertising will remain Facebook's biggest source of revenue for the foreseeable future, the Credits program now accounts for 11% of Facebook revenue and will become more important in the coming years, but it may never exceed Facebook advertising.
"I think long-term advertising is going to be a bigger business," said Mike Lazerow, CEO of Buddy Media, which builds social software for marketers. It's a $500 billion global market and Facebook is the first online company that can make a compelling argument for every part of that market. Long term, for any dollar being spent on advertising, Facebook has at least one product that addresses it."