* PayPal added on Facebook for virtual goods
* Web payments system can also be used by advertisers
By Alexandria Sage
SAN FRANCISCO, Feb 18 PayPal and Facebook will
team up to offer an online payments system for virtual goods on
the popular social networking site, hoping to get in on a
In the nonexclusive deal, advertisers will also be able to
use PayPal, a unit of eBay Inc (EBAY.O), to purchase ads on
Facebook, which derives the bulk of its revenue from such
Facebook allows users to send virtual gift items -- such as
cupcakes, airplanes and Teddy-bears that don't exist in the
real world -- to friends using a virtual currency system, which
is essentially fake money. Users currently pay for these items
using a credit card but now will be able to use PayPal as
Privately held Facebook does not disclose how much revenue
it draws from virtual goods, a fast-growing digital add-on that
has emerged as much more than just a fad.
BGC Partners analyst Colin Gillis, who called the deal a
"nice win" for PayPal, estimates that digital goods on Facebook
could be as much as a $100 million business.
"That's big business. You know what the margin is on that
virtual cupcake?" said Gillis.
PayPal's vice president of platform and emerging
technology, Osama Bedier, said the global market for digital
goods is worth between $3 billion to $6 billion and growing at
least 50 percent annually.
"We're going to invest behind this (virtual goods) in a
pretty big way in 2010. It's small today but it's growing
extremely fast and we think it will matter in the next two or
three years in a big way," Bedier said.
But Gillis said the partnership appeared odd for Facebook,
given widespread speculation that the company was developing
its own payments system.
Dan Levy, Facebook's director of payment operations, said
the company's focus was on building a virtual currency to make
it easier for users and developers to build a virtual goods
business on the site.
(Additional reporting by Ian Sherr; Editing by Steve