June 20, 2012, 2:54 PM

Facebook plans a funeral for its virtual currency

Facebook Credits is being replaced by digital money tied to local currencies.

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Facebook Inc. says it will end its virtual currency program, Facebook Credits, by the end of the year.

Instead, the social network will require developers to use their own in-app virtual currencies—such as Word Tokens in Zynga Inc.’s Words With Friends game—that are priced according to local currencies. That means a consumer playing that game in the United States would see virtual currencies priced in U.S. dollars; in Mexico, the in-game virtual currency would be priced in Mexican pesos.  Facebook will continue to store consumers’ payment information and take a 30% cut of all transactions on the social network, as it did with Facebook Credits.

“By supporting pricing in local currency, we hope to simplify the purchase experience, give you more flexibility, and make it easier to reach a global audience of Facebook users who want a way to pay for your apps and games in their local currency,” writes Prashant Fuloria, product management director at Facebook, in a blog post. “Since we introduced Credits in 2009, most games on Facebook have implemented their own virtual currencies, reducing the need for a platform-wide virtual currency.”

The move shows that the social network has failed to make Facebook Credits the de facto virtual currency for in-app transactions, says Colin Sebastian, senior research analyst, Internet and interactive entertainment, at investment banking firm Robert W. Baird & Co. The move could have positive implications for developers, says Sebastian. “The shift to local currencies should streamline the payment process, allow for multiple price points and increase conversion rates,” he says.

Facebook says it is converting existing Facebook Credits balances to their equivalent values within the individual games and apps.

Facebook also says that starting next month, app developers will be able to charge subscription fees, which will offer them another way to generate revenue via the social network. Gaming companies Zynga and Kixeye are already testing subscriptions.

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