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Facebook Caves to Apple on Credits; Now Its Real Fight Looms With Google

Facebook Credits, the in-game payment system that the social network wants everyone to use exclusively for financial transactions on Facebook, will not be available on iPad and iPhone -- a move that signals Apple (AAPL) is playing hardball. Apple insists on taking a 30 percent cut of sales generated through apps that sit on its products. Likewise, Facebook insists on taking a 30 percent cut of payments made through Facebook Credits.

The refusal of Apple to tolerate Credits on iPad suggests that Apple has lost patience with Facebook's business model -- which is for Facebook to live in everyone else's medium (computer, phone, tablet, whatever) without paying any rent. I predicted in January that Apple would not tolerate Facebook using its space to collect revenues without taking a cut. Apple also extracted its 30 percent rent from Amazon's (AMZN) Kindle app, and other booksellers, earlier this year.

By contrast, Facebook Credits appears to be available on Google's (GOOG) Android mobile operating system. Facebook's developer guide does not say Credits are banned from Android. It does say explicitly that "Credits is not supported within iOS native apps or web apps running within the Facebook iOS app" -- i.e. anywhere in the Apple universe.

Why is Google acquiescent when Apple is not? One reason might be that Google likes the fact that Facebook is now marginally less functional on iPad than it is on Android. If you want the full Facebook mobile experience you now must own an Android device. Google earlier made it cheaper for game developers to launch their products in Google Circles Google+,* its rival social network.

Make it free, and ads will come
More broadly, Google's entire corporate strategy revolves around creating free products that others can use to make businesses, and then selling ad space next to that. From that point of view, Google wouldn't be interested in Facebook Credit sales on Android.

Google must, however, be giving serious thought to what happens when Facebook wants to start running ads in its mobile apps. Facebook on your computer is a mess of display and News Feed ads. On your mobile phone, it's an ad-free environment. Facebook is increasingly interested in advertising. It's currently on the hunt for clients with seven and eight-figure budgets. But when any of those prospective clients ask, "Can we make sure our ads appear on Facebook's mobile apps?" the social network can currently only blush and demur.

Mobile Facebook ads would be a direct competitor to Google's Android ads, and in fact would steal revenue directly from Google. As Facebook is now a search engine, an email system and a place to do financial transactions, in theory a user could open up a Facebook app and never actually need to see any other part of the Android environment.

Google might earn more than $1 billion from mobile ads annually, and that number will likely only grow. Facebook should not expect to live rent-free inside Android forever. Apple's decision to evict Facebook credits from iPhone and iPad merely presages the much bigger showdown to come.

*I knew that! I'm just testing to see if y'all were paying attention.


Images by Flickr user Mark Hillary, CC.
Disclosure: The author owns two shares of Google stock.