The virtual currency sounds a lot like the defunct Facebook Credits. Facebook originally launched Credits in 2011, but 18 months later it began moving developers away from the program and allowing them to accept the local currency in each country.

So, can Amazon be successful where Facebook failed?

First, we should look at the theory behind Facebook Credits. It seemed logical: Customers would have the financial relationship with Facebook, rather than trusting some company they’d never heard of with their credit card information. Additionally, they could store their tokens in one central piggy bank and then use them wherever they’d like, rather than buying currency in a game that they may only want to play once.

But that experience didn’t exactly pan out.

Instead, developers required users to convert Facebook Credits to yet another form of virtual currency inside each game, like FarmVille cash. In doing so, developers hoped players would became more committed to the game, at least until the initial batch of coins ran out. The in-game currency also made it hard for players to know how much they were spending (for instance, it’s typically easier to spend 5,000 FarmVille bucks when you don’t know their true value, but it was more difficult to spend 10 Facebook Credits when you knew it cost $1 to get them).

Now, if you look at how Amazon has set up its currency, it’s easy to see how it could face similar problems.

Each Amazon coin will be worth one cent, so a game that costs $2.99 will cost 299 coins. Likewise, a $5 in-app purchase would cost 500 coins. It may be easy math for the players to do, but Amazon confirmed that it will also allow developers to use their own in-game currencies, just like Facebook.

That means that developers will be able to hide the real cost of virtual goods inside a game with more complicated exchange rates, if they wish.

Amazon also confirmed that developers will continue to earn their standard 70 percent revenue share with Amazon Coins.

In those ways, the programs are identical. The major difference between Amazon and Facebook, however, is that Amazon already has credit cards on file for each customer, whereas none of Facebook’s users had provided payment information when they registered.

So, in that respect, Amazon’s motivation for rolling out a virtual currency should be different.

One benefit for introducing Coins will be that parents will be able to easily dictate spending limits inside games for their children. After all, the coins will be valid only inside the Appstore. Customers will not be able to use them anywhere else, like for purchasing an e-book or a movie.

The different silos for the different payment information may be exactly what Amazon is looking for, but for Facebook it ultimately became a problem. As Facebook started to expand its product offerings beyond virtual goods to real products, like Gifts, no vendor was going to be willing to accept the 70 percent revenue share first rolled out to game developers. At the same time, having a complicated two-tier or multi-tier revenue share process, depending on the item sold, may have been complicated.

True currency ended up being an easier way to conduct transactions for all parties.

In that way, Amazon’s goals for its currency may be way less ambitious. Instead of creating a currency that will span all types of products and services, it may end up being a simple way for parents to regulate spending inside games, and an easier way for adults to monitor their own spending. (For instance, at the beginning of the month, you could decide to purchase $25 worth of coins, and once they are gone, you wouldn’t allow yourself to buy anymore.)

Amazon Coins will launch in the U.S. this May. To help spur adoption of the program, Amazon pledges to give customers “tens of millions of dollars’ worth of free Amazon Coins” to spend on developers’ apps on Kindle Fire in the Amazon Appstore.

“Now we have another new way to help developers reach even more of our millions of customers,” said Paul Ryder, Amazon’s VP of Apps and Games, in a statement. “Amazon Coins gives customers an easy way to spend money on developers’ apps on Kindle Fire in the Amazon Appstore.”

When Facebook announced last year that its Credits payment system would become the de facto form of currency for purchases made inside games hosted by Facebook, we got the first taste of the social giant’s lofty, iTunes-sized aspirations. However much Facebook downplayed the idea, the company wanted in on a potentially lucrative revenue stream, akin to that of Apple’s iTunes, which was responsible for roughly $6 billion in revenue in its fiscal year 2011.

Cut to today, 18 months later. In what seems to be an abrupt about-face, Facebook announced that it will slowly move away from its Credits initiative, beginning in the third quarter, transitioning third-party developers away from a platform-wide currency to a model where users can use their local form of currency to purchase virtual goods and apps (e.g., USD for the Yanks; or euros for, say, a Parisian).

Come July, developers will be able to accept local currency for in-app purchases instead of Credits, and Facebook plans to phase out Credits entirely by the end of 2012.

So what gives? Is Facebook scaling back its payment ambitions?

Initially, Facebook’s idea was this: Consolidate the form of currency on the Facebook platform so that all game developers must accept Credits as the one and only form of money that third-party apps on Facebook could accept from users to pay for goods and services. Cut out the middlemen like Jambool and Spare Change, and Facebook gets a 30 percent cut of every transaction that goes through its platform. Just like iTunes.

Facebook envisioned that developers would then use Credits as the currency inside their respective games as well, so users could just spend Facebook Credits on virtual goods across different apps, be it a new prize heifer in FarmVille or a cache of weapon parts in Mafia Wars. No matter how many games you played, Facebook imagined, it would offer one unified currency to rule them all, for a simplified user experience.

That didn’t happen. Instead, developers continued to require users to convert Facebook Credits to yet another form of virtual currency, specific to that of each game (FarmVille, for example, has FarmVille cash). Why? Most likely because it’s in game developers’ best interests to obfuscate the true value of in-game cash, compared to what you’ve paid for it in real cash. (It’s easier for me to spend 5,000 Farmville bucks when I don’t immediately register its true value, for instance. Might be more difficult for me to spend 10 Facebook Credits that I know I spent $1 to get.)

That makes for three separate forms of currency from each end of the transaction chain: Real-world currency (like the dollar), Facebook currency (Credits), and app developer currency (FarmVille cash). What’s more, it’s a global system, meaning multiple forms of real-world currencies, with fluctuating values, depending on the country. So, while my five bucks in California may buy five Credits, five pounds in London would net me 7.866 Credits.

It’s a user-experience nightmare, with far too many friction points for one to go through in order to spend money. The fewer hang-ups in the chain, the faster and easier it will be to spend. It’s almost as if Facebook inhibited its own payments progress with Credits (if only the third-party developers would have played along …).

So, in theory, the forthcoming transition will serve to streamline the payments process for consumers. Developers can still require users to convert that cash to a proprietary form of in-game currency, though without the Credits conversion hassle. And Facebook doesn’t lose anything in terms of revenue, as it will continue to take its 30 percent cut of all transactions made on its platform. And, just as before, any customer using Facebook’s payments platform has their credit card information on file with Facebook.

Zynga seems to welcome the change with open arms. “We’re proud of the long-term partnership we have with Facebook and today’s announcement doesn’t change the economic relationship between the two companies,” a Zynga spokesperson told me. “We believe Facebook’s new payment product to support pricing in local currency will streamline payment methods on their Platform and ultimately offer more flexible pricing options.”

Also beginning in July, Facebook will allow developers to offer subscription payment services. So if, say, developers charge monthly for a premium version of a game, they’ll be allowed to accept automatic recurring payments, as long as the user continues his or her subscription. That’s an easy revenue stream that will most likely be attractive to third-party app developers, both existing and prospective. It’s one that Zynga is already testing in a few of its Facebook games, and looks likely to implement in more games going forward.

By dumping Credits, it could signal Facebook closing the door on what many imagined would ultimately be a larger payments undertaking for the company. When Credits first debuted, it was seen as an incremental step towards something larger, perhaps a Facebook wallet with which users could pay for physical goods at brick-and-mortar stores.

But with the Google Wallets, Isis coalitions and actual, government-backed currencies in the world, it’s possible Facebook recognized that it didn’t need to play in that very crowded space.

Perhaps its own iTunes, however far off, will be enough.

UPDATE: An earlier version of this article misstated the nature of Facebook’s change to its payments system in the headline, claiming that the company was scaling back its payments initiative. The piece has been amended to reflect the changes.

While Facebook is slowly working out the kinks to bring more games to mobile, there’s a small company in Menlo Park, Calif., that has beat them to it.

ISwifter is announcing a new iPad app today called theWorx for Facebook, which gives users the full Facebook experience — social games and all.

That means users can check their crops, maintain their cities and feed their fish without having to boot up their computer.

A small company of 20 employees, iSwifter is almost entirely bootstrapped, having generated $10 million in revenue last year.

As my colleague Ina Fried wrote, the previous iPad app allowed users to access any Flash-based content on the Web by running a browsing session on its servers and streaming the results to the iPad. What iSwifter quickly realized was that “one of the major use cases is Facebook games,” said the company’s co-founder Rohan Relan.

TheWorx will work similarly to the old app, except that it is tailored specifically for Facebook. ISwifter will host the content on its servers and then stream the games to the user on the iPad, with little latency. By taking this approach, users will have access to all games on Facebook without developers having to lift a finger.

Additionally, all of the original ways to monetize the applications will be in place, including advertising and Facebook Credits. TheWorx will be free for a short trial period, and then users will pay for additional access. The app will come out later this month or in early June. At that time, Relan said, the company will figure out how much it will charge. The iSwifter app currently costs $5.

“Our plan is if we do everything that the Facebook app does, then we can charge for that functionality,” Relan said.

The biggest threat to iSwifter is if Facebook starts bringing more content to mobile. “That would be pretty devastating to us,” Relan admits. However, he said there’s not an easy way for all developers to bring their content to mobile. Currently, some of the largest game developers, like Zynga, have created content specifically for Facebook’s app, but it has been a slow process.

“Some of the big apps have made native versions, but it will take time for the Long Tail to migrate over,” he said.

Here’s how the app works:

Today, the San Francisco company says that Sprint is coming on board to join the three other major U.S. carriers: Verizon Wireless, AT&T and T-Mobile.

While the partnership provides additional momentum for Boku, the company still has a way to go before consumers are charging all sorts of purchases to their carrier bills. Today, the majority of Boku-paid purchases are for digital goods, such as in-game currency like Facebook Credits, or virtual goods in social games from companies like Zynga.

In an interview, Boku president Ron Hirson explained that it will still be another year or so before it starts seeing physical goods like clothing or electronics being charged to a carrier bill. For that to happen, carriers will have to drop the rates even lower than what they are charging today in order to be on par with Visa or MasterCard.

Over the past two years, Hirson said, prices already have dropped from roughly 40 percent to somewhere in the “teens.”

“We are proving ourselves out, and showing to the carrier that with each incremental drop, we are growing the pie,” he said.

The next likely product category to adopt carrier billing, he said, is digital content, including music, books, or physical tickets for public transportation or concerts. Those items have a big enough profit margin to make paying slightly higher transaction fees affordable.

Other companies in the carrier billing space include Mopay, BilltoMobile and Zong, which eBay’s PayPal acquired last year. Boku strengthened its position earlier this year when it raised $35 million in fresh capital.

While carrier billing has been slow to take off, Hirson said the company believes it will be a huge opportunity because of the convenience factor. To purchase something, users enter their phone number, and then authenticate that payment via text message.

Boku said today that it also signed up a carrier-billing partnership with Deutsche Telekom in Germany, meaning that it is now processing transactions with every major carrier in France, Germany, the U.K. and the U.S.

The company also announced that it has added two executives to its team: Jon Prideaux, the former EVP at Visa, is joining as chief business officer; and Stuart Neal, the former managing director of international development for Barclaycard, is joining as SVP of Business Development.

Before you get too excited, Facebook didn’t disclose Zynga’s actual results, but it did provide an update on how much Zynga is contributing to its overall revenues.

Over the next three days, analysts will do their best to extrapolate what these numbers mean for Zynga.

In late afternoon trading, the market reacted somewhat positively. Earlier this morning, Zynga’s shares were down as much as 6.9 percent. But, after the filing was released, Zynga closed down only 2.4 percent and was trading at $9 a share.

In the first quarter, Facebook said Zynga made up 15 percent of the social network’s revenue, from both advertising and the sale of virtual goods. In comparison, Facebook estimated Zynga contributed 19 percent of its revenues for all of 2011.

As it stands today, the two companies are an inseparable pair. Zynga is Facebook’s largest partner and Facebook is where Zynga attracts most of its user base.

Facebook is able to generate revenue from Zynga three ways: Processing fees generated from the sale of virtual goods using Facebook Credits; third-party advertising on pages generated by Zynga’s games; and direct advertising from Zynga.

On the surface, it looks like Facebook is becoming less reliant upon Zynga. But Facebook did not explain why Zynga’s portion of the pie fell this quarter, and it’s hard to compare one quarter to a full year of results.

Facebook did warn that Zynga recently launched games on its own Web site, and that it could choose to try to migrate users from Facebook to its own platform. “We may fail to maintain good relations with Zynga or Zynga may decide to reduce or cease its investments in games on the Facebook Platform. If the use of Zynga games on our Platform declines for these or other reasons, our financial results may be adversely affected,” Facebook wrote in its update IPO filing.

Zynga is also investing more heavily in mobile, including its recent acquisition of OMGPOP, which leverages Facebook’s social graph, but does not profit from when companies only use the network for credentials on the mobile phone.

In addition to revealing how much revenue comes from Zynga, Facebook also broke down how much revenue came directly from the game maker compared to third-party advertisers. Facebook said direct revenues, including payments and advertising, made up 11 percent of its revenues in the first quarter, and an additional four percent of its revenues came from third-party advertisers displaying ads on Zynga’s pages. As previously disclosed, the same results from the year ended 2011 were 12 percent and seven percent, respectively.

But because Facebook lumps together both advertising and payment revenue when disclosing Zynga’s contribution to the company’s revenues, it’s nearly impossible to back-out Zynga’s revenues.

Facebook said today in its filing with the Securities & Exchange Commission that Zynga accounted for approximately 12 percent of the company’s revenue last year when Facebook’s revenues totaled $3.7 billion.

The revenue came from both its 30 percent payments processing fee related to the sale of virtual goods from games, such as FarmVille and Words With Friends, but also from advertising purchased by Zynga.

Additionally, Facebook said Zynga’s apps generate a large number of pages on which it displays ads from other advertisers.

The dependence on Zynga is so significant that Facebook warns that if it fails to maintain its relationship with the game maker, or if Zynga’s popularity declines, its financial results may be adversely affected.

Even more notable perhaps is that it’s not just Zynga. Facebook said social games are currently responsible for “substantially all of our revenue” when it comes from payments.

In December, Zynga went public, raising $1 billion, and is obviously one of the companies most reliant on the social network. But now with Facebook’s financials also public, we can see that the two companies are actually interdependent.

And, in fact, over the past three years, Zynga’s importance has only increased. In both 2010 and 2009, Zynga accounted for less than 10 percent of Facebook’s revenues.

The big turning point occurred in May 2010 when Zynga agreed to use Facebook Credits as its primary payment method inside games. As part of that, Facebook would collect 30 percent. That contract will expire in May 2015.

Some of the details of that contract were disclosed as part of Zynga’s public offering, but we wouldn’t be surprised if Facebook is also required to publish it at some point. In the version Zynga released, a lot of the contract was redacted.

In after-hours trading, Zynga was trading about 4 percent higher to $11.02 a share, nearing it’s all-time high of $11.50.

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“It was strictly a business decision,” said Kabam’s COO Chris Carvalho, quoting a line from The Godfather.

Carvalho said that in return for Google getting a 45-day exclusive, Google has agreed to drive traffic to the game through various marketing techniques. In addition, Google only takes a 5 percent cut of revenues from virtual goods sold inside the game, compared to Facebook’s 30 percent cut.

Together, those two incentives could make for a more profitable game, even if Google’s audience is much smaller.

“We’ve found our games monetize very well on the Google+ platform, and their team to be incredibly responsive and willing to get things done quickly and efficiently,” Carvalho said.

At last count, roughly 40 million people have joined Google+, and to date, it has a total of 28 games. In comparison, Facebook has more than 800 million users worldwide, and literally has too many games to count.

Getting heard above all those distractions on Facebook can be costly, so clearly Kabam feels it has a better chance to stand out on Google.

It will be important to see if other developers feel the same way and follow in Kabam’s footsteps. If so, Facebook may feel pressure to make games easier to find (other than the developer purchasing more ads), or even adjust its revenue cut, as some have suggested may occur with increased competition.

In all, Kabam has three other games on Google+: Dragons of Atlantis, Global Warfare and Edgeworld.

The Godfather will not be the first exclusive on Google+ Games. Rovio launched Angry Birds first on Google+, and still hasn’t officially launched yet on Facebook (probably due to the large costs, since Rovio is known for being outspoken about Apple’s 30 percent revenue cut on mobile devices).

Kabam has licensed rights to “The Godfather” movie from Paramount Digital Entertainment to build a big-budget social game for Facebook, based on the American Mafia classic.

Kabam, which is based in Redwood City, Ca., is known for making hardcore social games that appeal to gamers typically found using videogame consoles. That differs from Zynga, the leading social games company, which makes mainstream games for the largest audience possible.

The game, which launched today, is set in the Prohibition era of the 1930s, preceding the setting of the first film by about 10 years. Players and five crime families will battle for money, power and respect, with the goal of becoming the “Don” of a family.

The illustrations are cinematic, with extremely dark and menacing graphics, which is a dramatic shift from the cartoonish art and happy, smiling characters found in most Facebook games today.

In a blog post aimed at developers, Facebook wrote: “We have begun working with a few developers to test the ability to offer Facebook Credits on websites, with the goal of helping them offer a more unified app experience to users beyond apps on Facebook.”

One of the first partners is GameHouse, a division of Seattle-based RealNetworks. GameHouse will be using credits for both Collapse! Blast and UNO Boost on its own game network at GameHouse.com. By integrating credits, GameHouse says players will now be able to switch back and forth between Facebook and GameHouse.com, while maintaining their scores and data.

“We truly believe that every game will be social someday, whether it’s played on Facebook, Google+, or at GameHouse.com,” wrote GameHouse in a blog post.

Since users will still log in to their Facebook accounts to play the games, technically the credits will be purchased directly from Facebook. GameHouse will still have to share 30 percent of the revenue from the sale of Facebook Credits, which is the standard cut on the social network.

GameHouse is one of the first to try using Credits off of the network, but there will likely be others following.

Earlier this month, Zynga announced Project Z, its own gaming platform, which will provide a seamless game experience between Facebook and its own Web site. Despite creating a separate game network, as we wrote at the time of the announcement, Facebook’s influence will be everywhere.

Zynga will use Facebook Connect to enable game players to log in and play the games seamlessly between Facebook and Project Z, and although it declined to comment on the use of Facebook Credits, we can imagine with this trial there will be a role for them on the new platform, as well.

So what happens if you cut directly to the chase and build true casino games like slots, poker or bingo?

It turns out that rings up a pretty healthy business, too. The best part is that because of U.S. gambling laws, game players don’t ever get to cash out their winnings.

In other words, the house always wins.

In July, Sean Ryan, the director of game partnerships at Facebook, said the casino category is creating “unbelievable monsters,” and is still largely untapped by developers. “It turns out that people are completely okay winning virtual currency that they can never cash out,” he said.

But the category giant is no longer sleeping.

Earlier this year, Playtika, the developer behind popular Slotomania, was acquired by Caesars Entertainment Corp. for $80 million, and others are scrambling to keep up.

Today, Berlin-based Crowdpark has announced that it has raised $6 million in capital to help fuel its concept of social betting, where people can bet with friends on everything from who will win a football game to whether Angelina Jolie and Brad Pitt are getting married.

“This is just an entertainment product. You pay with Facebook Credits, so the players do know they don’t get any money back,” said Crowdpark’s co-founder and Chief Product Officer Ingo Hinterding. “It’s 100 percent legal.”

And there are many other players in the space, too.

Arguably, the first to establish the category was industry leader Zynga. In 2007, it launched Texas HoldEm Poker, a game that continues to attract close to 6.4 million users a day and is one of the company’s Top 3 revenue-generating titles. Two weeks ago, Zynga said it was expanding its casino games with an upcoming launch of Bingo.

Meanwhile, a number of lesser-known companies are literally hearing bells and whistles going off.

Seattle-based DoubleDown Casino, which has slots, video poker, blackjack and roulette in the same app, today launched a new game called Photo Booth Friends.

It falls under the “slots” category, which means you click to replicate the effect of pulling down the handle to see the reels spin on the screen. Photo Booth Friends lets you customize the reels with photos of your friends.

DoubleDown recently celebrated achieving one million daily active users, and has eclipsed other popular games like Zynga’s Mafia Wars, based on monthly active users.

Ryan name-dropped DoubleDown as one of the unbelievable monsters, and according to sources familiar with the company’s financials, we hear the game is now generating $140,000 a day in revenue. For reasons of competition reasons, the company declined to comment.

Others exploring the casino category include RealNetwork’s GameHouse and Electronic Arts through its recent acquisition of PopCap Games.

Here’s an infographic from Crowdpark, breaking down the social betting opportunity on Facebook:

Casino photo credit: FreeRishad.

Gilt Groupe, an e-commerce and flash sales site, is experimenting with selling items from a range of categories — on Facebook.

The New York-based company said Facebook users will be able to go to a special page on Facebook, where they can log in using their regular account information to browse items and check out.

The site will officially launch on Monday, featuring items from women’s, men’s, children’s and home.

Other retailers have dabbled in F-Commerce, which is short for Facebook Commerce. But with most experiments today, it’s not much different from shopping on the Web. Unlike how users pay for items in games or buy movies on the social network, retailers don’t have to use Facebook Credits, which would require giving Facebook a 30 percent chunk of the transaction.

A spokesperson confirmed it was not using Facebook Credits and said that the platform was built in-house.

In a release, Gilt explained that it will offer products on the Facebook page that will not be available on its regular site. For example, Gilt Man will launch its first sale with a themed event called Man About Town featuring clothing, shoes, and accessories, and Gilt Home will offer a Vera Wang Home sale that will be available first on Facebook and then later on Gilt. Gilt Children will also have exclusives from Nickelodeon’s SpongeBob SquarePants, including a 1.5-foot tall Lego model.

Both have been exceedingly good at getting big fast, raising tons of cash and at creating a brand new industry. I’ve written about that before.

But it appears the daily deals space and games industry could have even more in common than I thought. PopCap, which turned down a $1 billion buyout offer from Zynga for a $750 million offer from Electronic Arts, started selling one of its most popular games today for half-off on Tippr, which competes against Groupon and others.

So far, 26 people have purchased PopCap’s Plants vs. Zombies for $10, which represents a discount of 50 percent, so I’m pretty sure the deal isn’t a ploy by PopCap to juice its sales right before the deal with EA is finalized.

Over the past year, daily deals have quickly expanded from offering spa and restaurant discounts to just about every other category under the sun, including Amazon gift cards, movie tickets, travel deals, food, clothing, etc.

But a videogame download is still a rare find.

Together the pair makes sense for the right game. PopCap’s game titles are considered casual titles that appeal to the mainstream, much like games found on Facebook. Its PC titles, including Bejeweled, are frequently sold online or at major retailers, such as Wal-Mart. Daily deal providers, which have millions of subscribers, reach a similarly wide audience.

For example, it wouldn’t surprise me to see an offer for 50 percent off Facebook Credits in the not so distant future, or for specific games that are seeking new distribution.

Terms of the deal were not disclosed.

GMG is a publisher of digital currency cards and works closely with Facebook to manage, distribute, market and manufacture the cards.

The cards, which are sold at major retailers including Best Buy, RadioShack, Target and GameStop, are good for Facebook Credits, which is the digital currency used inside all games on the social network.

The digital currency market is growing as more games are played online for free and give players the option of buying virtual goods inside the game. Rather than having to enter a credit card number online, game cards can be conveniently purchased in cash and redeemed online. Another big player in the industry is Atlanta-based InComm.

Topps, which was acquired and taken private by Michael Eisner’s Tornante Company and Madison Dearborn Partners in 2007, says it will leverage the acquisition to enter the digital currency market, while bringing manufacturing, design and collectibility skills to digital currency cards.

Rob Goldberg, the CEO of GMG, will become the VP and general manager of the digital currency business, reporting to Topps CEO Ryan O’Hara. GMG will represent the company’s third business division in addition to trading cards and confections, such as Bazooka bubble gum.

GMG’s other executives, Tim Pechmann and Jeff Mickeal, will also join Topps.

GMG works with about 45 clients, including the NFL and game companies like THQ.

The company instead is focusing on building tools to help other game developers get up and running quickly. In return for the assistance, the game developers must host their games on Windows Azure, which is the name of Microsoft’s cloud technology.

Today, Amazon hosts many online games, including big Facebook games, developed by Zynga and others.

The benefit to using the cloud to host your game is that it can ramp up quickly if you see a huge spike in activity, and then scale back down, so you aren’t overpaying for equipment you aren’t using.

While Microsoft hosts some social games in the cloud already, this program is obviously trying to ramp up that business. This week at Casual Connect in Seattle, Microsoft launched a toolkit for developers, which provides the basic code for a number of back-end game technologies that all game developers typically must build, but don’t really want to spend a lot of time creating.

Among the components included are ways to track player achievements, ways to keep score, and guidance for using Facebook credits to monetize a game. The tools also show developers how to store user profiles and charge for in-app purchase. All the code and APIs are provided free, so developers can jump in at any level and get up and running in a short period of time, said Nathan Totten, a technical evangelist, who worked on the project.

To make the experience extremely easy, Microsoft even created a game with the help of Grant Skinner, a well-known developer in the space, to demonstrate how it all works. The game is called Tankster, which is online for anyone to play. The game includes messaging, wall posts and comments, and player achievements and game stats are presented on a leaderboard.

More information can be found online here.

The IPO may potentially rank among the largest of the year, especially among tech companies. For instance, Yandex, which is considered the Google of Russia, secured $1.4 billion last month.

Zynga said it will use the cash for general corporate purposes, including game development, marketing activities and capital expenditures. It also may continue to make acquisitions. In an interesting twist, it also said it will use a portion of the proceeds to contribute to charitable causes through Zynga.org.

The company’s underwriters include Morgan Stanley, Merrill Lynch, Barclay’s Capital, Allen & Co. and Goldman Sachs. (One item sadly missing from the filing — a list of investors.)

In particular, what’s interesting about Zynga’s offering is that it will represent the first publicly held company that makes its revenues mostly from the sale of virtual goods, like an energy boost or a virtual collectible garden gnome.

The company said it operates in 166 countries and sells 38,000 virtual items every second. It has 60 million daily active users and 232 million monthly active users. Astoundingly, people play two billion minutes of play a day and have four billion neighbor connections.

The San Francisco-based company, which was founded by Mark Pincus in 2007, was named after his late American Bulldog, Zinga. It got an early start from launching Texas Hold’em Poker on Facebook, and today dominates the four largest applications on the social network.

Some of its hit titles include CityVille, Empires & Allies, FarmVille and Mafia Wars.

The game-maker has grown extremely quickly, acquiring more than one company every month for the past year. Today, it has 2,000 employees (some of whom, as my colleague Arik Hesseldahl notes, are about to become very wealthy).

In 2010, the company’s revenues totaled $597.5 million, compared to $121.5 million in 2009. In the first three months of 2011, it’s revenues already totaled $235.4 million.

In 2010, profits totaled $27.9 million, reversing a 2009 loss of $52.8 million. In the first three months of the year, the company broke even.

That’s how the company accounts for its revenues by the law, but Zynga has come up with its own methods in dealing with its financials as one of the first virtual good companies to go public, a subject I’ve written a lot about.

From 2008 to 2010, it said so-called bookings increased from $35.9 million to $838.9 million, and that its adjusted EBITDA increased from $4.5 million to $392.7 million.

It says bookings is defined as the total amount of revenue from the sale of virtual goods during the same period the purchase was made by the player. Under GAAP accounting, it typically spreads revenues over a 12-month period, which it believes is the average life of a virtual good.

Much of its success has been tied to the ability to create games that are attractive to a large userbase. Many of its early players were women who were looking for a way to unplug after a long day of changing diapers, or while a young baby was napping. Zynga and other social game makers are largely credited with expanding the number of people who play games beyond the traditional gamers, who play on the Xbox or PlayStation.

However, because of this social element of playing games with friends, Zynga’s success so far has been closely tied to Facebook. Over the years, the two have shared a hot-and-cold relationship. A year ago, Zynga entered into a five-year partnership with the social network, in which it agreed to expand its use of Facebook Credits in games.

The benefit of Facebook Credits is that there is a common currency across all games, which makes it easier to conduct microtransactions. The downside is that Facebook takes a 30 percent cut, representing a big chunk of a company’s revenues.

In the filing, Zynga revealed a huge piece of its business comes from games on Facebook. As of December 31, 2010, and March 31, 2011, 69 percent and 82 percent of its accounts receivable were amounts owed to it by Facebook, respectively.

The company’s dependency on Facebook is just one of its risks. Revealed in the filing is that Zynga does not have any special terms with Facebook. In other words, it must share three cents of every 10-cent credit that is sold to a user, like every other game company.

Another risk is that Zynga also relies on a small percentage of its players for nearly all of its revenues, meaning that many players play for free and avoid having to ever buy any virtual goods. It did not disclose that percentage.

As for growth, one blemish on the company’s record is that the number of daily active users has fallen to 62 million in March from 67 million in the same period a year earlier.

However, many other companies have seen a drop in that same time period, and is likely correlated to Facebook’s crackdown on allowing game companies to post an unlimited number of messages to a users’ wall promoting a particular game.

Related posts

• The Zynga IPO: Who Owns What, Who Makes What
• Zynga Has Raised $845 Million in Capital, But No Mention of Google as an Investor
• The Zynga-Facebook Codependency Becomes More Clear
• Here’s the Zynga S-1 to Play With (Get It?!?)
• Zynga Finally Files for IPO to Raise $1 Billion
• Day 3: Zynga Holds Tech Reporters Hostage in Endless IPO Watch
• What to Expect When You’re Expecting a Zynga IPO (Insider Selling, Natch!)
• A Sneak Peek at Zynga’s IPO: How to Turn Virtual Goods Into Real Money
• Exclusive: Zynga About to File for IPO
• Zynga Full Coverage

Facebook will later today announce it is adding support for 32 additional currencies to Credits, including the Brazilian real, the Korean won, the Malaysian ringgit and the Russian ruble. That brings Facebook to 47 currencies supported.

Partnerships and platform marketing VP Dan Rose said he expects that nearly all games will make today’s deadline — though my colleague Tricia Duryee has found a couple of developers who procrastinated until the last minute.

Games that don’t make the transition to Credits will soon be warned that they’re violating the newly updated terms of service and face standard enforcement procedures, Rose said. Meanwhile, Facebook has put out all sorts of incentives and case studies showing that usage of Credits encourages more in-game spending.

But Rose continued to downplay any larger ambitions for Facebook Credits beyond creating a more consistent experience for users to purchase virtual goods within games — even though they’re already being used to buy Facebook Deals and a limited selection of movies.

“Our core business is ads,” Rose said. “We think of credits as a service to users and developers. It secondarily generates revenue for Facebook.”

Rose added that Facebook has far fewer credit cards on file than other companies, though he wouldn’t do the math for me. I mentioned that Apple recently announced it has 225 million credit cards on file.

Rose declined to give an equivalent credit card stat for Facebook, but noted that Facebook has said more than 200 million people play games per month, and of those only a sliver — the industry statistic is probably around five percent — ever spend money.

However, that virtual goods spending in real terms is “significant,” Rose said. “Even though it’s a small percentage of people, it’s a large number.”

OK, but now that people are spending more of their money online, I asked, don’t you see the opportunity to facilitate that at Facebook scale?

“From our perspective, the e-commerce and physical goods space is quite well served,” Rose said. “There’s lots of companies doing that and it’s actually quite hard.”

What about deals?

That’s just a matter of convenience, said Facebook platform marketing manager Deborah Liu. “If a user went to the trouble of buying Credits in a game, we didn’t want to say to them you can’t spend that money you’ve already spent with us.”

Are you guys seriously trying to say that you don’t have a larger vision here?

“Really, there isn’t,” Rose replied. “We’re focused on games, and we’ve enabled some other tests. Obviously there are lots of places this could go, but we think we have a lot of opportunity in front of us.”

Liu and Rose added that Credits has mostly avoided problems like fraud and instability because the its economy doesn’t fluctuate, due to help from larger efforts like Facebook’s “social authentication” system, and because users can’t extract their money from the system.

Liu said the demographics of Credits users are parallel with those of social games — older women in regions where Facebook is most popular.

Asked about extending Credits to be more like real currency so they can be passed between people, cashed out from the system and used on other platforms like iOS, Rose said obtaining the banking credentials to allow such functionality and striking deals with other platforms’ payments systems is “not something we’re focused on.” (Though the paper trail may indicate that some credentialing is going on behind the scenes.)

All this denying of Facebook’s larger ambitions for Credits is likely to have no effect whatsoever on industrywide anticipation of such moves. But at this point in time, on the occasion of this mandatory Credits milestone, that’s the party line.

Please see the disclosure about Facebook in my ethics statement.

Despite the heads-up, a few slackers were still busily updating their games this week in time for today’s deadline.

Facebook Credits is a currency used to buy virtual goods inside many games on Facebook. Users can pay with a credit card, PayPal or by using their mobile phone.

Going forward, that means a player must purchase virtual goods with Credits, instead of paying for them directly using a credit card or other payment service, like PayPal. Once Credits have been purchased they can be used in any application on Facebook.

Many developers started implementing Credits more than a year ago, and by the time the announcement was made in January, many were already on board. At that time, Facebook said 350 applications, from 150 developers, were already using the payment system, representing more than 70 percent of virtual-goods transactions.

But this week, I talked to two companies — RockYou and RealNetwork’s GameHouse — that were scrambling to get their final implementations done in time. Other big players, such as Zynga, Playfish, CrowdStar, Digital Chocolate, Lolapps and PopCap, jumped on board early and have been up and running for a while.

Facebook said the primary purpose behind Credits was to make payment more straightforward for the consumer.

But it would be an oversight not to mention that the company is also generating big bucks from implementing the program, since Facebook takes a 30 percent cut of all sales. (See Liz Gannes’ interview with Dan Rose for the latest on the program.)

In fact, Facebook Credits is a lot like Apple’s iTunes, which keeps 30 percent of the revenues and shares 70 percent with application developers.

When first introduced, the program met a lot of criticism from game developers, but over time they’ve been pleasantly surprised at how easy Facebook Credits is to implement and how well it monetizes.

Take GameHouse, for example.

The Seattle-based game developer has some 15 games on the social network, and was working up until yesterday to get all of its games on board. Ian Fliflet, RealNetwork’s senior director of corporate strategy, said some of them weren’t worth the time to convert. So some games won’t be monetized going forward, but will be kept up to generate traffic.

He said in the case of the games that have already been updated, the conversion has definitely been worth it.

“We’ve seen an increase in the number of people paying, so it’s been net positive for us. There’s an advantage to players already having Facebook Credits in their account — the biggest hurdle is to get them to get their credit card out of their wallet,” he said.

In the case of UNO, since implementing credits, the number of people now paying to play the game has increased 10 times, which more than makes up for the 30 percent they are paying to Facebook.

RockYou, a Redwood City, Calif.-based developer of social games, switched over most of its games earlier this year, but waited until yesterday to transition Zoo World over to Credits, for several reasons.

Lisa Marino, RockYou’s CEO, said the company did not have enough developer time to get it done earlier, and it is reluctant to switch because the two-year-old game was monetizing well using PayPal. She said the game accounts for about a third of the company’s digital goods revenue.

In general, she’s found that if you have to completely retrofit a game to accept Credits, revenues will decrease. But when you have the opportunity to build a game from scratch with Credits built in, it does better than any other payment platforms.

As for cutting a check to Facebook, Marino calls the 30 percent “pretty standard.”

“If you are looking for eyeballs, then you have to be willing to pay the toll,” she said. “I don’t lose any sleep over it. It’s my operating environment and I optimize for it.”

Marino can also share her opinion as a gamer who spends $300 to $400 a month of her personal money on social games. ”I don’t have an issue with Credits … as long as I can do things quickly and conveniently, then I’m good.”

Photo Credit: BeingSelfEmployed.org.

So, what might be next for the aspiring social network?

Probably a social game network, and based on what I am hearing from multiple sources, it sounds like Google is close to launching one that could rival Facebook.

A Google spokeswoman would not confirm that a social game network was in the works, but provided this statement: “It’s important to keep in mind this is an ongoing project and this is just the beginning. We plan to add a lot of features and functionality to Google+ over time. We’re just excited to get started.”

Over the past three years, Facebook has helped spawn a whole new category of games that allow you to play with your friends online.

Along the way, it has also helped build several million-dollar companies. Zynga, which is reportedly going to file for an IPO any second, is the largest. Others, such as Playfish and Playdom, have been acquired by Electronic Arts and Disney respectively.

The Google+ project is the company’s most cohesive social strategy yet, so it would be the most likely candidate for more services and features to be layered on top over time, including a social game network.

Google already sells games, like Angry Birds, through its Chrome Web Store, and recently has gotten more seriously into social gaming, for example, through its venture arm’s lead investment in Kabam. (There are also some hints in the Google+ source code that games are coming. Engadget discovered that the code says “have sent you Game invites and more from Google+ Games.”)

Google’s quest to enter the social games market likely kicked off more than a year ago.

Last summer, Google invested more than $100 million in Zynga, which TechCrunch reported was part of a larger strategic partnership.

Shortly after the investment, Eric Schmidt, Google’s CEO at the time, verified the company’s involvement in the game company. When asked about Google’s partnership with Zynga, Schmidt told the WSJ, “we haven’t announced it” but “you can expect a partnership with Zynga” in the future.

If Zynga files for a public offering, we may find out more of the details as soon as today.

Strategically, Google’s entrance into the space could be a big deal to developers looking for a platform to build on outside of Facebook, which has a lot of control over the social games market.

For example, starting Friday, it will be mandatory for all game companies to use Facebook Credits as the only in-game currency. And Facebook takes a 30 percent cut of all of that revenue.

Google could offer an outlet for developers that charged less to use. Plus, for all of the companies that are sick of competing (and losing) against Zynga all the time, Google’s entrance could give them the opportunity to start again with a fresh slate.

Google will still have to prove it can be a successful platform to make it worth a developer’s time.

Today, ifeelgoods, which helps brands implement these incentive programs, has raised $6.5 million in capital. The first round was led by IDInvest Partners, a venture capital firm in Europe, with Tugboat Ventures also participating.

Michael Amar, co-founder and CEO of ifeelgoods, said its platform enables retailers to give away Facebook Credits to consumers, who can then perform tasks including liking the retailer on Facebook, signing up for an email distribution list, making a purchase, checking into a location or answering a survey.

Amar said giving Credits often works better than offering a coupon or discount code, because consumers like to believe they are receiving something, especially if they know they don’t have to make a purchase.

When the company launched in September, Amar said, there wasn’t a lot of awareness about Credits. But awareness has increased rapidly, because there is a lot of natural overlap between the demographic retailers are looking for and Facebook gamers, who may be 40-year-old housewives killing time between diaper changes.

Facebook Credits reach a new milestone on Friday when the payment service comes out of beta and the company requires all social-game developers on Facebook to use it — and consequently share 30 percent of the revenues.

An example of a promotion on Facebook is an advertisement that offers consumers five free credits if they enter their email address to be added to a distribution list. With one or two clicks, consumers can earn the points.

They can then post the offer to their wall so their friends can see it. Amar said consumers are willing to share this information 60 to 70 percent of the time.

Some of the retailers using ifeelgoods include 1-800-Flowers.com, GameFly, Ice.com, Meijer, Shopping.com, FTD and La Redoute.

Retailers must pay 10 cents apiece for the Credits, but Amar said the economics pencil out because it’s a small cost to get users to connect with a brand. Other applications using Credits as incentives include Booyah’s MyTown and Shopkick, which both require check-ins in the real world for a chance to win.

Amar said he imagines being able to provide other incentives in the future, such as credit on Skype.

With the funding, ifeelgoods plans to hire engineers and sales people and estimates it will have 20 employees in the fall. It also plans to expand in international markets.

When it goes public, the Facebook game developer will be the first major U.S. company supported primarily by the sale of virtual goods to do so.

To get an idea of what such an animal might look like, I talked to a handful of accountants, lawyers and game companies to get a sense of what we might find under the hood.

What’s immediately clear is that there are no obvious answers.

The Securities and Exchange Commission and other governing bodies have not yet come up with a legally prescribed method for taking into account the sale of virtual goods.

That leaves companies to come up with their own best guesses.

“There are no rules about this stuff,” said Bob Komin, the CFO and COO at Linden Lab, which operates Second Life, the four-year-old online virtual world. “I haven’t heard anything about a standard, but it’s probably the number one thing we talk about before we get audited every year.”

Revenue recognition on the sale of virtual goods is not exactly a sexy topic (unless we’re talking about an avatar’s undergarments!). But as more companies shift to a free-to-play model, where games are monetized through microtransactions and virtual goods, the subject will become more commonplace.

Zynga may be the first out of the gate, but many others are waiting in the wings — Facebook being the most prominent. Zynga declined to comment for this story.

Here’s what is known about Zynga

Four of its titles dominate the most popular applications on Facebook: CityVille (No. 1); FarmVille (No. 2); its newest title, Empires & Allies (No. 3); and Zynga Poker (No. 4).

All of those games are free and monetized through the sale of virtual goods, such as purple cows, energy boosts, clothing or premium buildings.

In-game items like these are either purchased directly on Facebook or through gift cards purchased in the store. Zynga also makes money from advertising and mobile games, but revenues from those are presumed to be far less.

In total, Zynga reportedly generated about $400 million in profit last year on about $850 million in revenue, although subsequent sources told AllThingsD’s Kara Swisher that the filing will reveal much more robust numbers.

But it’s not the sheer magnitude of Zynga’s business that has created problems for bean-counters. It’s the details on how to account for every last penny.

In a white paper, accounting firm Ernst & Young writes that there are three typical models being used today.

Here’s how they break it down:

• Game-based model: The company recognizes revenue over the life of the game.
• User-based model: Revenue is recognized over the estimated life a user plays the game.
• Item-based: Revenue is recognized based on the implied or explicit life span of the item — in other words, how long it would last in the real world. Examples of more durable goods are virtual vehicles, furniture or weapons. Revenue from these would be recognized for as long as the player stays active in the game. Revenues from a more consumable item, like a virtual cup of coffee or a jolt of energy, would be recognized almost immediately.

And there are still other factors to take into consideration, such as whether the goods were paid for with virtual currency or real cash, and how much information a company has for establishing the averages.

Lack of rules won’t stop companies from filing to go public

It can get really confusing really fast.

Kirk Soderquist and J. Dax Hansen, attorneys at Perkins Coie in Seattle, are looking at the legal ramifications of virtual goods.

“You have a bunch of alternative financial services companies that have sprung up on the Internet around social networks and gaming because there’s a need to deal with money in an innovative way. But the laws aren’t clear on how they apply to the Internet and the gaming space,” Hansen said.

Despite the lack of clear regulations, they said, they don’t believe that’s keeping any companies from filing for a public offering.

The one major aspect for a company to consider is unclaimed property laws. If a user purchases credits or coins but doesn’t use them, a company can’t necessarily set an expiration date and count them as revenue. In many states, it is considered “unclaimed property” — like an unused gift card — and the government can collect the revenue.

“Investors and acquirers will be interested in how you deal with that,” Hansen said. “If they are dependent on breakage for their business model, then they have another think coming.”

Linden Lab recognizes revenue over three years

Linden Lab’s approach for Second Life most closely resembles user-based accounting, which recognizes revenue over the average lifespan of a player, which is three years.

That time frame was picked, Komin said, because players tend to stick around for two to four years. “So, three years is not a bad estimate,” he said.

Komin prefers the long timeline because it evens out the revenues, making the company look like it has a very predictable and recurring business model. “If you have recurring and repeatable revenues over three years, it means that even if you are growing really fast, your reported numbers would be growing less quickly, but it would be more predictable. The other far extreme would be to report everything in the current period, and you’d see the growth as it was happening — but it would be more volatile.”

In other words, if Zynga does the same thing and reports FarmVille revenues over more than the two-year period it has been popular and revenues from Poker over three-plus years, revenues will be very consistent and not reveal much in terms of how well its games are currently performing.

Likewise, sales won’t spike when they release a new title, like Empires & Allies — which has jumped from the seventh most popular game to the No. 3 spot in the past week, according to AppData.com.

The iPhone is an example of the two accounting models

A good example for this is how Apple originally accounted for its iPhone.

When the first iPhone came out, Apple used subscription-based rules to account for the revenue. That meant that sales from the iPhone were spread out over many months, rather than right after a customer bought the phone. Wall Street analysts found the practice annoying because the company’s revenues barely budged despite selling two million devices in one quarter.

Apple was forced to report it this way because it technically wasn’t selling a finished product. Over the life of the product, Apple planned to push down free updates to the device. (This is also why Apple once charged for iOS updates for the iPod touch, so it could recognize all revenue immediately.)

The laws have since changed.

“Apple is a great analogy,” Komin said. And just as Apple figured it out over time, “I think there will be some adjustment as people figure [virtual goods] out.”

To be sure, Komin has his preferences for how he wants to do it, as the company considers an IPO.

“Generally speaking, investors don’t reward you for volatility,” he said. “Recognizing revenue that matches [a user's] life cycle feels better than recording it immediately. But whichever way we go, and whichever we choose to do, we have to make sure investors understand the business.”

Whatever Zynga decides, investors (and journalists!) will thank it for being transparent.

Facebook’s payment system will be available virtually worldwide starting next month with additional support coming in 13 countries in Latin American and Asia.

For those who don’t know, Facebook Credits is the currency inside all games on the social network and acts very similarly to Apple’s iTunes.

And, just like Apple, Facebook keeps 30 percent of the revenues and shares 70 percent with developers.

The expansion to more countries coincides with the looming July 1 deadline, which will require all developers on Facebook to use credits instead of other third-party payment systems.

To add payment methods in these final countries, Facebook has partnered with Live Gamer, a New York-based company that powers microtransactions in 23 countries around the world. Facebook has similar deals with companies, such as PlaySpan, which was recently acquired by Visa. Here’s a full list of all the payment providers Facebook works with around the globe.

For Facebook, partnerships are key since the billing solutions can vary drastically from country-to-country.

In a blog post, Facebook told developers: “Through these improvements, we’re now able to support developers in virtually all countries.”

The countries affected are: Japan, Korea, Philippines, Indonesia, Malaysia, Vietnam, Singapore, Brazil, Argentina, Chile and Mexico. The deal is expected to go live in July.

In addition, Facebook will also support payouts to developers in all countries, except where the government has prohibited it. That means, developers will be able to receive revenues through bank accounts or PayPal.

Facebook is able to operate in 15 currencies, including the Japanese Yen, the Australian dollar, the Hong Kong dollar, the Norwegian Krone, the Turkish Lira and others.

So called “engagement advertising” or “transactional advertising” encourages users to participate voluntarily in advertising by watching a sponsored video (a.k.a. commercial), or alternatively downloading an app, taking a poll, or interacting with a site. In exchange, users get access to things they would usually have to pay for.

Many Facebook apps, including those from top developers like Zynga and Causes, already work with companies like SocialVibe and TrialPay directly. They pay users in their app-specific virtual currency or in real dollars donated to charity.

Now, users will be able to watch video ads in order to earn Facebook’s platform-wide virtual currency, which they can then presumably spend across other Facebook apps.

Facebook said its goal with the program was to get more people to start using Facebook Credits and carry a Credits balance.

Facebook Credits are mostly spent on social games but they are increasingly accepted for other types of transactions, like videos and deals. One Facebook Credit is worth $0.10.

Please see the disclosure about Facebook in my ethics statement.

Image via Inside Facebook.

But it didn’t say how it would overcome technology barriers, such as finding a way for a smartphone to connect to the register without requiring a consumer to get a new phone with a near-field communication chip, or without making the retailer buy fancy new hardware.

Today, it announced an acquisition that may be one way it could solve this costly dilemma.

On the PayPal blog today, the company announced that PayPal has acquired Fig Card, which has developed a way for merchants to accept mobile payments by using a low-cost USB device that plugs into the cash register or point-of-sale terminal. Customers will have to install the Fig app on their smartphones.

“We loved their approach to point-of-sale, particularly because it was driven by the same vision that we have at PayPal–in the future, transactions can be as smart as a computer and not as dumb as paper. We won’t need our physical wallets. We’ll be able to pay any way we want, from any device, anywhere in the world with both flexibility and privacy,” said Peter Chu, PayPal Mobile’s senior director.

Fig Card was founded in early 2010 by Hasty Granbery and Max Metral, who will be joining the PayPal team. On the company’s Web site, it admits that the obvious challenge for the company is its small size, but that it was moving forward with trials among a handful of merchants in Boston’s south end.

Prior to founding Fig, Metral was co-founder and CTO of Firefly, which was bought by Microsoft. At Microsoft, he developed Microsoft Passport, one of the first single-sign-on systems. He then co-founded PeoplePC, where he met Granbery. PeoplePC was purchased by Earthlink.

If you spend any time with eBay at all, it’s clear that a lot of its emphasis is on PayPal. On Wednesday, it noted the division’s contribution to revenue growth in the first quarter and said in the first three months of the year, PayPal added one million accounts for the sixth quarter in a row. It now expects to achieve 100 million active accounts by the end of next quarter.

Additionally, PayPal was just shy of hitting its first billion-dollar quarter, and now represents 39 percent of the company’s overall revenues. To support its goals further, eBay recently acquired WHERE, a location-based mobile services and ad network.

While PayPal is one of the longest-standing online payment providers, it faces steep competition in the digital payment space from both incumbent providers and new entrants.

For instance, the Fig technology sounds similar to what Square is trying to accomplish by passing out dongles that can enable virtually any smartphone to accept payments. Square announced this week that it received an investment by Visa. Other giants like Google are getting into the space, and additionally, Facebook is becoming a big player in the space with the roll-out of Credits, a system used today to pay for virtual goods, digital items, and, increasingly, physical goods, like daily deals.

The timing of the launch leaked out early when the New York Times accidentally published its story early and then promptly took it down.

In a cached version of the story, which is also available in RSS feeds with the words “embargo-till-midnight/” in the URL, explains that the test markets will be Atlanta, Austin, Dallas, San Diego and San Francisco. UPDATE: The story now has been published officially.

A lot of details on how Facebook Deals planned to operate and how it anticipated rivaling others, like Groupon and LivingSocial–or even Google Offers, which launched last week–have been available for some time.

The one noticeable aspect that the unpublished article confirms is that users will be able to use Facebook Credits to pay for the offers.

Up until now, Credits have mostly been used for virtual goods inside of games, or for some movies. Facebook typically takes a 30 percent cut from those transactions, but it’s unclear whether that will continue to hold true for these deals as well. Users will also be able to pay by using a credit card.

So far, the economics of group-buying on other sites would in theory support Facebook taking a 30 percent cut. Typically, a merchant offers its services for 50 percent off, and then gives the company that generated the lead 25 percent of those revenues.

It was already announced that Facebook had signed up nine partners: Gilt City, HomeRun, OpenTable, PopSugar City, Tippr, KGB Deals, Plum District, ReachLocal and Zozi.

Facebook’s goal is to focus on group activities and to make it easier to share deals with friends when they see a friend purchase something.

Recently, BoomTown reported that Flixster–the popular social movie site whose brands include the Rotten Tomatoes premium reviews site–was in early acquisition discussions with several suitors.

Now, said sources, Warner Bros. appears to be the frontrunner in various talks to buy the entertainment site, while Internet giant Yahoo has dropped out due to price concerns.

The reason for interest from the Time Warner-owned studio, said sources, is due to a spate of recent digital efforts, including its expansion of a movie rental experiment on Facebook.

As MediaMemo’s Peter Kafka wrote last night:

Facebook users watch “The Dark Knight” on the social network for $3. Now it has added five more movies, and is asking more money for three recent releases: It will cost you 40 Facebook Credits–the equivalent of $4–to rent “Inception,” “Life As We Know It” and “Yogi Bear” on the site. The first two “Harry Potter” movies, however, are at the original price.

Flixster has a strong presence on the Silicon Valley social networking giant, which could make it a good vehicle to attract people to the movie rental effort, as well as a popular mobile app.

Interestingly, Rotten Tomatoes was once owned outright by another traditional media giant: News Corp.

It is now only a minority shareholder, after trading Rotten Tomatoes for a 20 percent stake in the combined entity a little over a year ago.

News Corp., which owns 20th Century Fox Studios, is not bidding for Flixster, several sources said.

The price being discussed for the San Francisco-based start-up is between $60 million and $90 million.

Any acquisition negotiations could always fail, of course. In fact, Flixster held advanced discussions in late 2007 with IAC/InterActiveCorp.

Flixster trades all kinds of recommendations, ratings and news and even posts user-generated movie reviews on its Web site and via widgets on social networking sites, mostly on Facebook, and on mobile devices.

Co-founded in 2006 by CEO Joe Greenstein and CTO Saran Chari, Flixster has raised $7 million in venture funding from Lightspeed Venture Partners and Pinnacle Ventures, as well as garnering angel investments, such as from Silicon Valley entrepreneur and LinkedIn founder Reid Hoffman.

The combination with Rotten Tomatoes and its more robust Web presence made a lot of sense. It features mostly premium content, including professional reviews, trailer videos and news.

The site is famous for its clever fresh and rotten tomato rating system for movies.

I have not received a response from emails sent to Flixster and Warner Bros. requesting comment.