FreeToPlay.biz The Business and Design of Free-To-Play Games

22Jul/091

Designing, Balancing, and Managing Virtual Economies – CC09

Panel discussion led by Chris Early. Throwing up raw notes because that's better than nothing. Please excuse spelling mistakes. This was a great panel... lots of good advice and some numbers too. Worth a read through the raw notes.

Panelists:

  • Daniel James, Three Rings CEO
  • Min Kim, Nexon VP of Mktg Nexon America
  • Lisa Rutherford, Two Fish
  • Andrew Sheppard, Hi 5
  • Craig Sherman, Gaia Online

Nexon

  • $29.3M in 2007 in virtual items sold in NA
  • Driven by new content but also by new payment platforms

Gaia

  • 8M uniques/month
  • PCU 100K every afternoon
  • 2 diff currencies
  • soft currency is attention-based currency - secondary market for this has over 100K completed auctions per day for virtual currencies and goods

Two Fish

  • Virtual economy data platform provider
  • collects data from within game worlds, then feeds it into analytics db
  • Allows you to optimize user experience
  • Has about 20 customers
  • Helps to set up economies, balances sources and syncs, tweak

3 Rings

  • $4M/year in rev for PP
  • Whirled has similar economy with 3rd economy allowing for UGC creators to cash out

Hi5

  • 63M users
  • Open social supporter
  • 40 currencies, 70 langs, 60 payment methods
  • 10x size of myspace games is their game site

Two Fish

  • When starting, understand what your goals are and what you're monetizing
  • approach design from bottom up - asking where company wants users to spend and earn

Gaia

  • did not manage economy when they started
  • want ppl to earn quickly for initial wow experience
  • down the line, someone who has been playing for months and months get really rich - what is left for them to buy?
  • need to manage these disparities correctly from the beginning
  • company has one full time economist balancing it

Nexon

  • 1999 or 2000, company stumbled on microtrans
  • tons of ppl in beta for quiz game
  • turned on charge switch and everyone left
  • switched to f2p
  • heuristic process
  • recommends learning from playing and purchasing items and deconstructing what they've figured out
  • a lot of it is a function - time = vanity, etc

3 Rings

  • don't screw up
  • mudflation - overinflation of currency is easy to introduce if you are not being rigorous about sources of attention currency
  • need to have some level of instrumentation... need to pay attention and be set to react when something goes awry
  • it is a discipline that is tough to master

Early (Moderator)

  • Most games are a command economy - decisions about game economy made by a govt or central body, not market forces. Do you give the market any control ?

Nexon

  • Nexon controls all re game economy
  • ppl think of biz models first
  • most important is to think of what game ppl wnat to play... high levels of engagement
  • ppl playing your game casually... playing it 5 times, etc... unlikely to play
  • need to get higher enggement times

Gaia

  • in these conferences, you'll see two answers for how to run these games
  • socnet are driven by viral loop or manufactured virality
  • core brand or long term user base coming to a destination site
  • we are in the latter category see a close tie to making an awesome product and getting a higher level of monetization
  • others are more focused on pushing people into a monetization model early on

Hi5

  • 3 different levers:
  • engagement
  • monetization
  • virality
  • with a hard currency, has to be a command economy

Early (Moderator)

  • what are the leading indicators you measure and what do you do with them

Two Fish

  • looking at macro flows. in and out of economy, both real and virtual money
  • measure how quickly they are coming in and out of game
  • are women having money coming through their accounts quicker or slower than men?
  • look at what they pend on on... retail optimzation methods... correlated against demographics and pricing and how pricing changes over time
  • a lot of data and charts but you have a repsonsibly to be benevolent

Nexon

  • how people are flowing in
  • how they are churning out
  • unique users per month
  • ARPU for that month
  • pay rate based on subs they have
  • economy balances itself... quickly they are going to determine if they want to pay for your game... in some ways the players dictate how you charge for your game

2 Fish

  • difference between people paying and what happens within game
  • within game world itself, thinking about what you are giving your users... you want them to have an economy they feel is balanced

Nexon

  • we do not tie attention and real money currencies together

2 Fish

  • some ppl do tie those two currencies together

Gaia

  • best measure of what you're doing right is
  • retention analysis
  • length of time spent
  • ultimate measure is customer retention

3 Rings

  • any metrics are useful for testing hypotheses, but if you're wrong you need a new one
  • how much cash are people holding?
  • going to be a tension between hoarding and what you need them to do, which is spend so they need more money
  • really interesting metric
  • puzzle pirates is a command economy - cash prices fixed by us
  • in world, player creators price certain items
  • I would like to take back that control... users don't do a good job
  • players tend to price too cheaply
  • we will likely have to seize control of pricing from the users as they are acquiring things to easily

Early (Moderator)

  • wealth management has come up as a topic - are there things you can do that aren't massively disruptive?

3 Rings

  • incredible opp to take fantastic amounts of wealth and turn it into a one-time exclusive item
  • when we shut down alpha server we challenged people to throw Pieces of 8 into a hole... winning group got their name on top of a list

Gaia

  • we wanted to redo our amazon-like stores within the site, so we created a fiction inside Gaia that stores were getting shut down because of recession... asked users to help donate to help build higher quality stores... we created a concept of leaderboards... where largest donating teams got their names in lights... they felt as though they were getting status within the site

Nexon

  • you want your players to spend all the money they have so they need to get another payment card, etc
  • you should offer your players lots of diff ways to spend their money
  • players are not buying 1 item at a time... they are batching... buying $10 of virtual currency at a time... so you need lots of options for purchase so people don't have money just sitting there

Early (Moderator)

  • do you measure inflation? have an index?

Hi5

  • no, we don't... we have 40 currencies... every country has its own purchasing power for a user
  • a lot of people when they are thinking in metrics talk in ratios... very dangerous to measure app performance in ratios... tells you nothing about success... one could be making $1, one could be making $1M
  • need to look at overall

Early (Moderator)

  • why have multiple currency types, why not just 1?

Nexon

  • if you want one currency, you probably lose control
  • if you can't control it, the players might not need you anymore

3 Rings

  • very risky to have just 1 currency
  • Linden has just 1 currency... from the outside it is terrifing
  • they say they are a country - maanged like a central bank
  • second life is not a game, so they don't have the same compulsion loop
  • stripping out that game aspect means they can probaby get away with 1 currency
  • whenever you have a faucet that is your real money currency - espcially if it is uncapped - you can wake up and find it hacked or duped and you have to press reset
  • dupe bug for soft currency or farming method is bad, but you don't need to find it in 30 mins... where you would with hard currency dupe bug

Nexon

  • take a couple items and make them purchasable by soft and hard currencies... most players will work hard to purchase with soft currency

3 Rings

  • the ppl who do take credit card out are buying the time and attention of the people who don't

2 Fish

  • in general, dual currency is what we recommend

Early (Moderator)

  • you hinted at exchange between soft and hard currency... where is the legal liability... regulations

Gaia

  • we need to be clear... if you can get your money out, then it is a big issue
  • SL has a currency where you can invest your time and get it out in real dollars
  • as soon as you do that, you can run into regulation issues, but more primarily, people will try to game the sytem... bots, farming, etc
  • if you are going to go down that path, plan on having half your dev team working on managing exploits for the next few years
  • you have then become the best target for money laundering
  • we chose not to do that... greatly simplifies life... branding decision as well - is your site a place where you can spend time and earn money? a career? or is it a fun experience where you put in your money but don't expect to get it out

2 Fish

  • working with two companies that are in the skill based gaming sector... getting money out
  • we use a double entry ledger system... duping is harder
  • huge fraud risks
  • comes down to modeling behaviour... looking for abnormalities

Gaia

  • if you want to let money out of your system, you need to do games of skill not chance

Early (Moderator)

  • how do you price things?

2 Fish

  • i love pricing... counterintuitive in some places
  • barrier pricing... i.e. everybody wants one of the cooler cars
  • initial thought is that cars should be expensive
  • but really they should be cheaper as they are a barrier item
  • once they have a new car they can spend more on customizing it
  • think about what kind of behaviours you want and price to encourage that

Nexon

  • we actually do sell cars for $10
  • we sold 120,000 cars for $10 apiece
  • agrees re: barrier
  • but barrier for ppl in game is not 10c, but $10 for initial payment... so you need enough items to justify that
  • if you have 100 ppl playing game, what % are going to pay and how much
  • what items can you create to get to a $15 ARPU

Gaia

  • we do exactly that re: modeling an ARPU
  • interplay between getting ARPU up vs getting percent of people who pay up
  • clearly they should be complementary
  • but fascinating thing is that we are not really clear on which one matters more, we go with what is easy
  • getting dollars per player up is always easier
  • people who want to pay are willing to pay a lot of money
  • relatively easy to find small % of ppl who pay and pay
  • more interesting thing is how to get a higher percent of ppl to pay
  • that has more ramifications on long term business health
  • barrier is getting the money into the game via cc or payment card

Hi5

  • we work with developers on pricing
  • if you don't test a variety of price points initially... you are liking to optimize around a suboptimal price point
  • also important to take into account how much money is being spent per minute of engagement
  • if you do allow exchange of soft and hard currencies, need to ensure the price is not punitive - with one dev, we halved it from $5 per half hour to $2.50 and doubled their ARPU

Gaia

  • ways to avoid hitting the 1% chargeback
  • not allowing you to purchase on day 1
  • maxing the amount ppl can spend in a month
  • making sure ppl can't pull money out

3 Rings

  • we hit chargeback problems ... we hadn't switched on address verification... turned it on and problem went away
  • WoW has big chargeback isseus as people farm on stolen CCs

Gaia

  • median user age is 18
  • under age 18 I would be looking at sub models
  • bad if you have to ask mom each time you want to spend another dollar

3 Rings

  • habbo hack for under 18 microtrans - $4.95 club habbo sub that gives you virtual currency... allowance from folks... can also buy more currency
  • hoping users get comfortable with that and give more money

Nexon

  • betting on teen market
  • kids are fickle... in and out quickly
  • once club penguin kids grow up, they will spend money on virtual economies.. right now their parents are saying no to premium subs

Comments (1) Trackbacks (2)
  1. I’m currently considering these issues from a player/consumer and business ethics perspective.

    One thing I’ve been wondering about is why Developers don’t seem to take longterm customer retention in mind when setting price. They think if they can tempt players into paying a high price once, this is the optimum price and players will keep on paying that price. However, players may view that one transaction as a moment of weakness – they may be disappointed with their purchase or feel they were tricked into buying by false advertising. Then players see no change in pricing policy as Developers try to build on their initial “success”. That leaves players to either grumble a lot or leave the game all together. Such grumbling shouldn’t be dismissed – it’s negative buzz about the game, costing the game future customers.

    Many of your blog posts focus on how to maximize profits within an F2P context, but do you look at short-term windfalls versus long-term stickiness? Do Developers ever consider that consumers can fight back if their practices are unethical?

    I’m not an economist, and I feel under-equipped to take on this issue. But perhaps in raising this issue I can inspire someone with the right education and analytical tools to take it on.


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