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

14Oct/080

VGS 2008 – Making Virtual Economies Work

Virtual Goods Summit 2008

Moderator: Susan Wu (Ohai)
Panellist: Susan Choe (Outspark)
Panellist: Lee Crawford (Twofish)
Panellist: Christopher Donahue (Live Gamer)
Panellist: Karl Mehta (Playspan)

Summary

The vendors on this panel - Twofish, Live Gamer, and Playspan - seem to be sitting in areas of potentially huge value-add, but ... they also seem to be targetting their offerings at solving the problems that their customers don't necessarily need solving, and would be better off solving themselves.

This isn't so unusual, of course - middleware providers would always rather do something easy and high-margin that the customer could do themself in-house than do the risky, hard, thing. And, to a certain extent, it behoves customers well to have a vendor that is doing some easy revenue-generating stuff: it decreases the chances that the vendor will go out of business having lost too much money trying to sole "too difficult" problems.

Chris Donahue from Live Gamer took a timeout at the start to be clear about his defnitions of Primary Market and Secondary Market (allegedly he encounters some confusion among audiences about this; this is a bit surprising to me - the terms are very well established - but if he's seen that confusion, it's worth reproducing here)

primary market = publisher selling items to user
secondary market = player to player trading of already-purchased items

Finally - Susan Wu (the moderator, from Ohai) showed once again her tenacity in pushing difficult questions on the vendors especially. It probably doesn't come across very well, but she did a good job of trying to get details and info out of them - they were good at refusing it.

My commentary in [square brackets]. This is not a literal transcription, I've elided, ommitted, and expanded things for clarity.

Introductions

Outspark (OS) - we do a virtual playground, where each game we publish is like a ride in a Theme Park. Pretty soon we're going to roll out a TP "main street", where the playerbases of the different games will mingle and mix. We have 5 published games, one of which is flash-based VGs. 3 million reg users, 2 million monthly uniques, mostly USA. Users are mostly 16-25.

[Outspark is the one game/world Operator on the panel (along with the moderator, Ohai, which is an Operator-to-be, but still too stealthy to have released much detail yet)]

PlaySpan (PS) - we're a B2C that lets publishers monetize the secondary market from their VG economies.

Live Gamer (LG) - we provide marketplaces for people to sell stuff, both primary and secondary markets.

Twofish (2F) - ERP for VWs and online entertainment. Combine commerce, banking, and inventory management. Allows economic management and other advanced high-level things like that.

Ohai (O) - [after requesting a show of hands] 10% of the audience thnk that VGs will be 50% or more of their revenue streams

O - are people building their econ-management tools all proprietary? when does it make sense to buy them?

OS - fraudulent people come in and tend to buy huge amounts very fast. So you then have to quickly call your business partner and ask them to add filters to catch and prevent that stuff.

PayPal are nice, but they don't do this very well yet. [my interpretation]

We have 75% of our users are USA, so they tend to be less fraudulent. Poland, Turkey, Malaysia, China etc all have much higher fraud levels.

O - [to the one operator on panel:] what are you outsourcing these days?

OS - we have not outsourced primary market at all. When we started, 2 years ago, the business aspects were new to a lot of people in the market. Product Management of VGs just didn't exist except at a very small number of companies - people who know how to plan out their products online, what to release, how much, at what range of prices, when.

[this is a particularly interesting and good point: Product Management / Retail experience is one of the things that has and will set apart the big winners in the VG area from everyone else. Having worked with some ex-Retail people in the past I've seen first-hand how very very far behind the "standard practices" the vast majority of online games, virtual worlds, and virtual-goods companies are. IMHO, if you're in this area, find someone who used to be a senior product manager in retail, for one of the giant retailers, and hire them]

We have signed with LG for the secondary marketplace [she didn't actually say, but she glanced at LG when she said this, and Chris unsubtly looked away. If I've guessed that wrong, please shout in the comments :) ]

PS - this has to be done outside the game to legitimize the game, to show that there is a cash-out place that is not inside the game [this is hard to accept as stated; it sounds more like marketing spiel to me than a ring of truth - although I think there IS some legitimization possible, if you're already making the decision to play the game (and probably being part of the primary market), then as a consumer you should already have all or most of the legitimization you wanted. I can see obvious benefits to market speculators and traders, which has knock-on-benefit for the game, but it's a bit more subtle than what the PS person actually said].

LG - trying not to become a money-holder, because that causes you to become subject to regulations about being a bank etc. We spare the providers from those headaches.

If even inside the secondary marketplace the only person you can sell to is the publisher, that creates suspicions that the publisher is artificially controlling the market.

[Again, this sounds more like marketing/scaremongering to me; IME players generally don't think that far ahead. If you don't trust the game operator, you don't play the game. Also, let's compare this to the current "standard" alternative: secondary market run as a black market by illegal operators. And you're claiming that consumers would have an issue trusting the game operator? I'm not convinced]

O - as an operator, should I be building the secondary marketplace immediately / from launch?

OS - you need some depth of market, you need probably a couple of hundred thousand dollars a month of primary market before you want to start getting directly into the secondary market.

But people in your world will start doing it themselves whether you encourage them or not, so you watch them and keep tabs on how big it is becoming, and respond to it when appropriate.

O - really, as operators, we just want to know: how do I book more revenue? What are the KPIs?

2F - the first thing you have to understand is the interplay between return-visits and level of monetization per visit, because that's a major friction that succeeds or fails.

O - I have a PhD statistician working with me, so I'm lucky, but what should everyone else be doing who doesn't have that? What do you do with all these logs of data?

2F - most importantly you need realtime access to the data, that's what we give, is that platform that is able to work in realtime.

[really? why? Most of the stuff you want / need to do doesn't work in realtime: you want to track how one purchase influences another one minutes or hours later. Again, sounds to me more like propping-up the marketing features of the product than an actual "Operator Pain" that's being fixed]

LG - if you don't have a secondary market, someone else will build it for you and take the revenue. I think it's a lot less contentious to have it at launch, easier to get it built-in from the start.

[To the "someone else will build it for you" - YES! :) ]

OS - actually we track vast amounts of metrics ourselves, we always have. I think this no new news for most game publishers, and it should be in the key metrics that you look at already.

[from me, yet another: YES! - and this is part of why the vendor claims in this panel were uninspiring; they implied that no operator has a metrics operation. Given how much people have been shouting from the rooftops about metrics for the last few years (Everyone from companies like Bungie and Compete to individuals like Dallas Snell, Andrew Chen, Darius Kazemi), it's amazing to think that any serious operator would not by now be doing extremely comprehensive - and mostly "real time" - metrics]

O - most of us are not merchandising experts; what best practices (organizational, cultural, and stats choices) are there?

OS: [asked question, show of hands] only about 5% of people are interested in getitng their secondary markets up and running

[This was a big surprise, and it's a pity it wasn't repeated as a question at the end. This suggests that a lot of the attendees at the conference were - at least when they arrived - naive about the size and value (both direct and indirect) of secondary markets. I'm guessing that by the end of this session, quite a lot would have been converted]

At the end of the day the gamepay will keep some of the users, but not all of them. Half the gamers in our ecosytem come because of social interactions; the gameplay is good, but really the events and social activities is what gets them to come back, even in monster-killing games.

2F - is this profit centre, or something to prevent someone else taking it from you and causing you problems that way?

LG - both. I think it's had a bad name to date because it was an illegitimate black market to date, not publisher-sanctioned. Unsafe, all sorts of problems. Also, as publisher, if you control it, you can instigate some game-design rules in the market, e.g. allow everything except avatar-sales.

[this is very contentious - and very interesting, because very few people have tried it yet. I've seen wildy varying opinions within the operators on what will happen to the community and consumer markets if you start interfering in this way. My economist friends suggest the appearance of a tertiary market: they believe there will always be a free market wrapping any non-free market. I tend to side with them]

OS - we want to get into secondary market, because we want better escrow-management of the goods being traded (so people don't get ripped off in private sales, and then come blame us as operator, uncaring we weren't involved or aware of the trade)

O - you acquired SOE station exchange, and you increased the volume?
O - what was the average transaction size, and what is it now?

LG - cant' talk about SOE, but the average price is $50-$60 per transation now, which is a substantial increase. Also increased volume.

[look at the SOE Station Exchange Post Mortem, published last year, for more info - it's freely available on Google]

We don't get to affect the gameplay, we don't operate it - but we've provided a better experience to users in the marketplace, and we've proved it. We've reduced fraud numbers, and given more reassurance.

OS - also, the reassurance of residual value causes secondary to increase primary

O - actually, I dont think most gamers understand or care about residual value

[hmm...interesting disagreement there between the Susans. Again, I'd side with the Economists: this is probably a matter of what the actual good being traded is, especially: how expensive is it? The higher the initial purchase price and the lower the re-use value to an individual, the more likely that the market will be aware of and moved by residual values]

OS - I was told I could triple my primary market with secondary trading (by one of the vendors here). I don't know about triple, but definitely you see a big up in primary.

2F - the big benefit of secondary markets is that it creates a currency trading place between "time vs. money"

[interesting - I would expect that to already happen in game, or already be banned in game. If it's banned, and you have operator-sanctioned secondary marketplace, then they'll be banning it in marketplace. If it's sanctioned in-game, then it's probably already happening in-game. Certainly, there can be good reason for trade to ALSO happen in the secondary market, but it's not the logical predicate that the Twofish rep claims here. Again, this leaves me questioning exactly how much the vendors understand the realities of world-operation]

O - what should my operating margins look like? Taking into account customer service, fraud management etc?

PS - 10% fee, and split it with the publisher (secondary market)

O - that's gross margin, I really want to know operating margin. What's a good rule of thumb?

LG - I think that's unique for every single environment or operation

O - I disagree; ultimately this becomes a high-volume retail business, so it should settle down

LG - OK, then you can apply standard retail numbers to it. If you're talking about the entire operaitonal environment, it's too variable.

For the LG Exchange for EQ2, I could tell you [but he doesn't, despite Susan Wu's repeated attempts]. In general we take 10% market from revenue share from publisher, after COGS.

2F - I think it's a "how long is a piece of string" question

Q: how do you figure out the pricing spread of your goods in primary marketplace?

OS - you have to test price points. when you tweak the price just a little bit, 10/20/30%, you'll see movement in the volume sold. But to start, you have to go out and do standard business research before that.

O - we're trying to solve it by running tests on random samples.

Q: when seeding your economy to get it launched, to what extent do you use free credits and how?

OS - the law of internet is that when you get users used to free stuff they will expect it forever more.

O - I think it of as animal behavioural training, like training a dog. You give out free credits for e.g. putting in their real name, real email address. So ... you're getting them used to the idea that "credits" come as a result of "doing something".

OS - I would say just don't give currency away for free.

14Oct/080

VGS 2008 – Branded and user-generated virtual goods

Virtual Goods Summit 2008

Moderator: Margaret Wallace (Rebel Monkey)
Panellist: Brian Balfour (Viximo)
Panellist: Lee Clancy (IMVU)
Panellist: Amy Jo Kim (Shufflebrain)
Panellist: Sean Ryan (Meez)

Summary

There's a a third type, "Branded UGC" - where users who create content start to become known-brands in their own right. This has already happened a lot in Second Life, it's not surprising to see it happen in other content-creator-heavy, environments.

It seems the big players / winners so far are still taking a very "experimental, unplanned" approach to the fundamental worrying parts that keep newcomers awake at night: what goods should I be selling? what pricing should I offer them at?

My commentary in [square brackets]. This is not a literal transcription, I've elided, ommitted, and expanded things for clarity.

RM - [after getting a show of hands] About half to two-thirds the audience have or are launching a goods-based game.

RM - In general, what processes do you use to decide what to put into your inventory?

Viximo - we focus on connecting content-creators with publishers. We leave it up to the creators, and give them support tools and hints/tips to do that, prompt them around holidays to create themed content for that holiday, etc.

Tools, e.g.: mostly the info we feedback about the buying activity; what types of people are buying what tupes of goods, whats popular, whats good.

Also, Scarcity: creators decide desired high/low inventory and price. Internally we decide what inventory level when we look at that.

IMVU - 120m items in the catalogue. We take the view that anybody at some point could become a digital-goods creator if you give them enough support from community perspective AND hands-on training/tutorials.

Meez - we start with the holiday theme. Then look at what the advertisers want to see. Then we look at the upcoming features, and make sure we have compelling items there. A lot of our prod dev driven by trends/fads in the userbase - pop culture influences etc.

RM - what challenges have you found from UGC?

Shufflebrain - "quality" and "appropriateness" are the biggies. At There.com we had both branded content and UGC. We thought the branded would be much bigger, but it turned out that UGC was much more exciting among users.

Copyright, porn, hate-speech etc - you have several different ways to deal with that. Pre-moderation, user-tagging of problem content - it's a management issue both legal and social/cultural for the product design. [basic explanation of trivial rating systems here]

When people come into the world for the first time, you want them to see great stuff, you don't want them to see crap.

Its not "branded vs UGC" in general - it's different for each game / prod design. Choose the right one for you.

It's about: who are your audience, what does "status" mean to them, and how much skill do they have at content creation?

IMVU - we also see a third type, "Branded, UGC". A lot of our users move from being CCs to being Branded CCs as they build up a significant brand purely within the IMVU world.

Meez - what is a VG? We all talk about it like they're just clothes, but that's just one third. Another third is world-features (can I levitate, can I glow like a lightbulb), and final third is privileges, access - "can I sit in a special seat in a public space?" etc.

In these worlds, often you're only about 2 inches high, so to differentiate, you end up going more extreme in clothing. And then there's not all that much you can make that varies that extremely.

[Adam: if you're making more extreme clothing, with more stuff sticking out the sides etc, specifically in order to allow differentiation, surely that leads to giving you far MORE options in terms of items to create?]

Ultimately all these items are about generating increased status.

Viximo - have to think of CCs as different from normal users - they are a different community, with different ideals and aims and activities.

IMVU - have to be very clear on your policy. We have a very clear policy on what is allowable etc.

[Adam: there are already initiatives in progress on this, from Erik's Better EULA to Raph's Metaplace policy; it would be good to see more sharing between virtual worlds, more standardised policies, so users only have to read and understand ONE of them]

RM - what tools does IMVU offer to support UGC - issues of ownership (operator or player)?

IMVU - any products that someone creates derive from a core base product originallly created by IMVU. And then we track the chain of people creating from, creating from, creating from,  ... etc. We then pay everyone along the chain (every person who's work got derived from gets paid).

[gaming this - what happens with two-person cycles?]

Shufflebrain - smilebox, which is online scrapbooking. Kind of like slide/rockyou for scrapbookers. There's things like this that are much more connected to / derived from the real world (as opposed to pure VW worlds) and that's part of this VG spectrum.

Meez -  if you have a community of any size and you aren't in the VG market, then you're missing the boat in a big way.

It shows status, it allows gifting. It's the secondary model that combines the best bits of advertising. It's great way of monetizing the always-on hardcore, while you're simultaneously monetizing the masses via simple advertising.

IMVU - 90% of our revenues come from VG sales.

RM - how do you determine pricing?

Meez - pricing is easy, we look at Gaia, and copy it :) .

In South Korea, it's much more mature, so we look at that as a place to take input on pricing [???]

3%-8% of users will ever buy stuff.

We started at $6 / month for VIP package. We could have done $10/month and it would have been fine. [which begs the question: why are you voluntarily forgoing an extra 60% revenue? - one of the panellists came back and asked him this later:] we still haven't decided exactly how much to charge, we're still adding features to it, it's not feature complete yet.

We've noticed that if something doesn't have a status-element, it sells more poorly.

We have no secondary market, its all manually priced by us through trial and error.

The value of branded items within the system isn't always clear.

We had one body-type originally, only "thin". People complained that it was too thin, body dismorphia.
So, when we added more, we found that the other sizes were very popular:

17% of women choose "plus" (biggest size)
80% of men choose "buff"

Shufflebrain - people have been traditionally choosing just fantasy identities in the online games, but it's moving towards people choosing identities that represent themselves. So, now that's another big question you have to think about: which kind of identity will you service for your users with the kinds of goods you sell?

[Adam: IMHO this issue of "which identity are your users creating/using on your service?" is one of the few that advanced operators in all online games have been thinking about for years now, but many haven't - strangely it never comes up at conferences (I suspect that the people who know are keeping quiet about what's a clear competitive advantage to get right ;) )]

Meez - why not photos? Too personal, too unchangeable. Avatars are much more flexible, changeable.

[Adam: interesting; the ease of changing/updating photos is changing already, good cameras are becoming ubiquitous (inside the DSi, for instance) and fast to upload to flickr etc ... how long before photo-avatars replace current ones?]

RM - as service provider, what effect is the financial crisis having on your clients?

V - in the VG space it's moved from "what are VG?" to "how do I do it?". It's been recognized as a much better way to monetize virtual communities than most other things.

So demand among publishers is currently very high for VG economies/systems.

We're also going after creative individuals, getting them to go direct to consumers, instead of being part of a bigger chain. Totally different dynamic to what they usually do.

I - we just added profit-based pricing: you say how much margin you want to get on the item you've created. This empowers the content creators [Adam: I'm not sure how that "empowers" them?]

RM - VGs are a $1.5billion global market. [Adam: this week at the Virtual Worlds Forum Europe one of the attendees mentioned a recent research report from Finland, IIRC, that pegged it at $2.1billion; we'll follow up on this later]. how do preferences for VG varying based on demographics?

SB - Only speaking from my direct expereinces...many social VG skew female, many games skew male. Ultima Online was male-skewed, There.com we had a mix - but females were leading the charge on content-creation, especially totally dominated clothing, especially especially the top creators.

Music downloads in rockband etc - this is part of VG too. That's a good that exists in the game that opens up a new activity. I believe this has cut across gender lines (both male and female)

[Adam: Well ... the game itself is doing the cutting across gender lines, it's arguable that whether or not it's an activity is irrelevant - it's a captive audience of people who like the game]

I think this is the future - VGs that open up new activities, as opposed to merely being about status etc [this is referring back to the slide that the RedPoint Ventures guy put up at start of conference]

I - I will get hold of the breakdown between M/F content creators, but I don't know that off the top of my head

Women are buying lots and lots of clothing items - "content consumption" skews as well as "creation".

M - need to consider that are limits to how many items you can make use of. So think about group-purchases as well - e.g. in Puzzle Pirates when you buy a ship, you also have to buy badges for each member of your crew (other players of the game who won't buy them themselves).

RM - how do international users influence your actions?

I - this is an English-language product, with very little internationalization, but 40% of our revenues come from international. When you build something good, people are going to want to be a part of it, wherever they are.

We're very clear that we're under US jurisdiction etc.

M - it's hard to monetize non-US traffic - but it's still EASIER with VGs than many other things.

e.g. banner ads for say Nigeria aren't going to get better than $0.02 a click - betting they will is a losing bet, but you CAN feasibly get Nigerians buying and selling VGs at much better monetization levels.

[Adam: interesting ... places like that leapfrogging real-world consumption, straight to VG consumption?]

RM - rockband / AG numbers?

M - Kerli, an Estonian goth-pop singer, who is very popular with part of our audience. We find in general that branded goods are a great promotional vehicle.

It is not clear yet that users are willing to PAY for branded goods at a price level that's big enough to make revenue the primary use of it. The premium branded good business in the US is still small, compared to other things.

2.5 % click-out ratio for people going out the chatroom to buy the songs on iTunes or etc.

[Adam: and some others that went past too fast for me to get down :( ]

Q: I thought most of the transaction model was that you sell virtual currency. Currency vs items, challenges there?

I - we do sell credits, that are used to buy VG. There's also promotional credits that we give every user when they get an avatar. And there's the VIP service, which is a monthly subscription that gives a batch of credits each month as an allowance.

M - less-active users you sell advertisers. Medium users, 1 item a month purchasers. High end, you have a subs offering for the hardcore so that they can go off and differentiate themselves.

We make VIP have value more than just the credits - being a VIP is a status item in and of itself - so people subscribe AND buy extra credits.

Q: how do you decide where to draw the line on how much credits to give away?

M - look at your sinks and sources of currency, your float. Just use standard economics measures. Keep tweaking to try and keep it roughly inline to prevent inflation and deflation.

Relatively straightforward to track in and outflows on a weekly basis and keep tweaking in response.

I - a lot of biggest CCs build up so much credits from their sales that they start to act as currency traders. Provides an RMT cash-out opportunity for users / CCs, which is good.

Q: what have you done about fraud?

M - Fraud goes up as soon as you either allow cash-out, or you reach a certain size of userbase.

We have fraud but we don't allow cash-out yet, so it's really all about cheating in-game, and we just have to use great reporting / metrics internally to detect and trace it.

1Oct/080

Leigh Alexander, News Director of Gamasutra, Talks Free-To-Play Trends

Leigh's been a friend of F2P.biz since its inception, when she was kind enough to run several of our articles on the site she managed at the time, Worlds in Motion (a Gamasutra "sister" site). Since then, Leigh spent some time at Kotaku before rejoining the Gamasutra family as News Director of the main site, Gamasutra.com.

Leigh recently gave us some of her time at Austin GDC, doing an excellent video interview that fell victim to random audio difficulties. But because the content of that interview was too good to let die, we conducted a written interview with Leigh after the show.

Here is that interview:

You are a well known commentator on the virtual world space.  How did that happen, how did you get to where you are today?

Haha, I am? I guess that's one of the benefits of getting in somewhat early in a space that emerged quickly and got a lot of people excited about it. I was fortunate to be chosen by Simon Carless as the first editor of Gamasutra's sister site Worlds in Motion focusing on online worlds, and I suppose I learned a lot by covering the space and talking to the people who are pioneering it.  I also planned the inaugural Worlds in Motion Summit at GDC in February 2008, and while I didn't have a hand in the track you saw this year in Austin, a lot of the ideas came from there.

How was the Worlds in Motion Summit this year?

It was good! Austin was sort of an interesting climate for it, because surprisingly some of the presentations I thought of as "Worlds in Motion's Arena" were taking place across the board during the main conference. I'd hoped that some of the concepts and methodologies finding success in online social spaces would start proliferating across the game space, but I'm surprised it's happened so quickly! Still, I think we brought some unique stuff to the table.

What were the big issues and stories in the MMO/Virtual World space in 2008?

It seems to me like 2007 was the year that a lot of people, from investors to developers to consumers, realized we had a full-fledged phenomenon on our hands. This year, I think, is the year that a lot of fledgling products will be tested. As we're looking at what's launching successfully and what's not, and what's taking off and what's foundering, I think the biggest issue is for individual products to evaluate their substance a bit and perhaps specialize their focus a little. For a while, I think a lot of us operated under the idea that having the word "social" in your product description was enough, and now, I think a lot of these online spaces, even if they operate wholly in a "free" environment -- free to play, driven by user-generated content, and free of any kind of video game linearity, are seeing that they do need some kind of backbone in structure, and for that they look back to the game industry.

We're also seeing a quality bump start happening, I think. For example, even looking at Facebook, at first a Facebook user could get about a billion requests to add apps per day -- now that the user's maybe tried one too many "advertising in disguise" games, or one too many low-quality apps, the industry is having to adapt to a savvier user for whom all this is not so new. One of the ways in which new entries to the social gaming space can differentiate themselves is by presenting a really polished experience that's clearly grounded in good game design.

So virtual worlds are starting to look to more game structures, and social/casual games are starting to look to more traditional quality levels, and traditional MMOs are now seeing how crucial social elements can be, adding the ability for gamers to dance and make music together. Just today, I believe, I saw an announcement that PopCap is adding a Bejeweled-style game to WoW, because sometimes even hardcore players would like that casual social experience. So there's a lot of cross-pollination now.

What do you see as the big trends that will emerge in the MMO/Virtual World space in 2009?

I hope that the cross-pollination will continue, wisely. At first there was a lot of excitement around certain key concepts, and what I saw as a rush to implement them, and now I think the trend will favor a disciplined and appropriate implementation of things like social elements and alternative revenue streams, or asynchronous options for multi-user environments -- because as Raph Koster said in a panel at AGDC, new products need to tailor their approach a bit to how people are already using the web. I think we'll see a lot more of that.

And strictly speaking on the MMO space, with World of Warcraft in the position it's in, and with MMOs such a high-risk and volatile space, I think that traditional online game companies making MMOs are increasingly challenged to find real staying power in the space, to hang in long enough to actually make some money and develop a user community, and they're going to need to get more creative -- I think they're going to start looking to these emerging trends a bit more to differentiate themselves.

What are the major challenges Virtual Spaces feature before they can truly go mainstream?

The major challenge is how we define virtual spaces! As I said, I think a lot of people are excited about "virtualization" without having yet a standardized idea -- or even a clear idea -- of what exactly this means, and what it'd look like, and who its users will be, and where we ought to apply it and where we ought not to.

We have all the ingredients for mainstream success -- browser-based interfaces that anyone can access, low barrier to entry in design that focuses, as Raph Koster said, on the everyday web user, and we even have mainstream cultural penetration. Your average consumer is already getting hands-on experience with multi-user, web-based interaction via Facebook and MySpace, which are now household names, and even something much more traditional like World of Warcraft is the stuff of evening TV. People are now wholly familiar with and comfortable with paying for things online, with having a user ID, with playing casual games. These things have penetrated our cultural fabric, and we've got the city all built to receive the new occupants, but I think where we're challenged right now is finding a broad implementation that's beneficial to others beyond those who have already adopted it. We'll be successful at that when we implement online visual spaces, and avatar-based interaction, for example, in areas where it's a definitive and clear enhancement on the way we already do things.

Do you think the free-to-play business model is now accepted by the North American mainstream?  In the West, its adoption has, at times, been met with suspicion and reluctance.  Are we past that and if not how do we get there?

I think the suspicion and reluctance originates primarily in the core video game community, and with designers who have come from a video game or pure MMO background. When games are free to play, they monetize in one of three ways, or a mix of the three: Through paid-for virtual items, through advertising, or through tiered subscriptions. Strictly looking at these options from a game perspective, each of them could possibly unbalance or degrade the gameplay.

For example, with microtransactions, players will likely only spend money on items that have an enhancing effect on their gameplay. So basically, the fear is that paying users will be able to have game advantages that non-paying users don't. There's the same suspicion of tiered subscriptions, a fear (that has been borne out in reality, somewhat) that the free players are being "ghettoized," treated as less valuable by the game operator or simply having a much more limited game experience.

In both of these cases, yes, there is a free option, but not paying becomes a penalty in the context of a gameplay experience. From the designer's perspective, allowing users to be able to buy game enhancements becomes really challenging, because they need to keep the game balanced in order to make it enjoyable to all, and to achieve this they're suddenly tasked with managing a highly complex economy, something they might not have bargained for.

There's always some core gamer resistance to advertising, as well -- the vocal core of the game audience is very sensitive to integrity and will lash out against games they see as selling out to brands.

This audience, I think, will never get "past" it. They have declared quite clearly their desires and expectations from their game experience and I think that there should continue to be products that address that. But there's a broad userbase that exists outside the hardcore gamer, believe it or not! That's something that it's hard to be aware of, acclimated as we are to a sort of "internet gamer community." The people that we see the most often, and that are part of our most immediate culture, are not necessarily the largest percentage of the consumer population.

Just as concerns advertising, there's been research done that finds that there's a kind of consumer that would like brands in their online spaces, to enhance realism. There's a kind of consumer that would prefer to pay in RMTs instead of subscriptions, and the current generation of kids and teens is growing up in an area where everything on the internet is free, period. They're going to continue to expect that. So the traditional audience might be hostile to a new way of doing things, but my impression is we're implementing some of these new concepts with the primary aim of welcoming in a new audience.