[Editor's Note: Contributing writer Simon Newstead is CEO & Co-Founder of girl avatar game Frenzoo, a 3D fashion startup. He can be contacted at: simon at frenzoo dot com.]
Billing itself as one of a new breed of pure play web publisher, True Games Interactive opened shop at the beginning of 2008 is expanding its team and title list. We invited CEO & Co-Founder Bob Drobish to reflect on their first year and where free-to-play social games are heading.
How did you start True Games and how has the first year been?
We began True Games by stepping back and doing our home work. We looked at player interests, trends in the industry, and the gaps between the two. From that we built a business model and a plan that was compelling enough to attract the best professionals and business partners in the industry.
We were fortunate enough to attract people like Peter Jarvis formerly of NC Soft and Peter Cesario formerly of Namco Bandai. We were also fortunate enough to attract business partners like Petroglyph, GOA, and Possibility Space. Of course, one of the highlights of the year was connecting with global media giant UTV as both an investor and strategic partner. It has been a great year.
Your first game announcement was Warrior Epic. Are you focusing on any particular type or genre of games?
We have exclusively focused on micro-transaction based online games. Our immediate titles are exclusively designed for PC. The two titles that we have announced so far, Warrior Epic (Developed by Possibility Space) and Mytheon (developed by Petroglyph) will be downloadable clients, but with a twist…
From a gamer point of view, are there any synergies between games on your platforms?
Yes, there will be synergies in terms of billing and currency, but we feel that this isn’t the most compelling aspect to gamers. We believe that it is the overall quality of the player experience throughout the full lifecycle of a game that gamers want and need. That being said, our platform will offer user-friendly, mechanical conveniences that will add to the quality of the overall player experience.
How do you view the economic climate and how that will affect the F2P market either good or bad?
The economic climate is of course challenging for us as it is for all business. As an industry however, I think that online, micro-transaction based games offer a uniquely compelling entertainment value proposition. In these economic times, we’d expect that the most cost-effective entertainment options would have an advantage and we think our business model fits into that category. Gamers do not have to spend $60 up front on our games. They can download it at no cost, play as much as wanted with no subscription charges; while having options for micro-transaction purchases.
Is True Games targeting a global audience or focusing on US and English speaking markets?
All the IP’s that we establish are designed with a global audience in mind. Some western markets we will serve directly. Others we will serve through syndication partners with local expertise; but always designed for and distributed to a global audience. Player interest in games is global. The internet is global. So yes, we have developed games from the ground up to cater to players all over the world.
Many believe that old subscription models will give way to pure micro-transaction models, what’s your take?
There is an undeniable trend toward micro-transaction based models. Our research shows that this will continue in the years to come. However, I think the market will continue (at least for the foreseeable future) to offer subscription and micro-transaction based models; in some cases both for the same title. We believe there will be a rise in various hybrids of the two forms. Ultimately, the most successful model will be the one to serve the player best. This will require extensive testing and research.
What is the most exciting development you anticipate in 2009 for the industry?
The most exciting development we anticipate in 2009 (and what our business is built upon) is the launch of AAA games with a free-to-play model. Clearly, there are a lot of free-to-play games and AAA games. However, there is no successful AAA game with a micro-transaction based model in the western market. To develop this will be our most exciting endeavor in 2009-not just for our company but for the industry as well.
[Editor's Note: Contributing writer Simon Newstead is CEO and Co-Founder of Frenzoo, a 3D Fashion startup and the writer of the VR Fashion blog. He can be contacted at: simon at frenzoo dot com.]
Much has been written on why Google pulled the plug on Lively, its 5 month old virtual world.
The consensus, as Google themselves explained, was a need to “focus more on our core search, ads and apps business”.
Most observers viewed the cancellation as a tough but correct decision during a major slowdown in its core online advertising market. Many questioned the launch of the service in the first place. A search company moving into 3D cartoon chat and online gaming without a clear business model seemed a bit of a stretch.
Even Lively engineering manager Niniane Wangadmitted at Virtual Worlds London last month there was still no internal decision on Lively’s virtual economy model - not a great sign for a public service several months after launch.
However there were other factors that also helped contribute to the demise of the Lively service. These may not have grabbed as many headlines, but they had an impact, and not in a good way:
1. Rarity (or lack thereof)
Why do World of Warcraft players grind for hours and hours on end to level up or gain a new weapon or skill? Why do millions of Stardoll fans log in every day just to get their daily StarDollar allowance? Why do Gaia Online users save for months (or plead total strangers) to buy that one special item at the top of their wishlist?
Rarity.
The cardinal rule: make items rare. I.e. require effort and/or money to acquire items, and those items become highly sought after. Desire breeds addiction, addiction plus good, fun gameplay = many repeat visitors.
Yet the day Lively opened its doors, all items in their catalog were free. With that precedent set, nothing “felt” valuable. With that, there was no “desire” factor or goal to strive for - and far less motivation to keep coming back.
This design decision made Lively feel like a “throw away” environment, and users responded in turn.
2. Too powerful and complex an interface
As Ars Technica observed in its launch review, the user interface was difficult.
Unlike Second Life, Lively was designed to be a casual “pick up and go” experience for the mainstream - yet the UI wasn’t designed that way.
For example, many users (myself included) didn’t know how to make our avatars walk around a room.
Frustrated right clicking, left clicking, and hitting arrow keys yielded nothing. It turned out that the way to walk was to hover the mouse over your avatar, then drag and move the mouse to cause your avatar to walk around. Not intuitive.
You might think that the way to solve that was to use a more standard control, for example left click on a place and avatar walks towards it. However this brings up a higher order question: Why was walking even allowed in the first place?
Walking didn’t add anything to the social chat experience except complexity and confusion.
Lively’s competitor and 3D chat leader IMVU recognized this fact and even years after their launch, IMVU doesn’t support avatar walking.
Why?
It doesn’t need to.
3. Too rough, too early
Unlike an unknown startup, anything Google launches to the public is going to attract a day one audience of millions.
That’s what happens when you are the most visited web company in the world. You had better make sure that it’s ready. In Lively’s case, it wasn’t just the lack of Mac support that caused fits among its early user base (although that didn’t help).
It was other issues such as lack of an open content program, leading to a dearth of selections in the store on the first day. A few months would have made all the difference as Google had truly promising and unique content ecosystem in development which could have been a game changer.
It was also many little things:
Anger and confusion greeted a friend who had spent an hour decorating her room, yet returned a few hours later to find strangers had put sofas on the ceiling, tipped over chairs and rearranged plants into a jumbled mess.
All because at launch it was too easy to unknowingly allow others to edit your public room. This and many other small, yet very frustrating user experience issues surely would have been cleaned up with more time in a closed beta.
First impressions count even more in a spotlight.
4. Audience and art
Lively tried to be everything to everyone right from day 1.
Unlike other games based around a theme - be it anime lifestyle in Gaia Online, music in vSide or 3D Avatar Fashion in Frenzoo (disclosure: this is my product) - Google went for an audience of everyone. Or, as Google put it themselves, “Be who you want to be on the web pages you visit.”
This was always going to be an ambitious goal, but it was very difficult to create a cohesive experience with a mix of radically different art styles for the avatars.
In successful services such with Nintendo Mii or Habbo Hotel, there can be plenty of diversity in look but yet a single unmistakable avatar style glues the whole experience together.
However in Lively, you had tiny bears hugging tall skinny cartoon girls, while pigs walked around in circles.
The goal - total freedom of art style - may have been worthy, but put them all together in a chaotic 3D chat environment and the net effect was chaotic and off-putting for users.
5. No profile to call home
It’s an irony that a service that pushed the outer limits of web technology, the most basic social web features such as a profile page, were conspicuously absent.
Nearly every successful online game or web community has a profile page or home screen, as the center of the social experience and to build your own virtual identity - be it for role playing or just making friends.
IMVU’s profile pages are buzzing with user expression and customization, MySpace and Facebook have built their social businesses entirely around profile pages. Yet surprisingly, Lively, which billed itself as the next step in the “social web,” didn’t support web profile pages at launch.
Conclusion
Does the demise of Lively spell the deathknell for virtual worlds?
I don’t believe so. Whilst there has been some excess in hype in parts of the industry, for many players abundant opportunity is still there. The rapid growth of other virtual worlds from IMVU through to Buddypoke and Stardoll and growing revenues seem to bear that out. Not to mention the massive growth in MMO revenues in the past three years.
However in Lively’s case, Google made several big and small mistakes. Combined with a confused business model and no long-term commitment from the Google mothership, this ultimately doomed the otherwise promising service to brief and inglorious lifespan.
The problems could have been fixed and focus found for Lively. IMVU’s first year was plagued with bugs and issues; but as Silicon Alley Insider put it succinctly, in Google’s case they didn’t even try.
Raph Koster of Metaplace gave a video interview with F2P.biz during last month’s Austin Game Developers Conference. It was embargoed until just recently, so here it is now. Thanks, Raph!
Moderator: Mark Wallace (Wello Horld)
Panellist: John Hwang (RockYou)
Panellist: David King ((Lil) Green Patch)
Panellist: Shervin Pishevar (Social Gaming Network)
Panellist: Andrew Trader (Zynga)
Summary
Shervin and Andrew continued to be as cagey at this conference as they have been at all the other conferences (e.g. GDC) over the past year or so. In the light of their secrecy - even when appearing on a public panel (hey, guys - if you’re asked to appear on a panel at a conference, what do you expect? Of *course* people are going to want to ask you interesting and probing questions! If you don’t intend to answer them, howabout you just decline to speak on the panel?) - we can only guess at their motivations.
Some of their comments suggest, variously, that their current status and success are not rosy, and that they either have some worrying naivety in fundamentals of online games and online communities - or that they’re pursusing deliberate campaigns of misdirection of their competitors. Personally, given the secrecy and apparent lack of interest in being part of the usually open and sharing community of worldwide game-developers, I side with the latter.
RockYou came out looking a lot more open and honest by comparison.
My commentary in [square brackets]. This is not a literal transcription, I’ve elided, ommitted, and expanded things for clarity.
Wello Horld (WH) - How big is the market?
Lil Green Patch (LGP) - market size estimates - it’s really hard for us to judge.
Social Gaming Network (SGN) - we’ve done a little over 120m goods exchanged. [???]
Zynga (Z) - we look aspirationally at Nexon’s MapleStory, the volume of VG that they do.
WH - Where are we in terms of the market?
Z - They have to be items that users find valuable. e.g. WhyVille, from a demo standpoint it mirrors FaceBook, 200,000 active users, 4 or 5 thousand dollars a day in revenue. 50/50 male/female, 2/3 international (non USA).
LGP - 6 or 7 years ago virtual flowers were being sold on Hot-or-Not, so we’re optimistic that it’s been shown already that this is strong; this is not just coming from FB.
RockYou (RY) - it’s definitely in the mainstream in other countries, maybe not so much in the USA.
WH - what kind of ARPUs are you seeing?
[had to be asked 3 times to get answers, particularly from Zynga and SGN, who've been very cagey on this all year]
Z - there’s disadvantages to being on a SN, because the networks control the users. So .. fraud and cheating become much bigger problems, because the operator is indirected (can’t get hold of enough per-user metadata to be able to make good decisions on whether a transaction is probably fraudulent or not).
Herein LIES A GREAT OPPORTUNITY (subtle hint) .. FB and other platforms should become a payment-processing provider, since they can leverage the control they do have.
SGN - the future for all of us lies in exploring stand-alone sites
[and here you see it: this is how they could destroy traditional online games, by growing out of their fast, lean, rich SN existence into traditional places for online games.
But only if they have some revenues to prop them up, which makes the continued refusal to talk about ARPU rates interesting for their non-SN equivalents to mull over]
WH - do you see people coming in and getting engaged and staying … or leaving?
LGP - we added media and experiences that if you don’t login for a while, you miss out on loads of unique stuff.
Z - in YoVille we enabled trading so that users can buy and sell stuff to each other, which is remarkably powerful for building community. That’s done a couple of things:
1. It encourages them to buy stuff, because of secondary market [partly refuting Susan Wu's opinion this morning that the residual value in VGs won't increase volume of primary market]
2. It also leads to limited-number items appreciating over time, allowing for speculative trading
[speculative trading is a particularly powerful market driver - ask any Economist - and it's great for an operator as it represents revenue from non-users that should cost you almost nothing to service]
SGN - some things in FluffFriends have appreciated to values of hundreds of dollars each. You should focus on the core community, and give what they want, while realising that often what they ask for isn’t actually what they want.
[c.f. Richard Bartle's rant about how "game players are NOT professional game designers; they don't know what they want, but believe they do" from last year]
WH - what’s happening in FB and other SN’s, is just what’s happening in typical online games. In that context, we know the average life of a user is a little under a year. Do you see different numbers?
[well ... kind-of. Actually, that might be an average, but usually the medians are either a lot less - 4-6 months - or a lot more - 1.5-2.5 years]
Z - those estimates feel very high.
We found scores of users who found that the slot machines were tilted slightly towards the user, so they made bots and hit them with huge volumes to play the odds. Those weren’t cheats, just power users, and it’s really hard sometimes to tell the difference between cheaters and simply good players.
[this seemed to be that he was trying to make a point about the different types of users, and how it's hard to distinguish between them. Or, in the context of the refusal to talk about ARPUs, you might think this was a simple attempt to evade the question :)]
RY - we aim to have a fine balance between charging money, and giving players advantage for paying
[I thought the USA-based SN-gaming companies were redressing the mistakes of mainstream online USA companies that have cost them a lot of their competitiveness in the Free to Play arena, but maybe not. Give up the fairness argument!]
We see double-digit, $30/$40 [he revised this to $20/$30 when pushed by other panellists] per thousand daily actives. I’ve seen up to 75, but we don’t see them that high.
230,000 people
[hooray for Rock You for actually saying anything about their monetization and user figures!]
SGN - it’s really healthy, but we’re not disclosing
[Shervin was particularly firm and insistent (almost aggressive) on this point. To be honest, I'm getting fed up of seeing him (and Andrew, usually) choosing to give panel talks at industry events and being like this. Off the top of my head, such steadfast refusal to be public about figures usually means they're bad, no?]
LGP - if you look at Google’s core business it’s microtransactions already, from the start. I think most of the web is about moving from major publishing models with editors and so on to “let a thousand flowers bloom”.
Z - YoVille has so many items now that we’re looking at merchandising best practices as pointers.
SGN - we’re looking at doing the reverse of WebKinz, real world goods that are tied from online virtual items.
[that's very interesting; on the one hand, it'll be very interesting to see digital VG items mirroring back into real-world items in a recursive kind of way.
On the other hand, it's even more interesting that one of the two most famous SN-based gaming companies is trying such a variety of product/monetization diversification so early in their company existence.
I'm beginning to wonder if this signals a strategic plan of "get out of SN gaming as fast as we possibly can, leveraging our assets in that arena to kick-start businesses outside of Facebook that are actually viable from a revenue perspective"]
WH - what about iPhone stuff?
SGN - with iGolf, we’ve reached 2m downloads, and we’re looking at updating the games in future to make them more and more social over time.
Z - it’s great, but there’s even more opportunity for it to be an SN platform, because all your address book is there, etc. Will be interesting if/when Apple takes it more in that direction.
[and because it's a personal communicator ... a phone ;)]
WH - where can SN’s change and help you?
SGN - get a payment system integrated at the SN level. No more filling out PayPal forms, separate logins, etc - get it all seamless in one system.
RY - yeah, that’s the main thing - ways of being able to monetize on the SN. We’ve also noticed that users on the SN often don’t want to sign up to yet another account. Sharing the revenue with the SN, everyone wins.
Z - and fraud is a very big deal. All of the payment-processors still make it very difficult, with lots of overhead and difficulty to get payment up and running for yourself.
WH - what worked for you in the early days, what you would say to newcomers trying to leverage SN’s to break through into success?
SGN - I think the SN’s can do a much better job at the discovery process. Ways for users to find entertaining stuff to do. Leveraging stuff about using your friends as a recommendation channel, etc.
[I think there's a massive opportunity here, but of course it needs access to rich interconnectedness data for the individual user accounts]
Z - with YoVille it was all about the fact that the users could do self-expression that made users want to share with their friends. Our users decided early on to hold beauty pageants.
LGP - I think it’s still pretty much wide-open. There was a lot of things tried early on, some of which was really abusive of the users, and that’s been cleaned out now.
Z - actually I think the barriers to entry are rising really quickly, because of increased expected production quality, depth of content, application complexity, so I think it’s actually getting really harder for newcomers.
RY - so what he’s saying is don’t compete with us, just come and sign with Zynga instead
[score 1 to RockYou there for the second time in this panel for standing up to the Zynga/SGN hegemony ;)]
SGN - you can still make 5k/10k/15k a month as an independent FB developer, and we need to have indie developers, so that’s good, and people should carry on doing that. We’re a network, so we want to work with indie developers and have them alive.
[they're both sounding very like early mainstream games publishers: cagey, self-focussed (this is not a bad thing, unless you are a developer working with them), and telling developers to do all the innovation - and risk! - for them]
Q: [I couldn't hear this question, no mike, panel moderator didn't repeat question. Answer was very non-specific, most panellists declined to answer]
Q: cognitive process that users go through at point of purchase?
Z - We try to give users twenty different colours, and 5 different styles, because users are being declarative (this is who I am) and also aspirational (this is who I want to become)
SGN - self-expression is a key component of people wanting to get items and then do unique things, like a user writing a 65-page children’s book based on FluffFriends. It’s shocking and exciting the derived fanfiction stuff they make around the game.
So for those people, they’ll buy a lot, but they need to get that moment of inspiration right at the start to get them to decide to become part of this.
RY - you can often bring them back to thinking about the realworld parallels, like everyone wants to drive a Ferrari, etc.
Q: pros/cons using real dollars as currency vs virtual currencies?
RY - analogy: when you were a kid, going to an arcade, once you change your dollars for coins, you lose track of how much you’re spending, so spending is easier. Like in Vegas the use of chips rather than money so that you lose track of total spending.
Q: why hasn’t secondary market exploded on FB the way it has in mainstream Virtual Worlds (VWs)?
[my guess: VW's have real value, FB games have practically no value by comparison]
LGP - I think it’s just early stages, it’ll happen over the next few years
Z - it makes sense that it hasn’t happened right out of the gate, because if our motivation is to generate revenues, then the user-to-user transactions doesn’t generate direct revenues so it’s not something we’re going to focus on.
It’s important, but because it adds depth to the game, and creates community.
[...except that it's generally well known now for 10+ year that the secondary market occurs independently of whether an operator tries to build it. c.f. Christopher Donahue (Live Gamer) saying earlier today that "if you don't build it, someone else will".
So, this was a pretty amazing statement from Zynga. That kind of thinking - "doesn't generate direct revenues, so it's not something we're going to focus on", is exactly the approach that mainstream MMO publishers got slated for for most of the last decade (and appear to have gradually realised was a dumb mistake and are now correcting)
I wonder if Zynga really believes this, and is happily ignoring the history of the MMO market, or if they're saying this in order to misdirect their competitors (bearing in mind the audience was probably full of wannabe-competitors)]
Q: what about retention rates, and what you do on new platforms when you move to them?
LGP - if we had to choose between keeping existing users super-engaged, or acquiring new users we’d go for keeping the existing ones.
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.
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.
Charles Hudson has been kind enough to provide a discount code for FreeToPlay.biz readers for his upcoming Virtual Goods Summit, October 10th, 2008 in San Francisco. I attended the inaugural vgSummit in 2007 and took a ton of very useful notes.
I would highly recommend anyone even remotely interested in the virtual item sale space - or the larger free-to-play space that encompasses VIS - attend this one day conference. If it’s anything like the ‘07 version, the type of access you’ll get to the decision-makers powering the virtual item sale wave in North America (and abroad) is unlike any other event.
So if you’re interested, the FreeToPlay.biz discount code is “FREETOPLAY” (without the quotes). Enter it during checkout to save 10% off admission.
Austin GDC is over and we’re back up in Canada. We flew through Houston on the way back, which wasn’t nearly the Atlantis it’s made out to be on the news.
Our final video interviews from the show are posted below. Thanks to those that gave us their time. Enjoy!
Dave Grossman
Dave Grossman, Design Director at Telltale Games (makers of the episodic games Sam & Max, Strongbad and Wallace & Gromit), talks about upcoming games from his studio, the challenges of episodic delivery, player input on design and more.
Thomas Bidaux
Thomas Bidaux, VP of Strategy at Avaloop, talks about their debut product, Papermint, the free-to-play business model and what teenage girls want from their virtual goods.
Is it possible to have one business model for a game for both sides of the Pacific?
Min: It’s possible, but you need to tailor it for each market. You can do microtransactions in each market. But Korea has a PC cafe market which generates a lot of revenue and we don’t have that in the West, so that’s one big difference.
Hilmar: Eve Online is centrally hosted, so our busines model needs to be adaptable within the same server. We need to build a vast array of options within game so people can choose what they are comfortable with.
What changes have you had to make to attract customers?
Hilmar: We put in place a system of in-game codes that can be bought from us and sold player to player. Customers buy the codes with in-game money.
Is Nexon in China?
Min: We have made some changes in terms of accounts. When we took Mabinogi from S Korea to China, we had to add more PVP for that market.
Robert: We had to build in stuff to account for that market’s anti-addiction rules.
Hilmar: We need to take more of a lead on this when governments start messing with our games. Governments have very narrow view of market.
F2P vs Subscriptions: is F2P going to take over? Will subs go away?
Robert: F2P has a huge influence. But we have been based on subscriptions for years, with some games being around for 10+ years. Subscripitions hit a hardcore audience that is really embedded in those games. But as you expand your audience, they aren’t as hardcore anymore and F2P becomes more enticing as subs only wouldn’t appeal.
Nicolay: Both models work. Hardcore gamers are comfortable with sub model and most of the games with microtransactions have been casual games. But it is possible to have more than one biz model in a game.
Min: There is room in the market for both biz models. F2P in North America will make a large push as teenagers can’t commit to $15/month, so F2P will work well with them. Nexon saw lots of success when the market went beyond core to mass market.
Hilmar: Consumers are changing the business model of games - consumers making decisions. You can play Eve online through our trial program as a F2P program - users are able to “game” our trial system to play it as a F2P game. It’s a challenge for companies to adopt the needs of the market rather than keeping their head in sand. People will play the game how they want.
Min: We’re seeing in S Korea a lot of players have a subscription-based game that is their favourite, but have a secondary game that they play f2p with microtransactions.
Which model will win?
Robert: The demographics in LOTRO etc are a lot older: 20-35, male. F2P games tend to be younger, more females, casual, less hardcore. 30 year old males are not playing a lot of F2P and have no problem paying monthly subscription. Younger people and kids are playing lots of games and want F2P for that flexibility. However, F2P microtransaction games can pull in more ARPU than subscriptions.
Nicolay: People used to subs have not been in a microtrans environment because those games aren’t geared to them.
Min: Demographic and psychographics drive the business model choice
Hilmar: In China, it is illegal to have an automatic debit for sub based game - user always has to choose. For game operators, it’s important to realize that most biz models will be implemented by users. Better to implement them yourself and tune appropriately.
Min: It’s also based on genre - not many ppl shell out $15/month to play FPS. There are some F2P FPSs now in Asia. Biz model based on genre as well.
Hilmar to Min: Would you add subscription to your games?
Min: We aim to have a sub without adding a sub - i.e. adding items to mimic a subscription model.
Is there a disconnect between designing for subscriptions versus F2P? Do you need simultaneous development tracks for each?
Hilmar: All subscription-based MMOs are merit economies - those with most time, win. But the only thing you can’t buy is social merit. To be a purely subscription-based game, you should aim for social merit as it’s the only merit economy defensible against outside influences.
Robert: There is an opportunity for subscription games to add premium services, but it is critical to look at the business model up front. You can’t just switch models halfway through. You can’t just migrate to F2P. Sometimes that up front thought doesn’t happen though as business and development teams are often separated.
Nicolay: Going the subscription route makes it hard to go to China. So if you go subscription route, you need to be able to change later to go to China. You need to find your market and go for that.
Hilmar: You can’t have a puritan outlook on your business model. People will use whatever business model they see fit, so design the game around that. If you are only subscription, people will use secondary markets to make your game microtransaction-based. Look at telephone services: you can choose how you pay (prepaid, subscription, etc) - we don’t have this in games as the industry is not mature enough. We need to design for that mix.
Based on your experience, is an economy based on subscriptions more or less susceptible to grey market (i.e. player to player) transactions?
Min: It depends on the game, but in the MMO market it is all about supply and demand. Most companies keep items split - so dropped items are not same thing as bought items. Those item economies are split the same way in F2P - I don’t think a lot of ppl understand that.
Hilmar: I’ve seen F2P games with o market challenges as well. Don’t see how it is any different in F2P vs subs. If you’re leaving a game, you sell your stuff for an 80% discount.
Min: We introduced the Maple Trading System to Maple Story so players can sell items to other players for Nexon cash. For players that have time, they can sell the results of their time for money. Can’t get money out though.
Hilmar: Dual currency systems are a good inhibitor to prevent people from getting money out of the system. Players trading items within the game is not a negative, provided you keep the value within the economy. As soon as you move money out, it has a negative effect on the in-game economy.
Are there any negatives around designing your economy around F2P?
Robert: So many more people come into a F2P game so you need to ensure you can support so many more players. With subscriptions, if I am charging $15/month I need to ensure I supply content constantly. In F2P, maybe not so much content needs to be there.
Nicolay: F2P is more of a theme park. But items need to have value in order for people to buy them.
Min: I don’t think it is so dissimilar. In f2p, you still need to make a fun game. We aren’t just developing product to sell items, we need to make the game fun first, content needs to be updated constantly. Need to earn your money every day.
What are the challenges on the subscription model?
Nicolay: Because players are paying on monthly basis, you need to provide service. The player anticipates certain level of support that has to continue forever. Can’t just say here is the game, have fun, don’t ask us for help. This is the biggest challenge for developers coming from retail games.
Robert: The game is a service… now you need to keep them entertained.
Hilmar: If your goal is to develop a subscription game, you need to think about how you develop a merit economy that can’t be turned into a microtransaction system later. I suggest designing something that accommodates both revenue models. Trying to fight against what your customers want will always be a losing war.
A number of games from China have converted from subscriptions to F2P successfully - what can you do to convert?
Min: There is much more intense pressure in China to go to F2P. There, it is about demographics and peer set, because so many games in china are f2p, other publishers are converting to compete.
Nicolay: It happened overnight in China… bam, it’s microtransactions. Now publishers say it’s the only way to complete. We’ve been following it, as Western devs, we need to look at that but it’s difficult from Norway to understand what’s good for the Chinese audience. It’s important if you sublicense to listen to the partner you have… a lot of Western pubs that go to the East fail.
Min: I’ve heard that games that go to F2P have done far better than as subs. Games able to get a customer base and monetize it. Maple Story was successful in States because the players it goes after couldn’t do subscriptions. We get them in first, then monetize them.
Hilmar: In China, people are used to a cash-based economy. There is not a lot of culture around subscriptions and there are also legal constraint as well around implementing a proper subscription model. Westward Journey 3 did it in an interesting way, similar to us.
What will happen to F2P when the first $200M budget game comes out? i.e. WoW goes F2P?
Robert: What we’re seeing is a shift that a lot of the f2p games are so much lighter than traditional MMOs. Heavy MMOs are beautiful, but that puts a barrier to entry based on min spec - younger demographics don’t have these systems. Global expansion doesn’t support those specs either. Our games are above 5gb in size, whereas Maple Story is close to 1gb now.
Min: What would a $200m f2p game look like? I can’t imagine spending that much… the game would be too big. Would a $200M game be a terrabyte game that wouldn’t reach a mass market consumer?
Casual users really dislike big downloads and don’t like pressing the “install” button. Does the web open that up to us? Is a web MMO as popular as WoW possible?
Nicolay: We have it already. If you want to go into foreign markets, you need to be web-based - microtransaction or subs. A web-based game can be just as big - I think it will be even bigger than big client products.
Min: In S Korea, people have no problem downloading big client products as the web is so fast. I often wonder if browser-based gaming is an interim step until web speeds creep up and people can return to client download.
Hilmar: Most of the subscription games are designed for retail, even though we have no retail component. Take Conan… why not have 1 starter zone, 1 char class get it to 100mb as a download?
Robert: Retail will always be around, but we need to design games for ease of entry - so we don’t spend 6 hours downloading. Casual players need to get into game very quickly and can’t spend their weekend figuring out how to get into the game.
Nicolay: Need to be able to get into the game within minutes.
Hilmar: Starting Runescape is bliss. You’re into it in 2 minutes. That’s a big part of its success.
In f2p, you have a store with microtransactions. Do you need more infrastructure than a subscription game?
Hilmar: A store is just a market exchange that all games have.
Robert: If you have a F2P game supported through retail cards, that’s a simple transaction - clean. In a subscription-based business, you will have credit card problems as players can dispute anything on credit cards. The way credit cards are set up, you can dispute any charge. So your CSR costs can go through the roof because of this. Prepaid cards cannot be returned.
Hilmar - do you have zero issues with point cards, Min?
Min: We don’t see fraud issues at all, but we pay a higher margin on those sales. Credit cards are single digit surcharges.
In terms of distribution, are your costs higher if you are putting these cards out to retail?
Min: Offering payment methods relevant to your target demographic is important. Over 20 years old, credit cards are viable. In the teen demographic, prepaid cards are still the dominant form of payment. Maybe SMS payments will come, but it is all about accessibility and convenience. In demographics such as Club Penguin’s, credit cards are a big part of their payment methods as parents are paying.
Nicolay: I think Habbo has 140 different payment methods. The ability to pay has to be the lowest barrier to entry, otherwise you aren’t getting any money.
Robert: SMS charges surrender so much margin to carrier, but retail cards may be more expensive just to get into channel.
Hilmar: It’s puzzling why carriers aren’t lowering their surcharges. People would switch to it immediately, resolving credit card issues.
Min: There is no access for our consumers to use credit cards. In 2006, we did $8.5M in the US in virtual item sales - in 2007 we did $29.3M in virtual items. Virtually all of that growth came from enabling people to pay.
Robert: Companies like Turbine are looking at the console to expand their playerbase. Potentially we can use an xbox payment system, so we don’t need to do it ourselves. It’s about expanding access for players.
What do you see happening 5 years out?
Hilmar: Dual currency systems. Most companies will evolve into local dual currency systems or perhaps an industry movement to have one proper currency system.
Robert: 3-5 years out, I think we’ll see cross platform online games: pc, console, hybrid models of revenue: F2P, cards, ad-based, subscription-based - there will be lots of options offered so players can choose.
Min: 3-5 years out, PC will make a huge comeback. Online gaming will go beyond niche & core - it’s going to be mass market. 5 years out there will be much more content out there - right now people are starved for content. Club Penguin fans will eventually need something new.
Will the balance of power shift from EA/Activision to more smaller players?
Hilmar: We will see more Nexons, but they aren’t a small company. I don’t think core game companies are wired correctly to play in that space.. Nexon is a god example of a pure play.
Min: You’re right - it’ s about the DNA of the company. Some companies are wired for online service - those people will make big impact on market.
Robert: You hear about big companies all the time, but Club Penguin and Runescape were under the radar for so long, but makign tons of money. The press follows the big names but overlooks the stuff in the background making tons of money.
Min: The scary thing to me are the diversified media companies that bring IPs, TV channels, etc. I’m not worred about the EAs.
Robert: Viacom is running 7 or 8 virtual worlds… they are monetizing them, driving lots of revenue.
Hilmar: I am not worried about diversified media companies. When I talk to them they are unable to understand our business and our direct relationship with consumers. We have lots of experience with that. Most diversified media companies just produce content for their retail channels.
[Editor's Note: Contributing writer Simon Newstead is CEO and Co-Founder of Frenzoo, a startup in the 3D fashion and lifestyle space and the writer of the VR Fashion blog. He can be contacted at: simon at frenzoo dot com.]
Entranced by the success of IMVU, Club Penguin and Habbo, investors have poured millions into virtual worlds with new services blossoming out of stealth mode every week.But where is the space headed?
At last week’s Virtual Worlds Expo, several hundred insiders huddled to offer their own opinions on the future.Operators new and old alike, technology providers, and a smattering of advertisers and Hollywood players came together, and five interesting trends emerged:
1) The War on Geekiness
Electric Sheep Company’s Sibley Verbeck summed it up well, coining the phrase “Multi-Global War on Geekiness”.
There was recognition that to hit mainstream, the industry has to leave its geeky roots behind and focus on a simple and fun user experience.Barriers to entry plaguing early entrants - difficult navigation, large downloads and complex user interfaces - have to disappear.The presented alternative to shedding our geekiness was fairly stark: waiting years until Generation Z “Club Penguin” kids grow older.Not a new idea, but one that is really being taken seriously.
New players are paying attention – one example debuting in the US market at the show was Freggers – a game that made avatar signup and orientation a breeze.And it’s working - already Freggers has picked up a user base of over 500,000 in their home market of Germany, which interestingly includes many users in their 20s and 30s - despite a young, pixel-art style.
2) Say No To Large Client Downloads
“If uses have to download a client, you’re dead. You’re a science project only.”- Sean Ryan, Meez CEO.
One of the most lively panels was with the founders from Meez, Vivaty, Three Rings and Small Worlds and all shared the same opinion: standalone, heavy-client virtual worlds were going to fall away.
Daniel James from Three Rings, makers of popular Puzzle Pirates, believes 90-95% of visitors will not install a separate client. His new MMO, Whirled, is 2D Flash and his previous projects have both been Java.
However the panel disagreed about whether Flash was the only option for the masses, weighing up its lack of support for hardware based 3D.
Vivaty CEO Keith McCurdy argued for a light, single-click install, plugin being viable for masses. Installed in under a minute, he approximated a successful install rate of interested visitors in the 40-50% range (note- with Frenzoo we also see similar rates in our early field testing).
Google has taken the browser 3D plugin approach with its Lively service. And Avatar chat plugin Weblin recently hit 1 million unique users.
In Korea, a bellwether market for many a trend online, 3D browser plugins have been successfully used for some time, including just recently in MiniLife from Social Network pioneer Cyworld.
3) Virtual Brands Go Terrestrial
With so many entertainment and consumer brands moving into virtual worlds, it’s easy to overlook the opposite trend starting to emerge.
A handful of successful online brands are starting to move onto store shelves through licensing and partnership agreements.
Neopets is the poster child in this space and Habbo, on the back of some early dabbling in the space, hinted at the show of a major offline brand tie-up to be announced soon
Look out for more of these crossovers to come in coming months.
4) Branded Items: Not Free For Long
So far, in many virtual worlds such as Meez, branded items have been free. But at least for some items that will soon change.
WeeWorlds head of marketing, Lauren Bigelow, explained the plans of the 25 Million strong WeeMee community: to date, all branded items had been free, but some items will soon cost money, such as premium branded items like an upcoming Paris Hilton.
Why? Charging money for branded items increases exclusivity - and therefore buzz - driving the marketing campaign’s objectives. Obviously a revenue stream is a happy side effect as well.
Used well, it sounds like a win-win.Expect experimentation on branded item pricing to happen in coming months.
5) Taking Virtual Responsibility Seriously
Kids world Dizzywood, which announced at the show it had hit 500,000 users, recently used in-game activities topromote respect and responsibility by partnering with the Arbor Foundation for Earth day to encourage kids to plant virtual trees.
Club Penguin has done a lot with WWF and Habbo also has embraced social responsibility when it comes to their users, with a policy in place now restricting the maximum that can be spent on coins each month.
Do these socially responsible activities really pay off?It’s too early to say but respecting users and building up trust surely can’t hurt.
Billing itself as one of a new breed of pure play web publisher, True Games Interactive opened shop at the beginning of 2008 is expanding its team and title list. We invited CEO & Co-Founder Bob Drobish to reflect on their first year and where free-to-play social games are heading.
