The Business and Design of Free-To-Play Games


VGS 2008 – Virtuals Goods and Social Networks

Virtual Goods Summit 2008

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)


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.


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)


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.


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.


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)


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 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, 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.