Siqi Chen, CEO of Serious Business (publisher of the Friends for Sale game), pointed me to an excellent white paper on the money supply impacts on an online economy recently.

It notes that in most games, players control the rate at which new cash is introduced into the economy. To avoid hyper-inflation, it recommends four steps:

Consumables are important in creating new Cash – If large amounts of new cash can be created without consumables, then there is no economic brake on cash creation.

Players set the prices of Consumable – This is the other side of the coin, since only player set prices can legitimately respond to changes in the money supply. Attempting to do this programmatically in such a diverse economy as a typical MMO is to invite failure. National governments have not been able to do this.

Fixed drains need to be in place – This provides a mechanism to remove a Crafter who is economically irrational from the business game, as well as to provide equilibrium in prices and money supply. Thus a regular fixed cash fee for doing business is required, and set by the game.

Variable Drains via percentage commission of the sale need to be in place – This provides a damper that mitigates wild swings in the money supply. Fictionally Sales commissions provide this damper. The percentage is set by the game, on Facility Type basis.

People building social games should read the whole thing.

In February, Gaia announced that it would be using its current virtual world user base to launch a casual MMOG. Virtual World News has an interesting interview that gives more details about the Gaia MMOG:

Beyond the virtual world background for the casual mmo, Georgeson also highlights the fact that Gaia offers more variety in its gameplay than some other MMOGs. Locations will behave differently according to the number of people present, monsters will spawn in different ways, and a wider variety of scripts, he says, create a sensation of spontaneity.

Also, there’s golf.

“One of the other things I’m particularly proud of is that a lot of MMOs have the same experience where you go or no matter what you’ve done for how many people are in the area,” said Georgeson. “It’s a big treadmill of killing monsters and getting loot. We still have that, but we also have aboveground game like golf that people can play even if there’s a battle raging around them.”

Although the kids/teens based MMOG world is getting increasingly crowded, especially as the media companies like Disney and Nickelodean launch new games, I think Gaia’s new game will likely be a success. As Virtual Worlds News notes:

Gaia Online is described as a virtual world and a forum, which makes it seem more open-ended and unformed that it actually easy. There’s actually already a fairly extensive guild system, roleplaying community, and narrative built into the world, though. It’s just not always readily apparent.

Gaia has held many scripted special events in the past that brush right up to the edge of becoming an MMOG. They already have an avid user base that has created and customized avatars, an in-world economy, and a digital goods business model. They also have an expertise in creating fun gameplay. Adding in levels, skills, quests and powerful virtual items is a small step for them to take.

I’ll be watching their launch in the summer with great interest!

Scientific American has an overview of how some MMOGs manage their economies (found via Massively).

The article discusses the approaches of EVE Online, Entropia Universe and Second Life in trying to keep their virtual economies balanced. Getting the balance of crafting, economics and other such features right can drive behavior like specialization/division of labor, guilding etc, as Eyjólfur Guðmundsson, EVE Online’s economist, notes:

The new player who isn’t able to succeed roams around space trying to make ISK[s]. He tries to be a player-versus-player pilot and loses in battle. He needs help to succeed in the community. Players themselves have found ways to deal with this by creating corporations and alliances. It’s not just economics, but also socioeconomics in general.

For new game designers, keeping virtual economies in check is a non obvious but extremely important element of game design. While most designers spend a lot of time thinking about how to add money into a system and how to price virtual goods, some do not spend enough time thinking about how to balance these two elements. If you allow users to transfer virtual currency between each other, trade in virtual items will emerge. If the economies are unbalanced, you run the risk of side effects such as inflation in pricing of virtual goods or too many “high power” items in the wild. Both of these can make it hard for a new player to join the game after it has been ongoing for a while as they are either too poor or too weak to be able to do anything fun. While these things can be managed after they become problems, it is better to have spent some time thinking through the issues before launch.

I just wrapped up moderating a panel at SXSW on casual MMOs. Liveblogged notes from Virtual World News are here. Venturebeat also has a writeup here.

The casual world and MMOG space is getting increasingly crowded. Many of the big media companies are launching virtual worlds now, often targeted at kids. Disney just launched Pixie Hollow, to go with its other virtual worlds, Toon Town, Pirates of the Caribbean Online and Club Penguin, and have reorganized to focus on launching more - investing up to $100m in new online world launches. Nickelodeon, MTV, Cartoon Network, and others are all also throwing their money and brands against portfolios of virtual worlds launches.

Another trend is the expansion of physical toys into virtual worlds. Webkinz led the way here, but many more toy companies are leveraging their offline distribution and brand recognition to create virtual worlds loosely coupled to a physical toy, including Barbie, Beanie Babies, Lego, Build-a-bear, Bella Sara and many more. The BarbieGirls virtual world hit 10 million registered users in 10 months, a remarkable growth rate for a virtual world. (Second Life reports 12.5m residents, equivalent to a registered user, and has been around since 1999).

In addition to these branded launches, a number of companies are bringing a portfolio of asian MMOGs to the West, including K2 Network, IGG, Acclaim, Aeria and OutSpark.

Startups looking to launch a single title MMO in this environment should think carefully about their player acquisition strategy, and how they will be able to stand out in an increasingly crowded environment. It is not enough to simply build a better product. With such a plethora of choice available, your users may not even get to try you to discover how much better you are. Smart approaches may include explicit plans for viral growth, particular expertise in user acquisition, targeting a less saturated demographic or genre, and novel channel strategies. But the best teams will always find a way to be successful in even this highly competitive environment.

Erik Bethke of Go Pets Live gave the standout presentation of day one of the Worlds In Motion Summit at GDC. He talked about applying game dynamics as a panacea for operators of virtual worlds.

From my notes:

1. Use points and leveling up to get people to do ANYTHING. (similar perspective to Amy Jo Kim’s application of game dynamics to social media). Bethke noted the “completion bar” on Linked In and how it got him to complete his profile by spamming his friends for testimonials; the first time he had ever spammed his friends for anything. He said that he was mad that he couldn’t “solo LinkedIn”, but it still was effective in getting him to do the “group quest” of gathering testimonials.

2. “Quests” (especially those given by marked NPCs) are an established gameplay mechanic that can be broadly applicable. They work because they give people something to do when they first show up (and thereafter). This “Goal Interface” design is more important than User Interface design because it provides a framework of “what to do” that distinguishes games. “Transaction based” goals (ie measureable goals) are the best goals/quests. (see #1 above)

3. “Crafting” (turning less valuable resources into more valuable resources) is another established gameplay mechanic that can be broadly applicable. Players will engage endlessly in a series of many micro goals of attainment for self gain.

4. Free to play can mean casual (to start) but if you want to get paid, you have to focus on the hard core. They are the ones who will shell out real dollars for digital goods. There must be a satisfying hardcore experience even for casual and social games. Not only are they the sources of your revenue, they are also evangelists, and beacons on the horizon for new players. If you’re missing hard core, you’re missing deep fun. [THIS WAS A LIGHTBULB MOMENT FOR ME].

5. Even for a social virtual world, adding functionality for all four Bartle player types (not just socializers, but also achievers, explorers and killers) increased time spent in game. [ALSO A LIGHTBULB MOMENT.]

Bethke noted that it took Go Pets a while to identify who their hard core players were (measure everything and take a scientific approach to testing hypothesis to discover this), and what distinguished them from other players, but when they figured it out, they put in directed content to create more such players and were able to double ARPU. In the US and Japan his ARPU for paying users is $20/month.

More coverage of his presentation at Worlds In Motion.

Over at Lost Garden, an old but still good list of principles for multiplayer game design. Summarized here, but head over there to see the much more useful annotated version and relevant links:

1. Build in the “Norm Effect” if at all possible.
2. “Zero sum” is bad.
3. Pacing needs variety.
4. Strategies need “wiggle room”.
5. Legends must grow.
5. Court your newbies.
6. Allow personalization.
7. Keep the features down.
8. Include audio/visual subtleties.
9. Avoid numbers.
10. Include spectators.
11. Facilitate relationships.
12. Use time limits.
13. Include chance.
14. Keep the balance.
15. Include cooperation.
16. Make ‘em stay.
17. Allow handicapping.
18. Facilitate special events.
19. Leave room for ads.

The latest charts of MMOG market share by business model show the free-to-play (F2P in green) model to be roughly neck and neck with the subscription (P2P in yellow) model, with buy to play (B2P in blue) making up just a small fraction of the total:

However, I think that we’ll see the free-to-play model (monetizing through virtual goods and advertising) increasingly take share over the next few years and eventually become dominant.

In the last 18 months we’ve seen many more free-to-play MMOGs being launched in the West, joining pioneers like Runescape. K2 Network, IGG, Acclaim, Aeria and others have all come to market with westernized versions of asian MMOGs, and all are employing a free to play model. Other companies like Sparkplay and Conduit Labs are building their own free to play MMOGs for the western market. But this flood of MMOGs is not the cause of the increasing dominance of the free to play model, but rather the symptom of the underlying economics of the business.

Marginal cost pricing is the principle that the market will, over time, cause goods to be sold at their marginal cost of production. MMOGs, like all other software businesses, have effectively a zero marginal cost of production. This is particularly true when distribution is also online. As a result, you would expect that over time, prices will tend towards zero, i.e. a free to play model.

MMOGs are not special in this respect. We have seen a number of categories of consumer online/software products start out being able to charge a subscription, but eventually move to a free model. In online personals for example, the big story of the last few years has been the inexorable rise of plentyoffish.com, a free online personals site that is now one of the top online dating sites (with no marketing):

Anti spyware software used to be a premium service, and now it too is mostly free. Anti-virus software is the same story. And parental controls software. Now all are available for free.

In each case, it took a few years for the move from premium service to free, but in each case the marginal cost pricing principle eventually took hold. It is hard to hold the line against the invisible hand of the market.

MMOG publishers and developers should be factoring in a free to play environment into their business models.

Today we’ve got a guest post from Matt Mihaly. Matt was the founder of Iron Realms Entertainment and CEO from 1996 to early 2008. He launched four successful text MUDs while at Iron Realms and pioneered the virtual goods business model in 1998 with its first MUD – Achaea, Dreams of Divine Lands – leading to 10 consecutive years of growth. Iron Realms spun off Sparkplay Media in late 2007 to develop casual MMOs and social media games, and has its first game – Earth Eternal – under development. Matt now serves as Sparkplay’s CEO and Creative Director.

Matt is truly a pioneer of the virtual goods business model in the West (vs Asia) and I have a great deal of respect for his experience in this area.
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Jeremy asked me to talk a bit about the virtual goods business model, how to make it work, and what some best practices are when implementing it. There’s a broad area of subjects to cover there, from making microtransactions work in light of processing charges to protecting yourself from fraud to finding that balance between selling functionality in virtual items and not alienating the large proportion of your user base that will end up paying you little or nothing. I’m going to focus on one area of the subject matter: Unlocking the demand that’s latent inside your non-paying user base.

In a subscription or advertising-driven model, everyone using your service is generating revenue for you, barring exceptions like free trial periods. This provides a certain level of comfort to a publisher, who knows that costs like bandwidth aren’t going to be incurred without at least some revenue coming in to balance that out. In the virtual goods model, on the other hand, I’ve seen strong men grow weak in the knees when faced with the prospect of bucket-loads of non-paying users. Those operating costs add up quickly when you’ve got no incoming revenue to balance them out.

There are two points to touch on regarding that fear:

1. If you’ve created a context that people care about, some of them will pay you. In other words, if you have lots of users it’s because they care about what you’ve created. If they care, at least some proportion will buy virtual goods from you. I’m not going to spend any more time on this, as it’s pretty self-explanatory.

2. While it’s true that non-paying users are not directly generating revenue for you, there is almost certainly an enormous amount of untapped demand among that group of users. The trick is to unlock that demand in such a way as to effectively get those users to pay you indirectly. How? The key is a dual-currency system.

Flash back to 1998. My previous company, Iron Realms Entertainment, had pioneered selling virtual goods and was deriving 100% of its revenue from the sale of ‘credits’, which were used to purchase skills and virtual goods in-game (Iron Realms develops and runs niche MMOs called MUDs). Credits (as well as the goods you purchased with credits) were not transferable to other users, ensuring that if you wanted credits the only place to get them was from us, for real money or by winning various contests/competitions we ran. The result was that if you couldn’t afford to/weren’t willing to pay you were effectively locked out of the game after a certain point. Beyond a particular threshold, non-paying players were unable to raise their ‘skills’ (generic word for most of the combat-oriented abilities a character can gain) and thus were permanent second-class citizens. It was a very frustrating time to be a non-paying user, and we heard about it a lot.

At the same time as we were getting complaints from non-paying users about being unable to progress (since this required credits that they could not get), some of our credit-buying users were asking us to sell them gold (the in-game currency one gets from completing quests, killing monsters, etc). We steadfastly refused as we didn’t want to mandate an exchange rate and didn’t like the idea of the endless ‘faucet’ of gold that would flow into the game (potentially causing major inflation problems), though this was a little painful. In the short-term, clearly we’d have made money by selling gold to players ourselves. In the long-term, I think it would have severely damaged the game.

Then it occurred to me, in early ‘99: Everyone can get what he wants here. Simply turn credits into a currency and allow players to trade one currency (credits) for another (gold). Everybody wins!

* Paying User buys credits from Iron Realms, giving Iron Realms what it wants – revenue.

* Paying User sells those credits to Non-Paying User for gold, giving both Paying User and Non-Paying User what they want (the essence of healthy capitalism).

Effectively, what we did was allow non-paying players to sell the result of their time (through completing activities that require time, like quests and hunting) to the paying players, but only via a currency that had to be purchased from us to begin with. Suddenly, the teenager with lots of free time but not a lot of money could get anything in the game that paying players could get, and a busy professional who has disposable income but not nearly as much free time could gain large amounts of gold without having to spend the time in-game. (Of course, it’s important that paying players still have to play the game to achieve something that matters. There has to be some time investment on everybody’s part.) It was a win for everybody.

The end result of this kind of system, especially with as many frictions removed as possible is that you’ve unlocked a good deal of the pent-up demand that exists among your non-paying users. They aren’t paying you directly but they’re driving a healthy portion of purchases made by your paying users, which is nothing but good for the publisher.

Some tips for those implementing a dual currency system:

* As I said just above, remove as many frictions as you can from the currency trades. Create a simple currency exchange that lets people quickly and anonymously (to the other users at least) buy/sell the currencies.

* Make sure that there are very desirable things to be bought with both currencies. This system only works when people ultimately want to have some of both currencies. Keep an eye on the exchange rate. If it tilts too far one way or another you probably need to do some work on beefing up the value of currency that’s dropped. (The prevailing exchange rates are kind of fun to watch actually. For instance, when one of IRE’s text MUDs – Achaea – put in user-owned ships recently they priced ships in gold. Overnight the exchange rate changed somewhat dramatically as the value of gold went up substantially.)

* Let the market set the exchange rate. The non-paying users will always feel that credits cost too much gold. If you need to nudge the rate one way or another, put in something valuable priced in the lagging currency, as above. Never just mandate an exchange rate to make the nonpaying users temporarily happy as to do so is to effectively take ‘money’ out of the pocket of paying users (who are, on a 1:1 basis significantly more valuable than non-paying users on average). It can be hard, because you will have far more users interested in making credits cheaper to purchase than the other way around (most of your users won’t be spending much, at least in a game environment), and this will manifest itself in forum posts, emailed complaints, and so on. Be strong and trust in the proverbial invisible hand here.

I think asynchronous games are an interesting emerging trend as casual games meet multiplayer games to create social gaming opportunities. Many social games are taking off in Facebook as its platform allows social games to grow virally among groups of friends. These are largely text and asynchronous by nature.

One of the challenges in the mobile world has always been getting distribution, whether distribution of an app or placement in a mobile carriers deck. Increasingly, however, apps like Twitter and Facebook are taking advantage of SMS as the mechanism for lightweight text-based interactions (sometimes with a primary interaction mode through the PC). SMS has near universal availability, no distribution challenges (beyond getting an SMS shortcode), and the highest use rate among mobile phone users after calling:

Given many social games’ text based, asynchronous nature, it will be interesting to see whether they can extend their reach via SMS into the mobile arena in the same way. This obviously allows a greater opportunity for subscription and premium digital goods revenue as consumers are more accustomed to paying for phone services than they are for web services. It also allows simplifies billing. WAP is another option.

Managerzone is one game that offers phone based services so that eager players can constantly stay in touch with what is happening “in game”. See a list of some of their WAP and SMS services as taken from their website below:

There are a number of mobile services that you can use to stay in touch and improve your game here at ManagerZone. This is a perfect complement for anybody that cannot always be in front of the computer or would like to immediately receive information as it is available.

Cost/Billing

You can subscribe to these services via our packages or you can simply pay as you go via money that you put in your account (see my home and your account). We offer both WAP services and SMS services (text messaging) and with our text messaging you can choose to receive the message via SMS to your mobile phone or via email to your mobile phone or computer. You thus simply enter your mobile phone number or your email address for your mobile phone.

Wap spy

This service immediately improves your manager skills. Well, the fact that you can check up on your opponent simply makes it one notch easier to know what to expect. You can follow their tactics and get recommendations as to whom to watch out for. You also get the formation of your opponent and of course some insight about the goalies strengths and weaknesses.

League standings

With a click you can see the updated standings in your league or other leages around the world and in your country. You can also directly from the standings click on a team to get more info about that team such as who the manager is and what kind of stadium they have. You can also easily challenge anybody via this page. All the things you do here is also updating the web and will be visible there the next time you log on via the web.

Youth and financial service

Would you like to increase the number of junior players your team has this week. Do you need to check up on your finances to make sure you have enough for that great player you want to bid on? Did your expenses come in as expected or do you need to make some changes? With this service you have total control of your finances all the time anywhere.
You can also check your financial situation up to 3 weeks back in time. Just like you can via the web.

Match statistics

In addition to the result you get to see all the details of the game. Who controlled the ball, who had the most free kicks and scoring chances. Do your own analysis straight from your mobile phone.
You can also read the full text review of the game from this page. There is nothing you want to know about the game that you don’t get from the wap function.

The functions above are just a few that you find in the WAP function. Other features include::

# Read all news
# Player watch
# Bidding on players
# Challenge and accepts friendlies
# Full training report
# Search for team and user info
# and much more……