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How to take money from children (for your online game or virtual world) September 29, 2008

Posted by jeremyliew in games, games 2.0, gaming, mmorpg, payments, prepaid cards, virtual goods, virtual worlds.
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Virtual Worlds News noted last week that:

PayByCash announced … that over 50% of its US transactions were coming from its Ultimate Game Card, a prepaid card that supports over 150 virtual worlds and games, like Club Penguin, Nexon America, and IMVU. Previously U.S. consumers favored PayByCash’s direct debit options…

I’d guess one explanation for the transition, and one to watch, is that adults are more likely to set up debit options… Kids and teens, who seem to be driving much of the consumer-oriented virtual worlds growth, simply pick up cards at retail.

It is an important statistic as it really underscores the importance of prepaid cards as a payment mechanism for free to play games. Min Kim of Nexon noted in his presentation at Austin GDC this year that:

“Retailers are taking notice of card sales, and support will grow. Retailers love the regular customer, and coming back for cards is a given. Once you’ve purchased one card, statistics say you’ll probably buy another.”

Target has certainly taken notice, with 26 gamecards available for sale now, including Nexon, Neopets, Gaia, Habbo, Acclaim, gPotato, Stardoll, Zwinky, Big Fish, 3 Rings (Puzzle Pirates) and Wild Tangent. A wider selection is available in their physical stores.

I’ve spoken to several free to play publishers with prepaid cards at retail and they have seen this payment mechanism come to represent from 20-50+% of their virtual goods revenue, which is consistent with the percentage that PayByCash has seen. As Virtual Worlds News speculated, it is the games and virtual worlds that skew towards kids and teens that have the greatest proportion of revenue coming from prepaid cards.

However, publishers tell me that their sales from their own-branded prepaid cards are many multiples of their sales from PayByCash. A Game X player is simply far more likely to buy a Game X card than to buy PayByCash’s Ultimate Game Card. In fact, many publishers tell me that even though they already took the Ultimate Game Card as a payment mechanism, when they launched their own-branded card into retail, they saw a sizeable, immediate, incremental jump in ARPU. Their existing players, who had previously wanted to be able to pay them but didn’t know how, now were able to do so.

Nabeel Hyatt, CEO of Conduit Labs, has previous noted that this could create more of a problem than an opportunity:

In all, there are now over 25 digital content cards being sold at retail. I’ve been tracking this and that’s over double what it was six months ago. That means that at least a dozen online communities, and probably a dozen more in the next six months, are going to be submitting themselves to the vagaries of the retail shelf-space business. That’s a business the online web folks have little to no experience in, and one that a lot of traditional gaming vets were excited to get out of.

I am more optimistic. Retailers love prepaid cards. These cards have no inventory carrying costs and no shrinkage (theft) problems because they are only activated at the checkout. Furthermore, the cards are small and high value, creating high $s/square foot, one of the key metrics at retail. In my local Safeway (picture below), there are 6-700 prepaid giftcards for sale (for everything from Red Lobster to Bed Bath and Beyond) – one indication of how much retailers love this product.

Nabeel is right though – getting retail distribution is not something that is core to the DNA of most online game publishers. Most of the publishers that I’ve spoken with work with one or more of Blackhawk, GMG Entertainment and Incomm to get their cards into retail.

For people interested in learning more about prepaid cards into retail, the Virtual Goods Summit on October 10th looks to be a good event, specifically the 10:30 panel ,”Making Virtual Economies Work — Lessons from the Leaders” where the CEO of Playspan (which owns PayByCash) will be speaking, and the last panel of the day, “Getting Paid – Build a Dominant Payments and Billing Strategy”, where the President of GMG Entertainment will be speaking. If you’re going, use “JEREMYLIEW” for 10% off of General Admission on registration.

Comments»

1. spanky - September 29, 2008

You’d think that most of the people buying prepaid cards would be teens. But adults actually buy a good portion, too…

I also couldn’t disagree more w/ Nabeel – retailers love prepaid cards, especially w/ the loss of CD sales. And prepaid cards are not a POS transaction – demand is generated on the site or service…

2. Aziz Grieser - September 29, 2008

Normally, I would agree that gift cards are all retailers best friends. That is until last year. Last holiday season California courts passed a law that requires all retailers to accept returns for full cash value of gift cards. This is a very serious concern for companies that issue the cards, because gift recipients may just want the cash, which has turned out to be the case for a good majority of giftees.

The real fear for those selling gift cards is returns, because the company has a higher outstanding liability for a cash refund over a replicated game plays. If the trend continues to spread to other states other than California it could make gift cards unprofitable for many retailers.

I’ll see you at the Virtual Goods Summit, 10/10/08. Surprised to not see you on the speaker list.

3. Nabeel Hyatt - September 30, 2008

spanky – We agree that retailers love prepaid cards, who wouldn’t love those kind of $/per sq foot?

The issue I have is a flashback to my previous startup, Ambient, and the vagaries of getting shelf space at a retailer. We were successful at it, but it was a very different market than selling on the web, it was a total pain in the ass, had a steep learning curve, and was largely constructed to make it very hard for startups to enter.

Because of their effectiveness I expect gift cards to only grow in power, I’m bullish on their prospects. But the Internet is so wonderful for startups precisely because there are no gatekeepers. Take a look at how much harder it is to get a mobile startup going thanks to the carrier-as-gatekeeper.

The plus side is there is still no barrier to customer adoption on the Internet, but if gift cards become completely dominant then retailers will hold significant “cards” in a startups ability to monetize.

4. En vrac | Jouer-Online - October 3, 2008

[…] Une étude de comment monétiser des jeux en ligne ou des mondes virtuels pour les enfants (en anglais),  à lire ici. […]


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