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Why sell branded virtual goods? Advertising or ecommerce revenue? August 20, 2008

Posted by jeremyliew in advertising, business models, digital goods, games 2.0, mmorpg, virtual goods, virtual worlds.
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Yesterday’s WSJ noted that retailers and manufacturers were increasingly selling their branded virtual goods inside virtual worlds:

Retailer Kohl’s Corp. this month launched a new line of apparel, but the plaid skirts and printed T-shirts won’t be sold in its 957 stores. Instead, it’s selling them on Stardoll.com, a virtual community for teens and tweens where kids can fork over “Stardollars” — purchased online at a nominal sum — to buy apparel for their online characters…

This month, casual-wear maker K-Swiss Inc. and lingerie and swimwear designer Eberjey rolled out virtual clothes on There.com. And in late July, retail pioneer Sears Holdings Corp. opened its first online boutique featuring back-to-school apparel and dorm-room furniture on teen site Zwinky.com

Virtual Worlds News noted a few other brands also participating on There.com

… music merchandiser Bravado, and the Country Music Hall of Fame and Museum are now peddling their virtual wares in There.com. Each will establish specialty shops to sell branded goods for There.com avatars. There.com has sold virtual goods as part of brand campaigns before, most recently for NaCo, but has also popular for large, branded environments, such as those for Scion, Coke, and CosmoGIRL!.

So far the brands seem to be getting good results; according to Virtual Worlds News:

Yesterday’s Wall Street Journal article on apparel marketing in virtual worlds reports that the Zwinky boutiques “logged 750,000 visitors and sold 850,000 virtual items during their first 16 days through mid-August.” Meez CEO Sean Ryan followed up on his personal blog that 700,000 Sears items have been adopted so far by his users. There’s likely some overlap in users, but that’s over 1.5 million branded items distributed in just two of the properties. The campaign will run through the end of the month

However, these retailers and manufacturers are not selling virtual good for the revenue. Rather they are doing it for the promotion and advertising. Says the WSJ:

“It’s really a way to get shoppers to test-drive your product,” said Carlos Mejia, chief financial officer of Eberjey, a maker of lingerie, swimwear and sleepwear. The brand, which largely sells to women ages 20 to 45, hopes to attract teenagers with its virtual line.

Penney decided this year to put back-to-school outfits on Yahoo after learning that, during a seven-week experiment last summer, 1.5 million avatars wore its clothing on Yahoo and 5 million Penney outfits were tried on. “It casts a very modern, current light on the brand with teens,” says Mike Boylson, Penney’s chief marketing officer. Before Penney’s presence on Yahoo, “perhaps J.C. Penney wasn’t on their radar before,” he says.

Sears is marketing its virtual boutiques on billboards in the virtual world, and is hosting daily fashion shows on the site promoting its products through the end of August.

Adds Richard Gerstein, the Sears CMO:

Teens and tweens are making more and more of the purchase decisions, or at least influencing that decision. Mom already knows that Sears provides trusted value and quality, but we need to prove to the teens and tweens that we have the apparel and styles to help them “arrive” at school this year with confidence…. And as we continue to expand our outreach to the tween demographic it is increasingly important to expand our marketing strategy to include the mediums where tweens are spending most of their time.

The focus on marketing can create a tension within virtual worlds about how to price these virtual goods. On the one hand, to drive revenue and create value in the brand, you want to price these items at a premium. On the other hand, to get the broadest possible reach and trial, you want these items to be at the free tier. Online trial will hopefully lead to more real world sales. Anecdotally at least, it seems to be working:

The online pitches are striking a chord with Jen Rediger’s daughters, 13-year-old Tyler and 9-year-old Kenzie. In the first week that the Kohl’s store opened on Stardoll, they spent about 70 Star Dollars, or $7, on virtual skirts and shoes. Ms. Rediger, 32, an interior designer who lives in Hoschton, Ga., says she doesn’t mind her daughters being exposed to such marketing because “it’s not worse than what they see on television.”

Tyler has already asked her mom to take her to Kohl’s to buy the real versions. “They look really cool on my doll,” she says. “It’s my style so I think I’ll wear it a lot.”

Facebook has already taken this approach with its branded gifts. I suspect that we’ll see the model move more firmly in the direction of advertising, with most branded virtual goods being made available for free.

BestBuy launching prepaid cards for online games August 20, 2008

Posted by jeremyliew in business models, games, games 2.0, gaming, mmorpg, virtual goods, virtual worlds.
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Although some still doubt that free to pay games have a viable business model, this month’s launch of game cards at Bestbuy may change some minds. Reports Virtual Worlds News

Stardoll, Meez, AdventureQuest, and Gala-Net have all partnered with GMG Entertainment to launch individually branded prepaid cards at Best Buy. The Meez card will come with an exclusive virtual good, and Stardoll, which has previously worked with GMG Entertainment, is expanding its prepaid offerings to include a $15 card that will unlock various virtual goods.

I’ve noted in the past that prepaid cards at retail are an excellent way to monetize MMOG players. Earlier this year, Raph posted on the game card endcap at Target who have pioneered this category.

Sean Ryan
, MEEz’s CEO, notes:

So why should anyone care about old-line retail stores and physical goods when we’re all selling cutting edge virtual goods? Isn’t it all going to be virtual? The reason is that retail still matters a great deal, especially when addressing a somewhat unbanked audience like teenagers. We all know teens acquire an estimated $60B each year, whether it’s from allowances or part-time jobs – however, they don’t have an easy way to send it to their favorite virtual world or Massively Multiplayer Online (MMO) game company since they don’t have credit cards, are not happy borrowing them from parents, and aren’t as comfortable with PayPal, even though it can be linked to a checking account. Plus, teenagers still go shopping a lot, and that retail foot traffic is incredibly important since it provides another way to reach that audience when they’re not online. Finally, parents or friends are more comfortable giving gift cards these days so it’s easier for a teenager to ask grandpa for a $10 Meez card for graduation vs asking for cash – it’s a big Win/Win for the category.

Retailers are notoriously data driven when it comes to what they will give floorspace. Music is already getting cutting back according to Silicon Alley Insider:

… the three big retailers who comprise most of the industry’s sales — Best Buy (BBY), Wal-Mart (WMT) and Target (TGT) — will likely make significant cuts in the amount of floorspace they devote to CDs. We are hearing predictions of cuts that range from 20% to 40%, with Wal-Mart making the most aggressive pullbacks.

If retailers are giving shelf space to free to play games, that is a big vote of confidence in their future.

Managing fraud when selling virtual goods August 18, 2008

Posted by jeremyliew in fraud, games, games 2.0, gaming, mmorpg, virtual goods, virtual worlds.
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Worlds in Motion interviews Vindicia‘s Gene Hoffman about the science of MMO fraud, but the lessons apply to any virtual goods business. Hoffman notes:

The first question about MMO fraud is whether there is a real currency resale market. If there is a way to create cash directly or over on eBay, there will be real fraud attempts to use stolen credit cards to create cash.

Even though there is no actual “cost of goods” for virtual goods, MMOGs need to worry about fraud (as measured by credit card chargebacks) because if your chargebacks get over 1% for a protracted period, Visa, Mastercard and Amex will remove you as an accepted merchant. This will dramatically effect your ability to monetize your users.

Game operators need to worry about not just real fraudsters, but also “friendly fraud”; real players who really did buy the goods, but just don’t want to pay:

On the back end, many MMOs have a very hard time tying their chargebacks to the actual accounts and shutting those accounts off. That means that customers have learned that they can chargeback their transactions to get credit or money back and often still play next month. We actually see this happen around Thanksgiving as chargeback volume spikes so that people have more Christmas spending money.

It is relatively easy to reduce fraud rates by making gross business rules that block whole classes of potential customers that fall into higher risk categories. But in a business where your cost of goods is zero, the opportunity cost of “false positives”, where you turn away many good customers in order to stop a small number of bad customers, is very high. As Hoffman notes:

…we have noticed across all our gaming clients when it comes to fraud is that the 1% chargeback rate is really a marketing budget.

Having your chargebacks too low often means you aren’t being aggressive enough on the customer acquisition side. One of the real side benefits of a large customer base is that the denominator in your chargeback rate is quite large and offset by very safe and trustworthy transactions.

Those two processes create a virtuous cycle that allows you to push hard to sign new customers up if you have someone like Vindicia really watching the chargebacks on the back end.

In general, there are two ways of managing fraud:

1. User based approaches (such as Vindicia’s) look to identify both good actors and bad actors across multiple virtual goods merchants, creating a network of trust. These approaches lend themselves to being outsourced to an expert third party.

2. Behavioral approaches look to correlate certain “in game” behavior with likely fraud (e.g. a new player with a level one character who attempts to buy an expensive high level item within 5 minutes of registering). These approaches typically need to be handled on a game by game basis.

The best operators of virtual goods businesses apply both approaches.

What experiences have users had with managing online fraud by their customers?

When can paying people become counterproductive? August 11, 2008

Posted by jeremyliew in business models, game design, game mechanics, games, mmorpg, social media, user generated content.
5 comments

I’ve posted in the past about how points can be used to drive user behavior.
Last week the Washington Post explored when play becomes work, and talked about some of the downsides of using rewards systems:

More than three decades ago, Edward Deci, a social and personality psychologist at the University of Rochester, found the first experimental evidence of a phenomenon with wide relevance to the way most Americans conduct their personal, professional and social lives.

Deci tracked a bunch of college students who were solving puzzles for fun. He divided them into two groups. One group was allowed to keep solving puzzles as before. People in the other were offered a small financial reward for each puzzle they solved.

The psychologist later evaluated the volunteers: He found that people given a financial incentive were now less interested in solving puzzles on their own time. Although these people had earlier been just as eager as those in the other group, offering an external incentive seemed to kill their internal drive.

The implication for social media and user generated content businesses is that creators create for love, not money, and that paying them with money may in fact be counterproductive. Instead, creators want adulation.

One interesting counterpoint might be the gold farmers inside World of Warcraft. When people play MMOGs for money, do they still play for fun? Anecdotally, it appears that they do. So when do rewards work and when are they counter productive?

But rewards and punishments are not always counterproductive, Benabou said. He drew a distinction between mundane tasks and those that carry meaning for people. In the first case, Benabou argued, rewards and punishments work exactly the way economists predict: They get people to do things.

External rewards and punishments are counterproductive when it comes to activities that are meaningful — tasks that telegraph something about a person’s intellectual abilities, generosity, courage or values. People will voluntarily perform intellectually arduous work, for example, because it gives them pleasure to solve a puzzle or win a game of wits.

“If I pay my kids to do their homework, I am saying, ‘You will get this if you do your homework,’ but I am also saying, ‘Homework is not likely to have intrinsic rewards,’ ” Benabou said. To the extent that a child is doing homework because he or she enjoys the challenge, or wants to demonstrate intelligence and diligence, the homework has meaning beyond the task itself, and Benabou predicts that offering a reward will backfire.

In most cases when it comes to user generated content, the creators do consider their work to be meaningful. So pay attention to how you pay them attention.

Cartoon Networks lessons learned on virtual worlds for kids August 7, 2008

Posted by jeremyliew in game design, kids, mmorpg, virtual worlds.
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Via Izzy Neis, Virtual Worlds News posts a Q&A on Mini Match, Cartoon Network’s new virtual world. Some interesting lessons about how to design virtual worlds/MMOGs for kids:

Make it easy to get to the fun

To start with, we have three really simple games that you can jump into. Our thing was we didn’t want anyone to have to read directions. We’re going to introduce more games like that sort of simple, two-person game…

.. you don‘t have to wander around the map and find a game. All the games are at the top of the screen, and you can just drag it down and play it.

Make it easy to meet new people to play with/against

We had multiplayer gaming with digital trading cards, and we learned very quickly that kids need an instant match option. Particularly boys, but kids in general don’t run up to each other on the playground and say, “Hi I’m Molly, and I like juice.” They can play all afternoon and never get each other’s names. They don’t get a lot of biographical information.

Mouse is better than keyboard

Often we find that the kids interact just by dancing or the emoticons. Out of all the emoticons, the most popular is gas. So that’s not surprising.

Kids are explorers (of the Bartle player types)

And they love mysteries. They love these environmental games we’ve included where you bump into an item, and you’re turned into an alien, things like that. We’ve added mysteries and puzzles like that all over, and we’re adding more. It’s like Lost, except for I’ll promise you that you won’t have have to wait for six years to find out the answers.

Kids like exploring new identities (ie play acting) and self expression

The great thing about virtual interaction is that it’s still anonymous and safe. They can try out different identities, within reason, and play…

The other thing we’ve tried to introduce is a mix of modern fashion and a little bit of the fantastical. If you feel like looking like a pirate or alien or whatever or just layering your clothes, that’s there.

Runescape stats: 250k peak concurrent users! July 15, 2008

Posted by jeremyliew in games, mmorpg, Runescape.
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Today GigaOm has an interview with the CEO of Jagex, publisher of Runescape, a free to play MMOG with more players in the west than World of Warcraft. Some stats to give you an idea of their scale:

– New content (questions, items, etc.) added to RuneScape every two weeks
– Peak concurrency: 250,000
– Average player time: 12.5 hours/week
– 250 RuneScape shards for up to 2,000 players each. Unlike many MMORPGs, player characters are not bound to a single shard.
– Main player demographics: 60 percent are from the U.S., 25 percent from the EU, smaller percentages from Australia/New Zealand and Canada. Player age typically 8-20, approximately 80 percent between 10-16.

Very impressive.

IMVU selling over $1m/mth in virtual goods June 25, 2008

Posted by jeremyliew in business models, games, games 2.0, gaming, mmorpg, virtual goods, virtual worlds.
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GigaOm says that IMVU is generating over $1m/mth in revenue:

Flying under the proverbial radar for the last four years, the web-based virtual world chatroom IMVU has released new jaw-breaking data: Since April 2004, it has amassed 20 million registered accounts, with 600,000 of those active monthly users. By comparison, Second Life took five years to acquire about 550,000 active users.

The company, well known to web surfers because of its ubiquitous ads, is now earning $1 million a month in revenue, 90 percent of that from the sale of virtual currency and 10 percent from banner ads embedded in its interface, CEO Cary Rosenzweig said. That works out to about $1.66 a month per active user.

This is within the range of monthlyly ARPU for MMOGs. The article notes that Peak Concureent Uers (PCU) is around 70k, so ARPU based on PCU is >$14/mth.

IMVU sells credits to its users who use these credits to buy items from their catalog to personalize their avatars. The vast majority of the items in the catalog are user generated. Of the 20m registered users, 100k are registered to make items in the catalog, but only a fraction of these are active. Still, they have created 1.7m items, so are averaging 20+ items created per active “item maker”.

Interesting stats.

Notes, video and commentary on the Social Gaming Summit June 16, 2008

Posted by jeremyliew in asynchronous gaming, business models, casual games, game design, game mechanics, games, games 2.0, gaming, mmorpg, social games, social gaming, user generated content, virtual goods, virtual worlds.
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The Social Gaming Summit was quite a success on Friday. Over 400 attendees seemed to enjoy the sessions based on the high proportion of people in sessions (vs in the lobby) and the fact that even the last session, that ended at 6pm on Friday evening, was very well attended.

The attendee list was a good mix of game developers and publishers, with people coming from both the gaming side and the social media side. Most of the attendees with gaming backgrounds came from casual gaming, web based gaming or MMOG backgrounds. With the notable exception of EA, there were few representatives from the giants of the console space.

Although each of the topics covered different topics, it was clear that monetization was top-of-mind for all panelists as the discussion on most panels eventually turned to this issue.

I (Jeremy Liew) moderated the first session, on What Makes Games Fun, featuring game design thought leaders Amy Jo Kim, Nicole Lazarro and Ian Bogost, plus John Welch of Playfirst, the company behind one of the most popular casual game ever, Diner Dash.

The discussion was wide ranging and covered Nicole’s framework for generating emotion in games and the four types of fun and Amy Jo Kim’s five game mechanics.

There was excellent discussion about how fun, addictiveness and business models can either collide or work together, with in depth discussion of two games in particular, Pack Rat and Parking Wars.

Pack Rat was lauded as an example of a game that did a masterful job of creating addictiveness through game mechanics, and a game that had a natural digital goods/service business model baked into it. But some panelists questioned whether the “grind” without real “payoffs” at different levels could burn players out. In contrast, Diner Dash had real changes in game dynamic and strategy as players level up (e.g. when Flo gets the coffee maker at level 4, it changes the winning strategy) that made leveling up more meangingful and rewarding.

Parking Wars was pointed to as a highly social game with a genre matching to the mass market that let players “play slight variations of themselves” where they could explore slightly nefarious behavior in a safe environment. But “winning” in Parking Wars forced activity to the edges of the social network, instead of to the core, so the “points” game mechanic ended up working against the “fun”.

UPDATE: Virtual worlds has an excellent writeup of the What Makes Games Fun panel.

The second session was focused on Casual MMOs and Immersive Worlds, with Joey Seiler from Virtual World News moderating representatives NeoPets, Nexon, K2 Networks and Gaia.

One of the key questions was how to get free to play users to open their wallet. Gamasutra covered this panel in detail and noted:

Added Kim (Nexon): “A lot of people think they can make money off of casual games where people play a couple of hours a week. I don’t believe that. When people get engaged with the social experience then they’ll buy items. You need to understand the psychology.”

Reppen (Neopets) continued: “For us, it’s all about a sense of ownership that our audience has. There’s a real sense that it’s their game… The identity component to virtual worlds is so important, but there’s so many other things going on in the meta games around earning points, acquiring wealth, shopping and customizing and creating your own experiences… It’s part of a mix.”

In other words, even for casual MMOGs, you monetize the hardcore players who tie their identity into the game. Erik Bethke (GoPetsLive) said the same thing at this years GDC previously in explaining why he applies game dynamics to make virtual worlds more addictive.

UPDATE: Massively writes up the panel in Q&A style.

After lunch Andrew Chung from Lightspeed moderated a panel on Asynchronous Games on Social Networks with the CEOs of the companies behind many of the top games on Facebook, including Friends for Sale, Zombies, Vampires, Warbook, JetMan and (fluff)Friends.

Inside Social games
took live notes from the panel. One interesting counterpoint in response to the question, “How do you move people down the spectrum to make them more engaged and hard core?”:

Blake (Zombies, Vampires etc)- There is always going to be some subset of your userbase that’s never going to play more than their 30 minute lunch break, because that’s all the time they have. Don’t inundate users with too much experience at the beginning, gamers hate to read, I’ve never read a game manual in my life.

Siqi (Friends For Sale)- I think there’s a lot to learn from traditional MMO design, things like levels. If you get to the next level, you get this new shiny thing. It makes the game more complicated, but it works. Our hardest core users use more synchronous features.

Shervin (Warbook, Jetman, etc) – The first generation of social games were incredibly simplistic, and the platform was so viral, that it was a lot easier for apps to grow. But it behooves all of us to invest in content. I’m staying up late at night building social games 2.0, games with richer content, deeper stories, much better user experiences. It’s going to become harder for independent developers. I can’t talk about the games we’re working on, but you can look at Playfish. Their engagement levels are high and they’re growing faster than those that have come before.

In other words, games need to be easy to learn, but hard to master.

Next up was Dean Takahashi of VentureBeat moderating a panel on User Generated Games in Social Networks and Virtual Worlds. The speakers were from IMVU, Dogster, Three Rings (Puzzle Pirates, Whirled and Bang Howdy) and Habbo.

Virtual Worlds News has coverage of the panel and noted that:

In IMVU, said Rosenzweig, creators “do what they do because it’s cool, but they like making credits” by selling the items in world. That can then be cashed out through IMVU, which leads to 90% of its revenue, taking a cut while transfering IMVU credits to real world dollars. That user attitude is true of Dogster and Catster as well–users don’t get a cut of the money generated by creating games around their items and boosting activity. They just enjoy creating and sharing.

In other words, social game players generate content for love, not for money. But if there is money there to be had, they don’t mind taking some of that too! Last month Chris Alden noted the same experience in the blog economy.

UPDATE: Worlds in Motion also has a writeup of this panel

After a short break for cookies, the attendees reconvened to hear Brandon Sheffield of Gamasutra moderate a panel about Building Communities and Social Interaction In and Around Games, featuring the leaders of Kongregate, Zynga and Addicting Games, along with noted social architect and game designer Amy Jo Kim.

The discussion centered on the desire that many users had to communicate with each other, and how games often served as an easy way to break the ice and provide topics that made it easy to start a conversation. I haven’t found any coverage of this panel online unfortunately.

The final session of the day was focused on Monetization and Business Models for Social Games. My partner Ravi Mhatre moderated the panelists, including the leaders of Mochi Media, Sparkplay Media, Stardoll and Acclaim. This was a fantastic panel. Virtual Worlds News has great coverage.

Although most of the discussion was focused on the four models of advertising, subscription, digital goods and retail, David Perry noted that there are by his count 29 business models for games.

On the mix between advertising and virtual goods, the panel mostly agreed that virtual goods was the primary revenue stream but that advertising was an important secondary stream:

“Microtransactions and advertising go perfectly togetehr,” said Miksche. “Microtransactions drive our business, but we will never have 100% of our users wanting to pay for that. Advertising is a good way to monetize that remaining X percent.”

There was some good discussion about the tension between game balance and letting players buy powerful items in the games. Several panelists noted that self expression was a key driver of virtual goods sales:

As for who’s paying, Perry (Acclaim) expected most microtransactions to come from hardcore MMORPG playerskitting out the avatars with fancy armor and such. Instead, it comes from Dance. The game is a simple dancing activity, but because users spend so much time looking at their avatars, the appearance and identity becomes even more important.

That works well for Stardoll, a fashion-themed site, especially with trends that match the real world…

“We’re One-Click Dressing,” said Miksche (Stardolls). “You come to the site and instantly start dressing. For our users, young girls, that’s very important–instant gratification.”

For those who couldn’t attend, UStream.tv hosts video from the social gaming summit.

Andrew Chen’s blog also has his takeaways from the social gaming summit.

I’ve pulled together all the coverage I could find, but if there were additional posts, please let me know in comments.

How many of your MMOG’s monthly users can you get to pay? June 11, 2008

Posted by jeremyliew in business models, games, games 2.0, gaming, mmorpg, subscription, virtual goods, virtual worlds.
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I recently concluded that good MMOGs can expect $1-2 per user per month from a free to play model, with Second Life as an outlier at almost $10 per user per month.

This relatively tight band of monetization masks some fairly high variability in the ratio of paying users across games and virtual worlds. From the highest to lowest, here is some data available on the web:

Second Life reports 860k residents logged in over the last 30 days, and 383k customers spending money in world in May. As you can only spend Linden dollars if you have Linden dollars, and you can only get Linden dollars by buying them or becoming a premium members, this suggests a 45% paying ratio. (Likely the ratio is lower than this as some Second Life residents may buy dollars one month but spend it over several months)

Club Penguin at acquisition reported 700k paying users and had 2.6m UU in that month according to Compete, or a 27% paying ratio.

NCSoft’s Dungeon Runners self reports a ratio of 3:1 free to paying users, or 25% paying ratio.

Jagex’s Runescape claimed 1m players paying $5/mth in May 2007 and 6m players per month in October 2007, for a 17% paying ratio.

3Rings’ Puzzle Pirates has been reported to have 30k paying users out of its 200k unique monthly users, for a 15% paying ratio.

Frankly, all of these public numbers are on the high side of the industry. An NPD survey found that:

… 91 percent of online gaming among kids ages 2 to 17 is free; of the 9 percent that pay to play, these kids are more likely to hail from higher income households. In addition, the likelihood of a child to pay for games increases along with the child’s age and time spent on gaming.

Monetizing kids is more difficult than monetizing adults since kids have more limited access to payment mechanisms (e.g. credit cards), so the overall industry ratio of paying gamers is likely higher than 9%.

Most MMOG publishers do not publish their monetization statistics, but private conversations with many publishers suggest that getting to a 10-12% monetization ratio of active users is a stretch but achievable target.

Do readers have other data that they can share?

Successful MMOGs can see $1-2 in monthly ARPU June 9, 2008

Posted by jeremyliew in freemium, games, games 2.0, gaming, mmorpg, subscription, virtual goods.
43 comments

There are not many publicly available statistics on the free-to-play industry in the western world. Here is what I found on the web for some of the popular virtual worlds and MMOGs:

Second Life

Second Life’s economic statistics are reported monthly. In May 2007, Second Life reported:

$165m Linden dollars sold by Linden Lab through the Linden Exchange in May
$127m Linden dollars paid via weekly stipends in May
860k residents logged in over the last 30 days

Since Linden pays $300 Linden dollars in weekly stipends to premium members, there are around (127m/300/ 4 weeks=) 100k premium subscribers paying $6-10/mth. Lets call that $800k in monthly revenue from premium subscribers.

Linden dollars currently exchange
at 264 Lindens to the USD, so Linden Labs made $165m/264 = $625k in currency sales.

These are the two primary sources of Linden dollars into Second Life’s economy, so Linden Labs made at least $1.4m in revenue from the 860k residents that logged in over the last 30 days, or roughly $1.70/active user.

UPDATE: Several comments note that I have ignored the bulk of Second Life’s revenue which is derived from land maintenance. An updated analysis is here.

Club Penguin

When Club Penguin was bought by Disney in August 2007, it was reported to have 12m registered users and 700k paying users. As the monthly charge for paying subscribers is $6, this suggests monthly revenues of around $4.2m. Compete reported 2.6m UU to Club Penguin in that month. Dividing these two numbers we get around $1.62/active user (where an active user is defined as a unique user in that month).

Habbo Hotel

At AGDC in September of 2007, Habbo Hotel‘s lead designer, Sulka Haro gave some statistics on Habbo Hotel’s usage:

Habbo Hotel has approximately 7.5m unique players per month globally — nipping at the heels of World of Warcraft. In the seven years since the game launched, 80 million accounts have been created. Globally, the game typically has 100,000 concurrent users playing at one time.

Furthermore, Habbo was estimated to do $77m in revenue in 2006. In the middle of 2006, Habbo had around 53m accounts. Assuming a similar ratio of monthly players to total accounts in mid 2006 to what Habbo has today, that suggests that there were around 5m unique players per month at that time. Dividing $77m by 12 months by 5m unique players suggests about $1.30 in revenue per active users.

Runescape

Finally, Jagex’s Runescape claimed 1m players paying $5/mth in May 2007 and 6m players per month in October 2007. That suggest $5m/mth in revenues from 6m players, or around $0.84 in revenue per active user.

In summary then we have:

Second Life: $1.70/mthly user/mth UPDATE: Should be $9.30/mthly user/mth
Club Penguin: $1.62/mthly user/mth
Habbo: $1.30/mthly user/mth
Runescape: $0.84/mthly user/mth

The average across these four is $1.40/mthly user/mth*. UPDATE: excluding Second Life, should be $1.25/mthly user/mth.

Having spoken to many other MMOGs and virtual worlds on a private basis, this estimate seems to be a good gauge for what a well performing MMOG can aspire to from a free to play business model.

Do readers have any datapoints that they can add to this survey?

* Note that this is based on monthly users. Many MMOGs calcuate their average revenue per user (ARPU) based on Peak Concurrent Users. On this basis, ARPU can be more than an order of magnitude higher than the $1.40 guideline.