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Future of social payment platforms April 16, 2009

Posted by jeremyliew in payments, social games, social gaming, virtual goods.
14 comments

Inside Facebook reports 35% quarter on quarter growth for social media payment provider platforms. Incentives social network offer platforms such as Offerpal, $uperRewards, Gambit and the like have enabled the phenomonal revenue growth in social games. Payments has always been the friction point for free to play games in the US, and these platforms significantly increase players ability to pay for virtual goods.

The future is bright for these platforms, but there are some clouds on the horixon. Andrew Chen’s blog has a terrific guest post from Jay Weintraub on the likely future of the incentivized social payment platforms. If you’re building games or otherwise monetizing virtual goods and using one of these platforms, go read this post and come back.

Jay points out that incentive marketing has been around a long time, and follows boom and bust cycles where initial advertiser enthusiasm for a new source of leads is dampened when lead quality ends up being poor. I agree with his prognosis that revenue through this channel will come under some pressure in the future but will not go away. Some points worth noting:

1. Because many of the leads are being filtered through at least one intermediary and mixed in with other lead sources, it will take a while before the advertisers figure out what these leads are really worth, so pricing should hold up for a couple of quarters yet.

2. Unlike the free ipod model, the value of the payoff has been reduced by 1-2 orders of magnitude, so far less actions need to be completed (usually only one) before a user gets a payoff. As a result there will be vastly less breakage and vastly fewer unhappy users, [so long as the offers are adequately explained] so the risk of state and federal investigation is much lower this time around.

3. There is a roughly 50:50 split for the payments platforms today between direct payments and offers. Even if the value of offers were to fall in half, this would still mean that revenues would hold up at the 75% level

4. Offers are the gateway drug towards virtual goods purchase. Typical new players split 30:70 direct payments to offers, but hard core players split 70:30. As a result, game publishers will have an incentive to support offers even if margins drop as it teaches players to pay for goods.

What do you think?

Prepaid cards continue to drive online game revenue March 20, 2009

Posted by jeremyliew in freemium, games, games 2.0, gaming, payments.
1 comment so far

Two interesting announcments on prepaid cards this week.

Venturebeat reports:

Game currency cards — gift cards players can use to pay for subscriptions or virtual goods in online games — are getting traction. Coming on the heels of a similar report from GMG Entertainment, InComm said today that its game currency card business grew 200 percent in 2008.

Incomm is one of the two leaders in prepaid cards broadly (e.g. for Bed Bath & Beyond, Red Lobster etc) and has been making a concerted push into online game cards over the last couple of years.

Virtual Worlds News also reports on some useful stats from Playspan’s Ultimate Game Card:

21% of customers receive an Ultimate Game Card as a gift; 79% bought it for their own use
48% of customers between 14-18
36% of customers have bought 4 or more cards

The infrastructure of prepaid cards is one of the key elements that is unlocking the growth of free to play games in the west today.

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.
4 comments

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.