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$200 off Engage – Virtual Goods, Games and Social Media conference August 10, 2009

Posted by jeremyliew in conferences, games, games 2.0, social media, virtual goods, virtual worlds.
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I’m speaking on the VC panel at Engage Expo next month, Sept 23-24 in San Jose. I’m on at 1pm on Wed Sept 23.

The agenda is shaping up well – I’m looking forward to the social media and virtual goods tracks especially. This conference used to be called Virtual Worlds Expo, and I think the intersection of virtual worlds and social media is particularly interesting. Zynga’s Yeoville is the best example of a port of a virtual world to a social network, but arguably games like Restaurant City, Rockyou Pets, Farmtown and Farmville are all examples of asynchronous virtual worlds with a strong single player component overlay.

If you’re thinking about attending, use the discount code SPEAPERVIP SPEAKERVIP to save $200, and if you’re sure you’re going register before Aug 14th to get the early registration rate.

Tips on designing layouts for games and virtual worlds March 23, 2009

Posted by jeremyliew in game design, game mechanics, mmorpg, virtual worlds.
1 comment so far

Raph Koster has some useful tips on laying out maps; some of these are probably not too different from urban design planning best practices in the real world. I’m repeating them here (aggregating and paraphrasing some of his points)

1. Always make sure users can tell which way to go.

Starting a newbie at a dead end and giving them only one way to go is a classic way to deal with early confusion. Large landmarks that can be seen from a distance can serve a similar purpose.

2. Don’t use invisible barriers. (Form should give an indication of function)

3. Mazes suck.

4. Make zones that have a sense of place

– Create characteristic qualities to a linked zone so that it is easy to recognize that these areas are related to each other
– Enclose these zones
– Create “gates” between places that visually convey a transition from one place to another

…moving from one pocket to another should feel dramatic: a tight passage revealing a wide vista, coming over the crest of a mountain and revealing a valley, discovering a door behind a waterfall, a big bold gate with guards. You want to signal that the user is entering a space with its own framework and rules. There are a lot of visual cues that are used, but most of them carry some sense of “gate” to them, even if it is as simple as a path that winds between two hills: a passage between two tall things.

– Build in modules. Connections to neighboring zones should be few and obvious.
– Have a defining activity.

ure, every city has to have the same amenities, and every zone must have monsters. But get creative. This wilderness zone has the pool you can swim in that is perfect for picnics. This other one has the great layout for ranged combat. This inn has the trivia game; that one has the chess board. Users will self-select into the spaces which feel culturally comfortable to them.

5. Watch where people want to walk, and put roads (and important places) along the well worn paths.

6. Social spaces point inwards. Keep the center empty to avoid a “ring” instead of a “plaza”

7. Adventure spaces point outwards.

In general, if you are exploring you want a horizon (or more than one) to head towards. Where social spaces create a sense of security, adventure spaces should create a sense of uncertainty and the unknown to prompt users to keep going.It isn’t about endless vistas; it’s about interest.

8. All this is fractal. Apply the same rules at each level of map layout.

As always, read the whole thing.

Why do people buy virtual goods? January 13, 2009

Posted by jeremyliew in digital goods, game design, game mechanics, virtual goods, virtual worlds.

I recently read a paper by Vili Lehdonvirta about what drives the purchase of virtual goods. I’ve suggested three use cases for virtual goods before:

1. Attention in a noisy environment (usually digital gifts)
2. Self Expression
3. Increased Functionality

and later proposed a fourth use case, convenience.

Vili proposes a different taxonomy:

Purely “utilitarian” or use-value0based attributes can be divided into two categories: performance (simple numerical advantage) and functionality (new abilities and options). Virtual goods also have attributes capable of generating emotional or hedonic responses, particularly their visual appearance and sound, but also any background fiction or narrative associateion with them. Hedonic attributes are difficult to distinguish emperically from the conceptually different social attributes, which refer to attributes that make virtual items suitable for creating and communicating social distinctions and bonds. Such attributes are provenance, customisability, cultural references and the “branding” of an item with a known commercial brand. Rarity is perhaps the most socially oriented attribute of virtual goods, because its value is strongly associated with its ability to distinguish a (small) group of owner from non-owners

In the paper he gives examples of each of his classes of virtual goods. He also summarizes some previous research on digital goods. In particular, he notes advice from Oh and Ryu to game designers based on research on Kart Rider and Special Force:

– Balance between items that can be purchased with real money and items that must be earned through gameplay, and build synergies between the two categories
– Allow players to keep “ornamental” items permanently, but make “functional” items consumable
– In the case of items that ive the player a performance advantage, do not disclose the exact numbers;provide approximate descriptive texts instead
– Introduce items linked to specific events and communities (e.g. Christmas decorations and guild emblems).

It’s useful to read the whole paper (around 15 pages)

IMVU founder’s framework for digital goods: three key questions October 20, 2008

Posted by jeremyliew in digital goods, game design, game mechanics, games, games 2.0, mmorpg, virtual goods, virtual worlds.

Eric Reis, one of the co-founders of IMVU, posted last week on the three key decisions you have to make when thinking about virtual goods business models:

UGC or First Party content?

First Party – more control, but higher costs and harder to anticipate what users will want

UGC – Massive breadth of content, but have to put systems in place to deal with adult content and copyrighted content

Subscription or a la Carte payments?

Subscriptions – Greater game balance between rich and less rich players, lower fraud rates

A La Carte – Easier to monetize players without credit cards (e.g. teens)

Merchandising or Gameplay?

Gameplay – Virtual goods are functional, part of the core game mechanics, and confer benefit in the game. Demand is driven by game mechanics alone, and requires a delicate balance to ensure that players with money do not always beat players with time, skill and passion.

Merchandising – Virtual goods are not just functional, but also associated with self expression or attention in a noisy environment (see my previous post on the three use cases for virtual goods). This creates potential for greater demand for virtual goods, but requires the creation of a marketing and merchandising capability in the company.

Reis believes this framework can be used to describe any virtual goods business:

You can use these three questions to analyze existing businesses. For example, IMVU is a user-generated, a la carte, merchandising product. Habbo is first-party, a la carte, merchandising. Mob Wars is first-party, a la carte, gameplay. WoW is first-party, subscription, gameplay.

Read the whole thing.

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.

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.

Habbo profitable on $38m of revenue in 2008 H1? September 25, 2008

Posted by jeremyliew in games, games 2.0, gaming, habbo, virtual worlds.

Arctic Startup, quoting an article written in Finnish at Kauppelehti, the leading business magazine in Finland says:

The Helsinki based virtual goods operator Sulake saw a profitable first half in 2008. According to Kauppalehti, net profits were around 400 000 euros. The revenues rose approximately 20% to 25,6 million euros for the first 6 months of 2008. Majority of the sales came from sale of virtual goods in Habbo Hotels world wide. According to the company, the annual growth for 2008 will be around 30%.

Jussi Laakkonen also notes from the same source:

Sulake’s 22 M€ [of investment from 3i] is [quoted] from Kauppalehti, the leading Finnish business magazine, which calculated the total losses incurred by Sulake from its founding in year 2000 to end of year 2007 using public records. VC money raised is more than this.

Update: Virtual World News pulls in conflicting revenue reports over time for Habbo.

MMOG nuggets from Austin GDC September 18, 2008

Posted by jeremyliew in business models, freemium, games, games 2.0, gaming, mmorpg, virtual goods, virtual worlds.

Some interesting tidbits about both free to play and subscription MMOGs coming out of the talks at Austin GDC. Min Kim of Nexon says:

Not just a Korean thing:

“South Korea is still a big market for us,” Kim admits, “but the split is now 50/50 with overseas markets,” which includes the Asian and U.S. markets.

On growth in North America:

In 2005, Nexon America’s revenues were around $650,000. In 2006, when they added Paypal as a payment option, sales rose to $8.457 million, based on item sales. In 2007, once Nexon released its Nexon Cash cards to retail stores, revenue jumped to $29.334 million.

On localization of games:

While many of the free to play games currently come from Korea, Kim feels that the market will eventually be dominated by Western titles. “We’ve seen this happen in other places like China,” he posed. “The big games now are from Chinese developers. I think the same thing will happen in the West, with Western-developed titles.”

On how game design interacts with business model design:

Focus on fun, not just on what items you can sell. “Have an idea about what your business model is,” he advises, but don’t go overboard laying out your business plan completely from the beginning. “Don’t have all your items and categories pegged out. Make sure you have a fun game, first.” 9 times out of 10 the ideas you’ll have at the beginning will be wrong. The players will tell you what they want to buy.”

From a panel on evolving business models in MMOs, CCP’s (Eve Online) Petursson notes that subscription MMOs mostly reward time spent playing (which is consistent with the business model):

All subscription-based MMOs are merit economies – those with most time, win. But the only thing you can’t buy is social merit. To be a purely subscription-based game, you should aim for social merit as it’s the only merit economy defensible against outside influences.

On when Free to play works and when it does not (a function of demographics, geography/ cultural norms and genre):

* Robert: The demographics in LOTRO etc are a lot older: 20-35, male. F2P games tend to be younger, more females, casual, less hardcore. 30 year old males are not playing a lot of F2P and have no problem paying monthly subscription. Younger people and kids are playing lots of games and want F2P for that flexibility. However, F2P microtransaction games can pull in more ARPU than subscriptions.
* Helmar – In CHina, it is illegal to have an automatic debit for sub based game – user always has to choose. For game operator it’s important to realize that most biz models will be implemented by user… better to implement them yourself and tune appropriately.
* Min – also based on genre…not many ppl shell out $15/month to play FPS. There are some F2P FPSs now in Asia. Biz model based on genre as well.

Turbine’s Ferrari notes that F2P games need low barriers to play

What we’re seeing is a shift that a lot of the f2p games are so much lighter than traditional MMOs. Heavy MMOs are beautiful, but that puts a barrier to entry based on min spec – younger demographics don’t have these systems. Global expansion doesn’t support those specs either. Our games are above 5gb in size, whereas Maple Story is close to 1gb now.

Nexon’s Min Kim has a contrarian view:

In S Korea, people have no problem downloading big client products as the web is so fast. I often wonder if browser-based gaming is an interim step until web speeds creep up and people can return to client download.

And multiple comments on the importance of letting your customers pay you how they can and want to pay you (including prepaid cards at retail):

* Min: Offering payment methods relevant to your target demographic is important. Over 20 years old, credit cards are viable. In the teen demographic, prepaid cards are still the dominant form of payment. Maybe SMS payments will come, but it is all about accessibility and convenience. In demographics such as Club Penguin’s, credit cards are a big part of their payment methods as parents are paying.
* Nicolay: I think Habbo has 140 different payment methods. The ability to pay has to be the lowest barrier to entry, otherwise you aren’t getting any money.
* Robert: SMS charges surrender so much margin to carrier, but retail cards may be more expensive just to get into channel.
* Hilmar: It’s puzzling why carriers aren’t lowering their surcharges. People would switch to it immediately, resolving credit card issues.
* Min: There is no access for our consumers to use credit cards. In 2006, we did $8.5M in the US in virtual item sales – in 2007 we did $29.3M in virtual items. Virtually all of that growth came from enabling people to pay.
* Robert: Companies like Turbine are looking at the console to expand their playerbase. Potentially we can use an xbox payment system, so we don’t need to do it ourselves. It’s about expanding access for players.

Using a virtual world newspaper to enhance in-world community September 1, 2008

Posted by jeremyliew in culture, mmorpg, newspapers, virtual worlds.

The LA Times notes the popularity of the Club Penguin Times:

The Club Penguin Times … is more widely read than New York’s Daily News, the Chicago Tribune or the Dallas Morning News. And it’s not even 3 years old.

But this weekly “newspaper” isn’t tossed onto driveways or sold at newsstands.

Rather, it’s an online publication distributed to the estimated 6.7 million monthly users of Club Penguin, a snow-covered virtual world visited by more than 12 million kids, who adopt a colorful penguin persona and waddle around, playing games and meeting new friends.

Though no one would suggest that the Club Penguin Times provides Pulitzer Prize-worthy coverage, it nonetheless attracts 30,000 daily submissions from children, who pose questions to Dear Abby-inspired “Aunt Arctic,” compose verse for the poetry corner, tell a joke or review a party or event…

As the main source of information about events within Disney’s icy, penguin-populated virtual world, it boasts the kind of reader penetration that mainstream newspapers would envy. At least two-thirds of the players turn to the Times each week to find out what’s happening, Merrifield estimates.

Club Penguin’s CEO., Lane Merrifield, notes:

…he was looking for ways to incorporate learning — what he called educational “fiber” — in the game. Publishing a “newspaper” seemed an obvious way to encourage reading by offering information that users care about, such as the latest igloo upgrades.

In addition, the Club Penguin Times helps create social norms and shared experiences for players – an important facet to creating and shaping a culture in the world. Most online worlds develop discussion boards where the world’s creators have limited ability to shape the discussion. By creating a user generated (but company edited) newspaper for the world, the world’s creators give themselves a powerful tool for controlling and shaping the conversation. People building MMOGs and virtual worlds should read the whole thing.

(Found via via Paid Content.)

Game developers on social networks can expect $1.20/mth/Daily Active User August 29, 2008

Posted by jeremyliew in advertising, business models, games, games 2.0, gaming, social games, social gaming, virtual goods, virtual worlds.

Inside Facebook has a terrific interview with $uperRewards, one of the two major CPA ad networks for social networks (and increasingly outside of social networks as well). [Offerpal is the other major CPA ad network for social networks]. In the interview the $uperRewards team give some great stats and advice for game designers:

On who to focus on when thinking about monetization:

You should support all kinds of players well, while remembering that your hardcore users will generate 90% of your revenue….

…Also, keep in mind at that a majority of the revenue generated per user is generated early in the lifetime of the users’ interaction with the games. People spend money developing their characters, climbing the leader board, and unlocking new elements of the game. Once their character is strong, they have many prizes, and have unlocked all the levels – naturally there is less desire to complete offers and pay. It is those top guys though that motivate the little guys to climb and thus spend.

On what monetization a game developer can expect:

The core metric we use is dollars per click. We hope our developers can get 25% of their daily active users through a Super Rewards page at some point. Of those, if the economy is balanced correctly, you should see a 40-50% click through rate, and ultimately a net 8-10% conversion rate. Developers get about $1.00-$1.50/conversion for US users, but less for international users. We’re lucky to get $0.06/conversion in China, but we have games operating in Europe and other parts of Asia at $0.25 and up.

So assuming all of a developer’s traffic is US traffic, the developer could see up to $83 per day per thousand DAUs. However, on an average basis across all geographies, we are about half that number. It goes without saying that there is a wide distribution around the average based on quality of app and balance of virtual currency economy.

$83/day x 1/2 x 30 days = ~$1200/mth per thousand DAUs, or $1.2/mth per DAU. That sounds like real opportunity. When Facebook rolls out an API for micropayments, this number will likely go up even further.

Promising numbers for game developers.

Read the whole interview.

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.

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.