Beyond Facebook Gifts: Virtual Currencies 101

Reposted from Mashable

Anu Shukla is the Founder and CEO of Offerpal Media, the leading monetization solution for social applications and online communities.

The word on the street is that social networks, as popular as they are, can't make any real money. After all, who's going to click on an ad while they're in the midst of socializing with their friends?

While there's a grain of truth to this rumor, it's fast becoming an out-of-date perception. What's changed? A new economy based on social web properties that use virtual currency to capture users' imaginations.

By creating a demand for premium content such as virtual gifts or upgraded features, savvy social publishers are finding that at least a portion of their users will gladly fork over real cash in order to pay for, say, a pretend peony on (Lil) Green Patch or to buy the latest toys for their virtual babies on Make A Baby. Even better, plenty are willing to wade into the world of online surveys and advertising offers in exchange for these "must have" items in their games.

Though no one knows yet the exact size or potential of the market for virtual goods and services, conservative estimates put it at over $2 billion for this year alone. Not bad for a marketplace that barely existed a couple years ago. Even better, all signs indicate that the growth is just beginning.

As more and more social web publishers catch on to virtual currency as an incredibly effective way to not only monetize their traffic but also engage and motivate their users, the trend will only pick up steam. And as advertisers understand the channel better and realize that it is ideal for both performance-based campaigns as well as branding efforts, don't be surprised if virtual currency becomes the most sought-after ad channel on the web.

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What is virtual currency?
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Virtual currency, as you might imagine, is what you use to buy virtual goods or virtual services. It is essentially as good as real currency. The only difference is that it only applies within the realm in which it was issued. This currency has all kinds of names in the online world: it may be called "bucks," "coins," "points," "dollars," "tokens," "jewels," "rewards," "chips," "treats," "vouchers," "boosts," or "credits" (all of which we've seen), but whatever their name, virtual currencies have a definite value and can be redeemed in a number of ways.

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What are virtual goods and services?
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Ever noticed the little gift icons on Facebook lately that urge you to send a present to a friend? Virtual gifting is a reportedly $50 - $60 million a year business for the company, and that doesn't include any of the gifting that takes place on third party applications. But beyond Facebook's own virtual gifting, it's also built into a number of applications, offering revenue opportunities for the developers of these games.

Virtual worlds and avatar-based communities have been charging people for decorative types of goods like fancy upgrades for their avatars or special backgrounds for their profile pages for some time now. At WeeWorld, for example, where you can create your own personalized WeeMee and take it with you around the web, you can spend WeePoints to pimp out your avatar with just the right hair, right clothes and right accessories.

Virtual goods can also be more functional than decorative, such as the case when virtual currency is redeemed to unlock hidden features or advance within a gaming scenario. This type of virtual good is especially prevalent in MMOGs or other types of social games. For example, at Mobsters, the number one app on MySpace, users can redeem virtual currency to help them grow their mob and level up faster towards the top of this underground world.

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How is virtual currency earned?
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We've already mentioned that virtual currency can be earned by either buying it with real currency or by taking part in ads, but there are several other ways that publishers can allow their users to earn virtual currency. One is by inviting other people to the property, a tactic that also encourages viral success and growth. Another way is by simply coming back and logging in every day, which helps increase stickiness and loyalty. And yet another way is by rewarding them for completing certain tasks or quests, thereby helping build engagement and activity.

But the most monetizable way to let users earn virtual currency, by far, is for completing ad offers.

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How can advertisers tap into virtual economies?
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As advertisers know only too well, so-called "banner blindness" has become an increasing fact of life, but especially so on social networks. Wise application developers know to integrate advertising offers into their app in a way that contributes to, rather than distracts from, the overall user experience.

For example, participants in the (Lil) Green Patch application need what are called "GreenBucks" in order to choose the types of plants they want to send to friends. By signing up for Blockbuster, for example, or by participating in any number of advertising offers such as completing surveys, requesting insurance quotes, downloading ringtones, etc., they can get a hold of that foxglove they planned to give to their aunt Agatha, or a lily they hoped would brighten the day of a friend.

By tapping into the user's social activities and motivations—in this case, sending a virtual gift—advertisers' offers essentially provide the fuel that enables consumers to interact with each other within an application. The key to success, from the advertiser's point of view, is using all of the juicy demographic and behavioral data on hand in order to target their audience strategically. Do that, and they will generate new customers far more effectively than through any other channel.

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Anu Shukla is the Founder and CEO of Offerpal Media, the leading monetization solution for social applications and online communities. A serial entrepreneur, Anu is also the founder of Mybuys Inc., a venture-backed company in the eCommerce personalization market. Prior to Mybuys, Anu pioneered the category of Internet Marketing Automation as founder and CEO of Rubric, Inc. Rubric was acquired in 2000 for $366 million. Prior to Rubric, Anu held a variety of executive roles including Vice President of Worldwide Marketing and Product Management at Compuware/Uniface Corporation (CPWR).

http://feedproxy.google.com/~r/Mashable/~3/AVAi9ryAEdQ/

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Global Agenda - The Georgia-Grown Action MMO [Hands On]

[reposted from Kotaku]

Living in Georgia, getting some hands-on time with a game still at a relatively early point in development generally means packing my bags, finding someone to watch the cats, assigning a backup person to check on that person, and plenty of time eating bad airport food. Not so for Global Agenda, a fast-paced action MMO being developed by the Atlanta-based Hi-Rez Studios (http://www.hirezstudios.com/). All that took was a quick shower, an application of some mostly clean clothing, and a fifteen-minute drive north. That kind of convenience is addictive. We need more developers in Georgia if only to keep me from running down the street every afternoon to stare into Hi-Rez's windows to see what they're doing - most likely testing out the gameplay in Global Agenda, which is exactly what they were doing when I showed up at their offices last week. See? Convenient.

So what is Global Agenda? Let's quote the official press information: "GLOBAL AGENDA is a fast-paced action MMO using Unreal® Engine 3 set in Earth's near future, a spy-fi world of advanced technology and player-driven conflict." The game is set in the 22nd century following a severe global disaster. Players created factions fight and scheme against each other while going up against totalitarian world government hell-bent on completely dominating the populace. Full scale wars have been replaced with covert operations taking place all over the planet between rival factions.

It's important to note that the game is at an extremely early state. Hi-Rez has been focusing completely on nailing the combat portion of the game above all else, and through the use of both random focus groups and a regular team of weekly testers are continuing to hone the experience. Factors such as world economy, social gathering spots, and the more persistent side of a persistent world game are still in the works.

http://feeds.gawker.com/~r/kotaku/full/~3/403109136/global-agenda-+-the-georgia+grown-action-mmo

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Solitary Versus Social: Play Styles of Gamers

[modified original post from Kotaku]

Multiplayer gamers (statistically speaking) tend to be challenge-oriented, and willing to be aroused to anger as this enhances their eventual reward in fiero when they attain victory. They are not only enjoying fiero, though, they are also enjoying the social element of multiplayer games such as the sense of belonging to a team, feelings of envy and gratitude, and the feeling of naches – the satisfaction of seeing someone you taught to play perform well.

Conversely, single player gamers (statistically speaking) are showing greater interest in having control over the space of their play. This is one way to interpret the lower interest in random elements – these add variety to play, but they also mean the player has less direct control over outcomes. The higher interest in sandbox play can also be interpreted as an increased interest in having complete control over the play space, although undoubtedly other interpretations are possible.

Which do you prefer?

http://feeds.gawker.com/~r/kotaku/full/~3/398303183/solitary-versus-social-play-styles-of-gamers

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Virtual Worlds for Fun and Research

[reposted from Kotaku]

We mentioned Arden, the university-design MMO, a few times; a working paper has just been released that looks at economic behavior in MMOs using the game. The interesting thing here isn't so much the fact that people replicate real-world behaviors online (in this case, they purchased less of an item when it was more expensive), but that it's yet another piece of a growing literature explaining the utility of virtual worlds in actual research:

... We tested whether fantasy gamers conform to the Law of Demand, which states that increasing the price of a good, all else equal, will reduce the quantity demanded. We created two exactly equivalent worlds, and randomly assigned players to one or the other. The only difference in the two worlds was that the price of a single good, a health potion, was twice as high in the experimental world than in the control. We allowed players (N = 43) to enter and play the environment for a month. We found that players in the experimental condition purchased 43.1 percent fewer of the potions, implying a demand elasticity of -0.431. This finding is well within the range one expects for normal economic agents. We take this as evidence that the Law of Demand holds in fantasy environments, which suggests in turn that fantasy gamers may well be economically normal. If so, it may be worthwhile to conduct controlled economic and social experiments in virtual worlds at greater scales of both population (thousands of users) and time (many months).

This is kind of a less cool version of the WoW plague research, still my favorite example of academic research utilizing MMOs. As noted by the WoW researchers, virtual worlds may offer the potential to conduct research that would be impossible using real people (like, say, unleashing a plague upon the world).

http://feeds.gawker.com/~r/kotaku/full/~3/346763323/virtual-worlds-for-fun-and-research

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The Social Future of Virtual Worlds?

[Reposted from Kotaku]

Those concerned with 'virtual worlds' — as opposed to 'games' — spend a lot of time contemplating the role of virtual worlds in a wider market; over at Terra Nova, Bruce Damer looks at the potential future of virtual worlds, which could be a lot bigger than most people imagine. Some potential answers to keep the industry growing? Piggybacking off platforms that are currently growing at a rapid clip, making sure virtual worlds are 'worth' something — perhaps some as of yet undiscovered little platform will be the key:

As we can see from the history of computing, it is often the case of "the small gobbling up the big, and everything else". Trivially small, lightweight yet rapidly replicating platforms often grow up to become all-encompassing solutions. DOS grew up to become Windows and along the way the PC triumphed over the time-shared mainframe, minicomputer and workstation. Could it be that there is some small world platform out there that is destined to become the standard? Dick Gabriel of Sun Microsystems has written much wisdom and books on this phenomenon (http://www.dreamsongs.com/Books.html) in which he posits that one of several ways to create a virally spreading success is to hitch your wagon to something that is already growing. Does this mean that a small world embedded in Facebook or some other social network(s) is the answer?

It's an interesting article that pulls examples from other (formerly) 'new media'; the rise and sustainability of virtual worlds is an interesting problem. I suspect even the 'big ones' will be trucking along pretty quietly — not unlike a lot of the popular free to play MMOs from abroad.

http://feeds.gawker.com/~r/kotaku/full/~3/327461411/from-the-margins-to-the-mainland-the-future-of-virtual-worlds

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A Socially Responsible Virtual World for Children

[reposted from TechCrunch]

Massively Me, a stealth gaming company, has announced the upcoming launch of its MMOG for kids and young teenagers, Kiwi Heroes.

Scheduled for release later this year, Kiwi Heroes will be a Flash-based game that attempts to strike a balance between a virtual world and a traditional MMOG (like WOW). Massively Me claims that the intention behind Kiwi Heroes is to promote social awareness and responsibility to children by addressing environmental issues and global concerns in the game. It also plans on establishing the "Every Kid's A Hero Foundation," to support charitable global causes.

Kids' virtual worlds and online games have a proven track record of major success. TechCrunch analyzed several of the most popular virtual worlds last August. Club Penguin sold to Disney for $350 million and Neopets sold to Viacom for $160 million. The space is potentially very profitable, with a lot of user attention ripe for the right kind of monetization.

With so many potential users and advertising attention, the space is heavily competitive with many competitors, and even some major media corporations. Mattel has their Barbie Girls site, Disney has Club Penguin, and Ganz has Webkinz. Webkinz is the current leader with almost 7 million monthly U.S. uniques, up 148% from last year (via Compete).

Another challenge that children's online gaming networks run into is finding an effective way to advertise. Neopets used immersive advertising by selling advertising on various aspects of gameplay. For example, players could earn "Neopoints" by playing advergames and taking part in marketing surveys. Similar businesses have monetized through providing offline goods like toys, DVDs, video game partnerships, TV programs, and clothing.

Massively Me has been completely self-funded so far, and claims to be currently pursuing several partnerships and offline tie-ins. If these offline attempts prove successful, Kiwi Heroes may have what it takes to be a contender.

http://feeds.feedburner.com/~r/Techcrunch/~3/325556421/

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Virtual Worlds In Motion

See below from games.ign.com. I met Jim Bower (Numedeon) at the Games for Health conference earlier this year and he is definitely worth hearing.

Sept. 16-17, 2008 will mark the return of the Worlds in Motion Summit, taking place at the Austin Game Developers Conference (www.austingdc.net) in the Austin Convention Center. The event, which saw its successful debut at the Game Developers Conference 2008 (GDC 08) in San Francisco this past spring, will map the broadening of the worldwide business market through the expansive and growing social game networking space. The Worlds in Motion Summit, presented by WorldsinMotion.biz, is of particular value to those looking to successfully leverage their content and brands into interactive online worlds.

In an exciting development, Stephen Andrade, Senior Vice President, Digital Development and General Manager, NBC.com will be joined by Rajat Paharia, Founder and CEO of Bunchball in a first-of-its-kind presentation, titled "Dunder Mifflin Infinity: A Case Study in Using Game Mechanics to Drive Community Behavior." Participants will hear how Bunchball's Nitro meta-gaming platform is being used to drive user behavior and increase engagement on Dunder Mifflin Infinity, a social networking and user-generated content site for fans of NBC's hit TV show, The Office.

Additional confirmed speakers for the upcoming Worlds in Motion Summit include:

- James M. Bower - Founder, Chairman of the Board and Chief Visionary Officer of Numedeon Inc.

- Jonathan Epstein - CEO of Double Fusion

Teemu Huuhtanen - Executive VP, Marketing, Ad Sales and Business Development of Sulake Corporation and President, North America of Sulake Inc.

The conference will examine the results that both independent start-ups and established Fortune 500 companies can derive from actively participating in the virtual world space. The Worlds in Motion Summit will map the intersection of games, business and entertainment in virtual worlds, and provide a look into where these virtual worlds are headed. Beyond traditional notions of linear gameplay experiences, the Worlds in Motion Summit will delve into the increasing socialization of games and online worlds, and the integration of personalization and player-generated content into gameplay.

Additional information on the event and confirmed speakers can be found at: http://www.austingdc.net/wim/index.htm

Economical Gaming

[from Techcrunch]

This guest post is written by Jeremy Liew, a Managing Director at Lightspeed Venture Partners where he focuses on investments in gaming, internet and consumer enabling technology companies. Jeremy is co-producing the Social Gaming Summit next Friday, June 13th, at UCSF Mission Bay. Most of the companies mentioned below will be presenting.

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The last few years have seen a transformation in the consumer internet world as online media has evolved into social media. Many new social media companies have shot to tens of millions of users very quickly, including Facebook, MySpace, Digg, Yelp, YouTube, Slide, RockYou* and Flixster*. The trends that have driven the growth of these Web 2.0 companies include:

- Dramatically reduced development costs and cycle times, which have led to highly iterative product management
- Dramatically reduced marketing and distribution costs as CPC advertising, viral growth and social network platforms have replaced Superbowl ads and distribution deals with portals
- Easier monetization due to the proliferation of ad networks

As the game industry embraces web games, multiplayer games, and social games, we are seeing these same trends emerge. Web games and multiplayer games are well understood. Social games however, are a newer phenomenon.

Social games are not just multiplayer games. In social games, existing social relationships add context and motivation to the gameplay. Social games are more fun to play with people you know than with anonymous strangers. Examples of social games include Friends for Sale*, where you had better buy your girlfriend back from that guy who has been hitting on her at the gym, (fluff) Friends, where if your BFF feeds your pet, you are compelled to reciprocate, and Power Challenge, where you can't let your team's loss to your fraternity brother's team go unavenged.

Even single player games can become social when the right infrastructure for community and social interaction are built around them, including high score leaderboards, achievement badges, challenges and simple message boards, as Kongregate, Addicting Games, MiniClip and MindJolt are demonstrating.

The gaming industry is now starting to experience the same trends that the online media industry has experienced over the last few years:

Dramatically reduced development costs

Lazard estimates that Halo 3 cost $30m to build. Rockstar says that they spent $100m to make Grand Theft Auto 4. While both have been wildly successful games that sold over 10m units each, these are big numbers to spend on development. A new generation of lightweight web games is now being created at a fraction of these budgets, and these games are being played for free by millions of users. Games like Zynga's Scramble, Social Gaming Network's Warbook and Stardoll (originally Paperdoll Heaven) were all originally launched on less than $100k and all have entertained millions of players.

Of course these free games can't compare to the complexity, quality or polygon count of Halo 3 or GTA 4, but they do provide entertainment to their players, and they are all evolving and
improving over time. Because all these games live in the browser, they can be constantly updated and refined as game designers watch their players' usage patterns. They give players more of what they like, and cut out gameplay that players don't like. Teams are small and development is fast and iterative in reaction to player feedback.

In the extreme, users generate the game rules themselves. Some users in online communities and immersive worlds including Dogster, Habbo Hotel, Gaia and IMVU have gone so far as to create games on their own, ranging from dance parties to plays to petting zoos to quiz shows.

Dramatically reduced marketing and distribution costs

Halo 3 spent an additional $30m on marketing, mostly offline. GTA 4 blanketed the billboards of San Francisco as part of its massive launch. These marketing budgets are akin to the Superbowl ads of the early 90s internet companies. Yet CPC and CPA based advertising have been as much a boon for gaming companies as they have for other online businesses. With more games playable inside a browser, or easily downloaded over a broadband connection, games like Go Pets Live, Nexon's Maplestory, and Three Ring's Puzzle Pirates have become experts in success-based online player acquisition.

Furthermore, Games have exploded virally on the social network platforms. On Facebook alone, three games (Texas Hold'em, Zombies and Friends For Sale*) have more than 8 million players (installs). Five of the top ten Facebook apps (by daily active users) are games; Owned, Friends for Sale*, Texas Hold'em, (Lil) Green Patch and Scrabulous. This is a direct consequence of the social games phenomenon. Social games are more fun to play with your friends, and social networks are an ideal environment for killing time with friends. As a result, they have been able to very efficiently ride the distribution channels that the social networks provide.

Easier monetization

The dominant model of monetizing games is still retail - selling crystal cases for $60 a pop. This presents a real barrier to game publishers, who have to convince a prospective player to fork over a substantial amount of money before she has even tried the game. Publishers have to generate demand, which is what led to the high marketing budgets for Halo 3 and GTA IV mentioned previously.

Now more game companies are experimenting with free to play games that make it a lot easier for a prospective player to try before they buy. These games monetize either through advertising or through virtual goods sales. Just as with online media, ad networks like Double Fusion, Massive and Mochi Media have made ad sales much easier for game companies, so that they can focus on their core competencies. Equally, virtual goods business models, well established in Asia, are starting to gain more momentum in the West as well. Habbo Hotel is reportedly doing more than $50m in virtual goods sales (mostly in Europe) and Nexon's Maplestory is doing around $30m in virtual goods sale in the US. Companies like Acclaim, Stardoll and K2 Network are ramping their virtual goods sales in hot pursuit.

Future for social games

The trends outlined above are likely to lead to many new and valuable gaming companies. Let EA, Nintendo, Activision, Ubisoft and the like continue to fight for market share amongst hard core gamers. New social games startups, including free to play MMORPGs, social network games, web based games and single player gaming communities, are busy converting the much larger market of casual players into their customers.

Techcrunch readers interested in learning more about Social Gaming can use the code CRUNCH to get a 10% discount on tickets to the Social Gaming Summit.

* Lightspeed is an investor in Flixster, Rock You and Serious
Business (which publishes Friends For Sale)

http://feeds.feedburner.com/~r/Techcrunch/~3/305675158/