Reasonings for virtual currency implementations in business models of free-to-play worlds

Virtual currency issues have been on the table for a while now: Sulake introducing dual currency system to Habbo and Three Rings launching Whirled with three separate currencies. The purpose of this post is not to go into much detail, but to encourage discussion on this issue.

I just quickly wanted to point out what implications different currency implementation currency design choices may have on different sub-business models.

Sub-business models, you ask? Here is just a brief description of this line of thinking. I consider seeing a business model as three-fold a viable way to look at business models in this industry. This perspective basically is derived from user relationship perspective, which is a major business model component (e.g. Osterwalder 2004, Heikkilä et al. 2007), and more accurately; describes what is the goal towards the customer. The sub-models are: Acquisition, retention and monetization. This line of thinking is somewhat established in the discourse surrounding virtual worlds, web 2.0 and social networking services. Blattberg & et al. (2001) coin it as Acquisition, Retention and, Add-on selling, Chinese MMO publisher Shanda coins it as “Come-Stay-Pay” and so on.

Here are some strategies from the top of my head how currencies are and could be used:

Acquisition:

  • Referral
    • In Whirled currencies are used as referral fees for users who have recommended the service for other potential users. The referees actually receive a third of all Coins/Bars that the refereed customer uses during her lifetime in Whirled.
  • Conversion
    • Free promotional currency
      • In IMVU new users get free promotional credits, which can be used to buy clothes etc. This also “teaches” users to buy items within the service

Retention:

  • Encouraging for frequent use
    • Losing assets if idle
      • In Habbo users also get Pixels from logging in every day. This system is somewhat similar with daily quests in World of Warcraft. If you don’t log in or don’t do the daily quest you potentially lose something, be it faction reputation in World of Warcraft or Pixels in Habbo
      • Currencies vanishing if the user does not log in (not sure if implemented anywhere)
  • Encouraging for continuous use
    • Earning currency via gameplay
      • In Habbo you earn Pixels (the new currency) from using the service and doing achievements
    • Maintaining world balance (translates to maintaining the game entertaining/engaging)
      • Adds one layer to managing virtual economy
    • Medium of exchange (currencies) potentially adds to the total perceived value (Hsee et al. 2003)
    • Separation between time-currency and bought currency
      • Playing the game is required to obtain items that are only available with time-currency
      • Enables time-spenders to acquire ~equal standing compared to money-spenders
    • Relative amount of obtained time-currency increases as game progresses (mostly in RPGs)
      • Sense of progression (also contributes to frequent use)
      • Enables one segmentation factor of users and has further implications of what items are being offered to differently progressed users
    • Rewarding beneficial behaviour
      • In Whirled content creators can earn currency (Bling) which is exchangeable to real money
      • In Habbo users may earn Pixels from helping other users

Monetization:

  • Additional layer to pricing
    • Psychological pricing
      • e.g. odd-pricing
    • Medium of exchange may create illusion of linearity, advantage, and certainty (Hsee et al. 2003)
  • Enabled trading between currencies bought with real-money and earned through gameplay
    • Monetizing “time-spenders “ indirectly as money-spenders need time-currency to buy items (Puzzle Pirates)
    • Enables taking a cut from transactions between currencies (Whirled?)
  • Items requiring both time-currency and money-currency to buy items
    • similar to above examples
  • Mismatch between sold currency amount and item prices
    • Enables accumulation of excess currency to users’ accounts
      • Users buy more currency than they use
      • Users might be willing to buy more as the excess is too small an amount to buy more items
  • Restricting tradability of currencies (e.g. in WoW there are badges as currency, which are non-tradable and there are items that can only be bought with this currency)
    • Restricts RMT, which might potentially decrease revenues
  • Currencies in advertising -> advertising revenue
    • Sell currency to advertiser who gives them out to users
    • Distinct sponsored currency to buy braded goods

There are strategies which can have setbacks as well. For example mismatching amount of currency and item prices might reflect negatively to retention. Also some strategies overlap and might not be logically comparable as such. There are a lot of parallel strategies which could be looked at from another perspective, for example amount of currency obtained from gameplay could as well be described via the usual RPG gameplay design, but as the topic in this post refers to currencies, I tried to cover strategies from the currency point of view.

Other way of organizing this list could have been listing the design choices and then their implications in Acquisition, Retention, and Monetization, as many design choices have an implications in all of them. Perhaps I will make another post with similar layout covering design choices of another dimension of virtual worlds.

References:

Blattberg, R., Getz, G. and Thomas, J. (2001). Customer Equity. Boston, Harvard Business School Press.

Heikkilä J., Heikkilä M. & Tinnilä M. (2007) The Role of Business Models in Developing Business Networks, in (ed.), Electronic Commerce: Concepts, Methodologies, Tools, and Applications, Information Science Reference, pp. 221-231.

Hsee, C. K., Yu, F., Zhang, J. and Zhang, Y. (2003) Medium Maximization. Journal of Consumer Research, Inc. 30:1, June, pp. 1-14.

Osterwalder, A. (2004) The Business Model Ontology – A Proposition In A Design Science Approach. PhD Thesis, University of Lausanne.

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One thought on “Reasonings for virtual currency implementations in business models of free-to-play worlds

  1. We tried to expire the attention currency (coins) in Whirled during the alpha. The players profoundly disliked having their money vanish (and at the time, it was called Flow — so wasn’t clearly identified as money, just as some kind of currency-like stuff, more like ‘experience’). We got rid of the expiry.

    Dr Cat succeeded in implementing a currency expiration system in Furcadia. I’m not sure if the players ‘liked it’ but I’m pretty sure said that they had learned to accept it. I don’t know if Furcadia still works this way.

    – Daniel

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