How to plan a virtual goods sales business model

Virtualgoodssales as a business model
How to plan the interplaybetweenvalueofferings and game design basedsegmentation… and how to capturevaluefromit

Juho Hamari
Researcher @ Helsinki Institute for InformationTechnology
M.Sc. (Econ) @ Information System Science - eBusiness
web: virtual-economy.org || tweet: @VirtualEconomy

The aim of the presentation is to breakdown the virtualgoodssales business modelusingconceptual business modeltools.
(Pleasesee the slidespecificnotesbelow for moredetaileddescriptions)

What does the term business model actually mean?

…which are components of a business model
They are components of a business model
Osterwalder et al. (2009)

Business model definitionOsterwalder et al (2009)
In short …
“A business model describes the rationale of how an organization creates, delivers, and capturesvalue”

But what value are we offering?
Ok.

Value proposition
Value proposition is an overall collection of the firm’s products and services
Value proposition can be decomposed to smaller value offerings

Value proposition
Large array of possibilities to break down the value proposition
What is a meaningful way of identifying relevant entities of value?
Games have always had virtual goods, but they have been inside bundles
Virtual goods
Server/name/faction
Expansions
Gameplay
Avatars
Virtual world
Community
Value proposition

Value offerings
Essentially every texture, model, sound and a line of code has value and could be sold separately
Virtual goods are essentially small bits of the total value proposition
… but which parts do we sell, to whom and how do we create demand (value) for those parts?
Value proposition

Commonly sold objects of value
Physical goods
- Boxed games
- t-shirts etc
Avatar competencies
Added services:
- timesavers - functionality - social interaction features - name/gender/race change - server change
Time
Content (areas)
Virtual goods
- aesthetic
- rare items
- consumables - time-based - use-based
- performance
- social - gifts

Sold objects in WoW
Physical goods
- Boxed games
- t-shirts etc
Avatar competencies
Added services: - timesavers - functionality
- social interaction features - name/gender/race change - server change
Time
Content (areas)
Virtual goods
- aesthetic
- rare items
- performance
- social - gifts

Sold objects in FrontierVille
Physical goods
- Boxed games
- t-shirts etc
Avatar competencies
Added services:
- timesavers
- functionality - social interaction features - name/gender/race change - server change
Time
Content (areas)
Virtual goods
- aesthetic
- rare items
- performance
- social
- gifts

Elementary value of virtual goods (Lehdonvirta 2009)

But to whom
Now we know what we are offering

Segmentation
The purpose of segmentation is to identify and divide populations into strategically relevant homogeneous segments based on proven segmentation variables and matching customer needs
Enables a firm to differentiate and target their value offerings

Segmentation based on game design
Intensiveness
Levels
Points
Dimensions of content
Styles of play
Avatar classes
Intensiveness
Dimensions

Product portfolio of Volkswagen
http://www.autointell.com/european_companies/volkswagen/vw_marke/volkswagen-group.htm

Differentiation
Level z items
Level y items
Level x items
Type d
Type b
Type c
Type a

Product unlocks in FrontierVille

Player types (Bartle 1996)

Player motivations (Yee 2007)
Advancement
Mechanics
Competition
Socializing
Relationship
Teamwork
Discovery
Roleplaying
Customization
Escapism

In World of Warcraft items are divided into quality tiers that address the different play styles and intensiveness: casual to hardcore

Value offering
User segment

But how do we capture value
Now we know what we are offering and to whom

Pay-per-use
Single price
= a revenue stream
subscription
Customer dependent

Everything
Pay-per-use
Single price
subscription
Customer dependent

Mighty Sword of Slaying
Top level warriors
Pay-per-use
Single price
Customer dependent
Subscription

Bundle
Pay-per-use
Single price
Subscription
Customer dependent

Meeting the willingness to pay
Goal is to break down the total value proposition to such small offerings that the customer is able to pay the amount for the service that she is willing to pay

Pure retailmodel
Lost revenue
Lost revenue

Retail + subscription

Retail + tieredsubscription

Virtualgoods
Freemium bonus:
Value captured from non-paying users

Value offering
User segment
Pricing

Pricing

Why business models frameworks?
Understanding and sharing
Analysing
Managing
Prospecting

Thankyou
web: virtual-economy.org || tweet: @VirtualEconomy

References:
Bartle, R. (1996). "Hearts, Clubs, Diamonds, Spades: Players Who suit MUDs. http://www.mud.co.uk/richard/hcds.htm
Lehdonvirta, V. (2009). Virtual Item Sales as a Revenue Model: Identifying Attributes That Drive Purchase Decisions. Electronic Commerce Research, 9(1-2), 97-113.
Osterwalder, A. (2004). The Business ModelOntology – A Proposition in A Design Science Approach. Thesis. University of Lausanne.
Osterwalder et al. (2009). Business ModelGeneration.
Yee, N. (2007). Motivations of Play in Online Games. Journal of CyberPsychology and Behavior, 9, 772-775.

Furtherreading:
Hamari, J. (2009). Virtual goods sales: New requirements for business modelling? Thesis. University of Jyväskylä. - https://jyx.jyu.fi/dspace/handle/123456789/23051?show=full
Hamari, J., & Lehdonvirta, V. (2010). Game design as marketing: How game mechanics create demand for virtual goods. International Journal of Business Science and Applied Management. 5(1), 14-29. - http://www.business-and-management.org/paper.php?id=48

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How to plan a virtual goods sales business model

by Juho Hamari

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