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Managing a Virtual Economy
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Managing a Virtual Economy



My talk from VGS 2009.

My talk from VGS 2009.



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  • And it’s very important to understand their behavior, and track them. Great article by Peter Thiel. One important point is he doesn’t believe we’re heading for inflation because lending institutions changed their recirculating behavior a little bit.
  • Zynga shows you stuff you can’t own!Offerpal blog: about converting between one and two currencies. In the real world, money is money. You can’t do this sort of thing. Food stamps try. But they just get sold at a discount on the black market
  • This is the core of the analytics argument. We track every wallet, and every transaction. We can compute new statistics that weren’t even contemplated. And we can macro-economic statistics from micro-economic data.
  • This is also a problem. Real world fraud systems are built on a slower scale.Modern credit card fraud is based on maximizing the number of purchases during a window of opportunity. It’s up to you to control things better.
  • And, of course, since this is a transaction in the computer science sense, it can only happen when the store is closed. We’ll talk more about this later, but it’s important.
  • A reviewer completely misunderstood this slide. The Robinson-Paxman act prohibits discrimination that I am not a lawyer
  • Shipping inventory to a store is simple. Yoville has 10K items
  • True for currency as well. Not enough people pay attention to rollover minutes and airline miles
  • ARPU spelled right!
  • E.g. please, forget clickstream analysis. It’s silly.
  • Odd thing; not sure what the point is“Breakage models”Driving the stagnation levels lower might increase abandonment. Might increase cash-in.
  • How much money is abandoned?
  • Stores.Think of it as Walmart versus Kmart versus Target versus NordstromExcept all you’re doing is changing all the prices.---- Multiple stores for a/b testing, for premium users, and so on.
  • Need image hereRemember: YoVille has 10K itemsStrategies are partially mutually exclusive
  • Recommendations as a toolRolling out new inventory strategy obviates collaborative filtering
  • I said “no cogs” up above, but that was about producing goods. The cash-in transaction has friction,hidden costs, and opportunity costs.
  • Can you store demographic information? If not, do you have some other way of categorizing users?Keep in mind that demographics is just “pre technology era clustering”Tracking PurchasesTracking accounts You get a CSR complaint The customer is pissed You give them some loyalty currency to make them go away Do you track why? Do you even know how much loyalty currency you gave away?

Managing a Virtual Economy Managing a Virtual Economy Presentation Transcript

  • Managing a Virtual Economy
  • About Me
    CTO and SVP of Product at Live Gamer
    We’re a platform company: we provide virtual currencies, virtual items management, payment integrations, analytics etcetera to our customer base
    Basically, everything you need to run a virtual economy
    Over 70 customers– look on the website for details
  • Caveat
    I’m a CTO and you’re a potential customer
    But … I’m not selling you anything and this is not a sales pitch
    In fact, I’m going to use screenshots from companies that don’t use Live Gamer products
    Andy’s in the audience somewhere– feel free to talk to him
  • Virtual Economies are Different From Real Economies
  • Recirculation
    In real economies, money circulates endlessly.
    “Multiplier effect”
    “Velocity of money”
    In virtual economies, you have sources and sinks
  • Absolute Control
    What can people own?
    How often can people buy things?
    How often can people trade?
    And with whom?
    Parental Controls
    Velocity Limiting
    Item Embargoes
    You can build systems that people cannot circumvent
  • Perfect Information
    Real world economic statistics are approximations
    “We can’t actually compute this, but we can kind-of-get-close by taking these other two numbers and dividing them”
    In the virtual world, the precision of your information is only limited by the size of your hard drive.
  • Physics and Scarcity Don’t Apply
    1980: Lands End revolutionizes mail-order with their policy of “shipping before you could change your mind”
    2009: Virtual goods ship in milliseconds
    What’s the incremental cost of another gif?
  • Testing is (Close to) Frictionless
    How does Walmart do price testing?
    Physically reprice all the inventory
    The cash register gets updated
    Happens at most once a day, is expensive, and doesn’t help a lot with demographics.
  • Discrimination is Perfectly Legal
    “I want to charge men more for ….”
    “I want to charge premium members less …”
    “I want to offer the blue coat for less IF you already own the yellow coat …”
  • Very Low COGS
    Sure, creative costs money
    And there are CDN costs for bandwidth
    But compared to real world items ….
    The incremental cost of another gif is zero
  • Things You Control
  • Rollout of New Content
    Staged accessibility
    Constant creation of new inventory
  • Item Lifecycles
    Light Use
    Heavy Use
    You control how things wear out (and whether they just go away)
  • Scarcity
    Rare items
    Only really matters
    As a call to action
    Or in a social setting
    Most effective with expressive items
    If you can’t interact with other players, scarcity is much less effective
  • Currency
    Paid and loyalty currencies
    Cash creation vectors
    How do people pay
    When are they prompted
    How do people earn the loyalty currency?
  • Velocity Limits / Embargos
    More about damage control in fraudulent circumstances than anything else
    “Don’t spend it all in one place” model for parent-child funding
  • Content Restrictions
    MPAA, ESRB, ….
  • Cash Out Vectors
    Can people take money back?
    What about player-to-player commerce?
    “If there’s no secondary demand for the items in your game, you probably don’t have a good game” -- Bethke
  • Metrics
  • RPU
    “Revenue per user”
    Really should be “RFB” – Revenue From Bob
    Everything starts with knowing how much money you get from individual users
    And then rolling it up using demographic information
  • TPU
    Transactions Per User
    Transactions Involving Bob
    The most important measure of an economy’s health is: are transactions occurring.
    It’s also the right measure of engagement for applications that strongly incorporate virtual economies.
  • Velocity of Money
    Classically a macro-economic notion
    Micro-economic version
    Pretend the wallet is a FIFO queue.
    How long will it take the user to spend a coin you add right now?
    147 days? That’s bad
    12 hours? Pretty good
  • Available Cash Per User
    Analogous to savings metrics in real world
    Again, split it up by demo
    Equally interesting: split it up by recent actives
    Message users who have above average available cash and haven’t been back in a while
  • Stagnation
    Stagnant money is money that will never be spent
    It belongs to users who’ve abandoned the game
    It is in the “bottom” of wallets
  • Abandonment
    If your application is high churn
    And you’re not going to do much about it
    Then maximize the cash-in and don’t worry about item prices
    Separate out abandoned money in your metrics
  • The Conceptual Control Room
  • Differential Currency Pricing
    Exchange Rates
  • Use Stores for Item Price Testing
    If you change the price on a single item , people buy something else.
    Instead, define and test price-sets and assign them to users
    Enables price testing with minimal side effects
  • Selling More Items
    If you can increase the number of purchases your users make
    Without lowering prices
    They will spend more virtual currency
    Which means they will need more virtual currency
    Which means they will buy more virtual currency
    Two basic strategies
    Constant introduction of new goods and services (new, newly unlocked, or rotated)
    Recommendations to drive additional sales
  • Recommendations
    Technology can be sexy
    Simple business logic is often best
    “If they look at the yellow coat, show them the blue coat as well”
    Offer bundles when users look at single items
  • Gateway Metrics
    What percentage of revenue do you pay to your payment processors?
    Do you know what payment processors your customers are using?
    What’s your fraud rate?
    What’s your abandonment rate in the purchase flow?
    Are you using the most efficient payment channels for your end-users?
  • Demographics Matter
    Do you know your users?
    Are you collecting information about what they’re doing?
  • Who’s Your Daddy?
  • Thank You
    Talk available at http://www.slideshare.net/wgrosso/managing-a-virtual-economy