Managing a Virtual EconomyLIVE GAMERLIVE GAMER COPYRIGHT 2009

About MeCTO and SVP of Product at Live GamerWe’re a platform company: we provide virtual currencies, virtual items management, payment integrations, analytics etcetera to our customer baseBasically, everything you need to run a virtual economyOver 70 customers– look on the website for details

CaveatI’m a CTO and you’re a potential customerBut … I’m not selling you anything and this is not a sales pitchIn fact, I’m going to use screenshots from companies that don’t use Live Gamer productsAndy’s in the audience somewhere– feel free to talk to him

Virtual Economies are Different From Real Economies

RecirculationIn real economies, money circulates endlessly.“Multiplier effect”“Velocity of money”In virtual economies, you have sources and sinks

Absolute ControlWhat can people own?How often can people buy things?How often can people trade? And with whom?Parental ControlsVelocity LimitingItem EmbargoesYou can build systems that people cannot circumvent

Perfect InformationReal 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 Apply1980: Lands End revolutionizes mail-order with their policy of “shipping before you could change your mind”2009: Virtual goods ship in millisecondsWhat’s the incremental cost of another gif?

Testing is (Close to) FrictionlessHow does Walmart do price testing?Physically reprice all the inventory The cash register gets updatedHappens 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 COGSSure, creative costs moneyAnd there are CDN costs for bandwidthBut compared to real world items ….The incremental cost of another gif is zero

Things You Control

Rollout of New ContentStaged accessibilitySeasonalityLevel-based Constant creation of new inventory

Item LifecyclesNewDepletedLight UseHeavy UseYou control how things wear out (and whether they just go away)

ScarcityRare itemsOnly really mattersAs a call to actionOr in a social settingMost effective with expressive itemsIf you can’t interact with other players, scarcity is much less effective

CurrencyPaid and loyalty currenciesCash creation vectorsHow do people payWhen are they promptedHow do people earn the loyalty currency?

Velocity Limits / EmbargosMore about damage control in fraudulent circumstances than anything else“Don’t spend it all in one place” model for parent-child funding

Content RestrictionsMPAA, ESRB, ….

Cash Out VectorsCan 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 BobEverything starts with knowing how much money you get from individual usersAnd then rolling it up using demographic information

TPUTransactions Per User Transactions Involving BobThe 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 MoneyClassically a macro-economic notionMicro-economic versionPretend 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 bad12 hours? Pretty good

Available Cash Per UserAnalogous to savings metrics in real worldAgain, split it up by demoEqually interesting: split it up by recent activesMessage users who have above average available cash and haven’t been back in a while

StagnationStagnant money is money that will never be spentIt belongs to users who’ve abandoned the gameIt is in the “bottom” of wallets

AbandonmentIf your application is high churnAnd you’re not going to do much about itThen maximize the cash-in and don’t worry about item pricesSeparate out abandoned money in your metrics

The Conceptual Control Room

Differential Currency PricingExchange RatesDifferentials

Use Stores for Item Price TestingIf you change the price on a single item , people buy something else. Instead, define and test price-sets and assign them to usersEnables price testing with minimal side effects

Selling More ItemsIf you can increase the number of purchases your users makeWithout lowering pricesThey will spend more virtual currencyWhich means they will need more virtual currencyWhich means they will buy more virtual currencyTwo basic strategies Constant introduction of new goods and services (new, newly unlocked, or rotated)Recommendations to drive additional sales

RecommendationsTechnology can be sexySimple 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 MetricsWhat 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 MatterDo you know your users?Are you collecting information about what they’re doing?

Who’s Your Daddy?

Thank YouTalk available at http://www.slideshare.net/wgrosso/managing-a-virtual-economy