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How to plan a virtual goods sales business model

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Presentation given at Virtual Goods Forum 2010.

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How to plan a virtual goods sales business model

  1. Virtualgoodssales as a business model<br />How to plan the interplaybetweenvalueofferings and game design basedsegmentation… and how to capturevaluefromit<br />
  2. Juho Hamari<br />Researcher @ Helsinki Institute for InformationTechnology<br />M.Sc. (Econ) @ Information System Science - eBusiness<br />web: virtual-economy.org || tweet: @VirtualEconomy<br />
  3. The aim of the presentation is to breakdown the virtualgoodssales business modelusingconceptual business modeltools.<br />(Pleasesee the slidespecificnotesbelow for moredetaileddescriptions)<br />
  4. What does the term business model actually mean?<br />
  5. …which are components of a business model<br />They are components of a business model<br />Osterwalder et al. (2009)<br />
  6. Business model definitionOsterwalder et al (2009)<br />In short …<br /> “A business model describes the rationale of how an organization creates, delivers, and capturesvalue”<br />
  7. But what value are we offering?<br />Ok.<br />
  8. Value proposition<br />Value proposition is an overall collection of the firm’s products and services<br />Value proposition can be decomposed to smaller value offerings <br />
  9. Value proposition<br />Large array of possibilities to break down the value proposition<br />What is a meaningful way of identifying relevant entities of value?<br />Games have always had virtual goods, but they have been inside bundles<br />Virtual goods<br />Server/name/faction<br />Expansions<br />Gameplay<br />Avatars<br />Virtual world<br />Community<br />Value proposition<br />
  10. Value offerings<br />Essentially every texture, model, sound and a line of code has value and could be sold separately<br />Virtual goods are essentially small bits of the total value proposition<br />… but which parts do we sell, to whom and how do we create demand (value) for those parts?<br />Value proposition<br />
  11. Commonly sold objects of value<br />Physical goods<br />- Boxed games<br /> - t-shirts etc<br />Avatar competencies<br />Added services:<br />     - timesavers - functionality    - social interaction features    - name/gender/race change    - server change<br />Time<br />Content (areas)<br />Virtual goods<br /> - aesthetic<br /> - rare items<br /> - consumables - time-based - use-based<br /> - performance<br /> - social        - gifts<br />
  12. Sold objects in WoW<br />Physical goods<br />- Boxed games<br /> - t-shirts etc<br />Avatar competencies<br />Added services:    - timesavers - functionality<br />     - social interaction features    - name/gender/race change    - server change<br />Time<br />Content (areas)<br />Virtual goods<br /> - aesthetic<br /> - rare items<br /> - consumables - time-based - use-based<br /> - performance<br /> - social        - gifts<br />
  13. Sold objects in FrontierVille<br />Physical goods<br />- Boxed games<br /> - t-shirts etc<br />Avatar competencies<br />Added services:<br />     - timesavers<br /> - functionality    - social interaction features    - name/gender/race change    - server change<br />Time<br />Content (areas)<br />Virtual goods<br /> - aesthetic<br /> - rare items<br /> - consumables - time-based - use-based<br /> - performance<br /> - social<br /> - gifts<br />
  14. Elementary value of virtual goods (Lehdonvirta 2009)<br />
  15. But to whom<br />Now we know what we are offering<br />
  16. Segmentation<br />The purpose of segmentation is to identify and divide populations into strategically relevant homogeneous segments based on proven segmentation variables and matching customer needs<br />Enables a firm to differentiate and target their value offerings<br />
  17. Segmentation based on game design<br /><ul><li>Intensiveness
  18. Levels
  19. Points
  20. Dimensions of content
  21. Styles of play
  22. Avatar classes</li></ul>Intensiveness<br />Dimensions<br />
  23. Product portfolio of Volkswagen<br />http://www.autointell.com/european_companies/volkswagen/vw_marke/volkswagen-group.htm<br />
  24. Differentiation<br />Level z items<br />Level y items<br />Level x items<br />Type d<br />Type b<br />Type c<br />Type a<br />
  25. Product unlocks in FrontierVille<br />
  26. Player types (Bartle 1996)<br />
  27. Player motivations (Yee 2007)<br />Advancement<br />Mechanics<br />Competition<br />Socializing<br />Relationship<br />Teamwork<br />Discovery<br />Roleplaying<br />Customization<br />Escapism<br />
  28. In World of Warcraft items are divided into quality tiers that address the different play styles and intensiveness: casual to hardcore<br />
  29. Value offering<br />User segment<br />
  30. But how do we capture value<br />Now we know what we are offering and to whom<br />
  31. Pay-per-use<br />Single price<br />= a revenue stream<br />subscription<br />Customer dependent<br />
  32. Everything<br />Pay-per-use<br />Single price<br />subscription<br />Customer dependent<br />
  33. Mighty Sword of Slaying<br />Top level warriors<br />Pay-per-use<br />Single price<br />Customer dependent<br />Subscription<br />
  34. Bundle<br />Pay-per-use<br />Single price<br />Subscription<br />Customer dependent<br />
  35. Meeting the willingness to pay<br />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<br />
  36. Pure retailmodel<br />Lost revenue<br />Lost revenue<br />
  37. Retail + subscription<br />
  38. Retail + tieredsubscription<br />
  39. Virtualgoods<br />Freemium bonus:<br />Value captured from non-paying users<br />
  40. Value offering<br />User segment<br />Pricing<br />
  41. Pricing<br />
  42. Why business models frameworks?<br />Understanding and sharing <br />Analysing<br />Managing <br />Prospecting<br />
  43. Thankyou<br />web: virtual-economy.org || tweet: @VirtualEconomy<br />
  44. References:<br />Bartle, R. (1996). "Hearts, Clubs, Diamonds, Spades: Players Who suit MUDs. http://www.mud.co.uk/richard/hcds.htm<br />Lehdonvirta, V. (2009). Virtual Item Sales as a Revenue Model: Identifying Attributes That Drive Purchase Decisions. Electronic Commerce Research, 9(1-2), 97-113.<br />Osterwalder, A. (2004). The Business ModelOntology – A Proposition in A Design Science Approach. Thesis. University of Lausanne.<br />Osterwalder et al. (2009). Business ModelGeneration.<br />Yee, N. (2007). Motivations of Play in Online Games. Journal of CyberPsychology and Behavior, 9, 772-775.<br />
  45. Furtherreading:<br />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<br />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<br />

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