DQ 2 Reread the Freemiums in the Social Gaming World Case and answer the following: What does the term freemium refer to? Give some examples. Do you think this is a good model for other companies to follow? Many social games fall into this category. On the social networks, why is it difficult to generate revenue through advertising? Why is it particularly hard for social games? Closing Case FREEMIUMS IN THE SOCIAL GAMING WORLD Social games played on sites like Facebook and MySpace are the hottest part of the game industry. The market for social games has been dominated by three companies: Zynga (zynga.com), Playdom (playdom.com), and Playfish (playfish.com). In November 2009, Electronic Arts (ea.com) acquired Playfish for $300 million in cash and stock and guaranteed another $100 million in bonus payouts if certain milestones were met by 2012. A short time later in December 2009, Digital Sky Technologies (dst-global.com), a Russian firm with offices in Moscow and London, bought a $180 million stake in Zynga. Based on this investment, as well as other investments in the firm, many financial analysts put Zynga’s market share worth somewhere between $1.5 and $3.0 billion. To the casual observer, these valuations seem astounding. It is the case that social games are simpler than the average video game and take much less time to play. It is also the case that they have expanded the game audience beyond traditional video gamers who tend to be young males. Yet, from an economic standpoint, the major difference between social games and video games is that the former are free. If players don’t have to pay, where does the return on investment (ROI) for companies like Electronic Arts and investors like DST come from? The answer lies in micropayments. The Solution In 2007 Facebook launched a platform that enabled software developers to create applications for the site. Currently, the site has tens of thousands of applications. Similarly, MySpace, which relies on Google’s OpenSocial platform, has 4,500 applications available to users. Today the most popular application category for both of these social networks is social gaming. On Facebook, for example, there are nine games that have more than 12 million active players per month. This is more than the number of monthly players for World of Warcraft, the most popular online game. Of course, they pay to play. Among the top 10 most popular social games on Facebook, Zynga has three offerings— Farmville, Mafia Wars, and Café Word—with a combined audience of over 105 active players per month, while Playfish has two offerings— Pet Society and Restaurant City—which has 60 million active users per month. If it doesn’t cost anything to play a social game, then how does the game company make its money. One way is with advertising. Either continually or at various times during the game, ads can be displayed. Just as the advertising firms do with the search engine companies or other Web sites, the game companies can ...

1. DQ 2
Reread the Freemiums in the Social Gaming World Case and
answer the following: What does the term freemium refer to?
Give some examples. Do you think this is a good model for
other companies to follow? Many social games fall into this
category. On the social networks, why is it difficult to generate
revenue through advertising? Why is it particularly hard for
social games?
Closing Case FREEMIUMS IN THE SOCIAL GAMING
WORLD
Social games played on sites like Facebook and MySpace are
the hottest part of the game industry. The market for social
games has been dominated by three companies: Zynga
(zynga.com), Playdom (playdom.com), and Playfish
(playfish.com). In November 2009, Electronic Arts (ea.com)
acquired Playfish for $300 million in cash and stock and
guaranteed another $100 million in bonus payouts if certain
milestones were met by 2012. A short time later in December
2009, Digital Sky Technologies (dst-global.com), a Russian
firm with offices in Moscow and London, bought a $180 million
stake in Zynga. Based on this investment, as well as other
investments in the firm, many financial analysts put Zynga’s
market share worth somewhere between $1.5 and $3.0 billion.
To the casual observer, these valuations seem astounding. It is
the case that social games are simpler than the average video
game and take much less time to play. It is also the case that
they have expanded the game audience beyond traditional video
gamers who tend to be young males. Yet, from an economic
standpoint, the major difference between social games and
video games is that the former are free. If players don’t have to
pay, where does the return on investment (ROI) for companies
like Electronic Arts and investors like DST come from? The

2. answer lies in micropayments.
The
Solution
In 2007 Facebook launched a platform that enabled software
developers to create applications for the site. Currently, the site
has tens of thousands of applications. Similarly, MySpace,
which relies on Google’s OpenSocial platform, has 4,500
applications available to users. Today the most popular
application category for both of these social networks is social
gaming. On Facebook, for example, there are nine games that
have more than 12 million active players per month. This is
more than the number of monthly players for World of
Warcraft, the most popular online game. Of course, they pay to
play. Among the top 10 most popular social games on Facebook,
Zynga has three offerings— Farmville, Mafia Wars, and Café
Word—with a combined audience of over 105 active players per
month, while Playfish has two offerings— Pet Society and
Restaurant City—which has 60 million active users per month.
If it doesn’t cost anything to play a social game, then how does
the game company make its money. One way is with
advertising. Either continually or at various times during the
game, ads can be displayed. Just as the advertising firms do

3. with the search engine companies or other Web sites, the game
companies can either be paid for “impressions” or “clicks.”
Historically, advertising revenues have been very low for all
kinds of applications on Facebook, MySpace, or any of the other
social networks. It is especially true for social games because
advertising firms like to pay when a user clicks on an
advertisement rather than paying for simply displaying the
advertisement. Obviously, clicking on an advertisement while
the game is in progress is disrupting to the flow of the game.
Increasingly, application developers of all sorts are turning
toward a new model, which has been called “freemium” in the
United States. The “freemium” has its roots in Asia and is built
on the concept of providing a service for free and charging
either for virtual goods or premium features. For example, in
China the most popular instant messenger service is Tencent’s
QQ. Tencent is not a household name, except in Asia. Tencent
has a market cap of $80 billion and its QQ offering controls
over 85 percent of the market with more than 330 million users.
In 2007, the company generated $523 million in revenue—that’s
four times as much as Facebook, in a country where the average
monthly wage is less than $20—with operating profits of $224
million. Only 13 percent of the revenue came from ads. Two-
thirds came from Internet services like games and digital goods:
“gifts” such as virtual flowers, background music for users’
profiles, and virtual pets. Some of the most popular items

4. involve QQShow which is like Yahoo! Avatars. However,
unlike Yahoo! Avatars, QQ avatars can be customized and
personalized for a price. You can buy new clothes, hairstyles,
accessories, and backgrounds. QQ users can also create a living
space for their avatars, furnishing it with digital plants,
couches, and the like. All of this can be done for a few RMBs
here and a few RMBs there. RMB stands for renminbi, the
Chinese currency, which is equal to about US$.15. Pretty soon
all of those RMBs add up to millions of dollars.
In the case of social games, the freemium model is built on the
notion of giving away the games but charging players a small
amount for virtual goods that enhance the game experience. One
example is Mob Wars, a Facebook application in which players
rise through the ranks of a gangster organization by committing
crimes and fighting other players. Mob Wars costs nothing to
play. Players are given a certain amount of virtual currency to
spend on recruiting and equipping their mobs. To earn more,
you have to perform certain tasks—or sidestep the process by
paying with real money instead. According to TechCrunch, Mob
Wars is generating $1 million per month from these
microtransactions.
An open question is: how are these microtransactions handled?
It’s the same micropayment issue that was raised in the opening
case of the chapter. However, in this instance there a number of
start-ups that have arisen to address the issue, such as Spare

5. Change (sparechangeinc.com), Zong (zong.com), and
PayByCash (paybycash.com).
Among these, Spare Change seems to have the most traction.
Spare Change, which was recently bought by PlaySpan
(store.playspan.com), is used by the developers of Mob Wars
and 700 other Facebook, MySpace, and Bebo applications. It
takes three lines of code to add the Spare Change micropayment
system to an application. Spare Change is processing $2.5
million micro-payments per month, which is approximately $30
million a year. The Spare Change system handles payments as
low as $.10. In order to use the system, a player needs to
register and tie his or her account to a credit card, a PayPal
account, a Spare Change account, or a mobile phone bill. Once
registered, the player is given a PIN number that can be used to
purchase the virtual goods or services. Spare Change charges 8
percent for each transaction, which is much cheaper than the
credit card companies or PayPal.
Results
At this point, it is difficult to tell what will happen to the
companies developing social games and the companies
developing the micropayment systems designed to support the
games. It appears that they both have substantial momentum.
But, we’ve seen this pattern before only to have the various
companies meet their demise, especially the companies selling
the micropayment systems. For the micropayment companies,

6. one potential threat is the social networking companies
themselves. A couple of years back, both Facebook and
MySpace were working on payment systems for their
application development platforms. Over time, both these
efforts faded into the background. Even if the social networks
eventually provide their own systems, it does not mean that they
will capture the market. Remember what happened to eBay in
its battle with PayPal. Of course, while it lost the battle, it also
won the war when it purchased PayPal.
DQ #1
Reread the UBS PaineWebber Case and answer the following:
What might have been some red flags indicating that Duronio
was a disgruntled employee? Would any of those red flags also
indicate that he would sabotage the network for revenge? How
could this disaster have been prevented? What policies,
procedures, or technology could have prevented such an attack
by an employee with full network access?
Closing Case UBS PAINEWEBBER’S BUSINESS
OPERATIONS DEBILITATED BY MALICIOUS CODE
Employee (Allegedly) Planned to Crash All Computer Networks

7. In June 2006, a former systems administrator at UBS
PaineWebber, Roger Duronio, 63, was charged with building,
planting, and setting off a software logic bomb designed to
crash the network. His alleged motive was to get revenge for
not being paid what he thought he was worth. He designed the
logic bomb to delete all the files in the host server in the central
data center and in every server in every U.S. branch office.
Duronio was looking to make up for some of the cash he felt he
had been denied. He wanted to take home $175,000 a year. He
had a base salary of $125,000 and a potential annual bonus of
$50,000, but the actual bonus was $35,000.
Duronio quit his job, went to a broker within hours, and bought
stock options that would only pay out if the company’s stock
plunged within 11 days. By setting a short expiration date of 11
days instead of a year, the gain from any payout would be much
greater. He tried to ensure a stock price crash by crippling the
company’s network to rock their financial stability. His “put”
options expired worthless because the bank’s national network
did go down, but not UBS stock.
Discovering the Attack
In a federal court, UBS PaineWebber’s IT manager Elvira Maria
Rodriguez testified that on March 4, 2002, at 9:30 a.m. when
the stock market opened for the day, she saw the words cannot
find on her screen at the company’s Escalation Center in
Weehawken, New Jersey. She hit the enter key to see the

8. message again, but her screen was frozen. Rodriguez was in
charge of maintaining the stability of the servers in the
company’s branch offices.
When the company’s servers went down that day in March 2002,
about 17,000 brokers across the country were unable to make
trades; the incident affected nearly 400 branch offices. Files
were deleted. Backups went down within minutes of being run.
Rodriguez, who had to clean up after the logic bomb, said,
“How on earth were we going to bring them all back up? How
was this going to affect the company? If I had a scale of 1 to 10,
this would be a 10-plus.”
The prosecutor, Assistant U.S. Attorney V. Grady O’Malley,
told the jury: “It took hundreds of people, thousands of man
hours and millions of dollars to correct.” The system was
offline for more than a day, and UBS PaineWebber (renamed
UBS Wealth Management USA in 2003) spent about $3.1
million in assessing and restoring the network. The company did
not report how much was lost in business downtime and
disruption.
Tracking Down the Hacker
A computer forensics expert testified that Duronio’s password
and user account information were used to gain remote access to
the areas where the malicious code was built inside the UBS
network.
The U.S. Secret Service agent who had investigated the case

9. found a hard copy of the logic bomb’s source code on the
defendant’s bedroom dresser. A computer forensics investigator
found electronic copies of the code on two of his four home
computers.
Defense Blames UBS Security Holes
Chris Adams, Duronio’s defense attorney, offered another
scenario. Adams claimed that the code was planted by someone
else to be a nuisance or prank. Adams also said the UBS system
had many security holes and backdoors that gave easy access to
attackers. Adams told the jury:
UBS computer security had considerable holes. There are flaws
in the system that compromise the ability to determine what is
and isn’t true. Does the ability to walk around in the system
undetected and masquerade as someone else affect your ability
to say what has happened?
He also claimed that UBS and @Stake, the first computer
forensics company to work on the incident, withheld some
information from the government and even destroyed some of
the evidence. As for the stock options, Adams explained that
they were neither risky bets nor part of a scheme, but rather a
common investment practice.
Disaster Recovery Efforts
While trying to run a backup to get a main server up and
functional, Rodriguez discovered that a line of code (MRM-r)
was hanging up the system every time it ran. She renamed the

10. command to hide it from the system and rebooted the server.
This action stopped the server from deleting anything else.
After testing to confirm the fix, backup tapes brought up the
remaining 2,000 servers, and the line of code was deleted from
each one. Restoring each server took from 30 minutes to 2 hours
unless there was a complication. In those cases, restoration took
up to 6 hours. UBS called in 200 IBM technicians to all the
branch offices to expedite the recovery.
Many of the servers were down a day and a half, but some
servers in remote locations were down for weeks. The incident
impacted all the brokers who were denied access to critical
applications because the servers were down.
Minimizing Residual Damages
UBS asked the judge to bar the public from Duronio’s trial to
avoid “serious embarrassment” and “serious injury” to the bank
and its clients and possibly reveal sensitive information about
the UBS network and operations. UBS argued that documents it
had provided to the court could help a criminal hack into the
bank’s computer systems to destroy critical business
information or to uncover confidential client information.
Duronio faced federal charges, including mail fraud, securities
fraud, and computer sabotage, which carry sentences of up to 30
years in jail, $1 million in fines, and restitution for recovery
costs.