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Managing a Virtual Economy<br />LIVE GAMER<br />LIVE GAMER COPYRIGHT 2009<br />
About Me<br />CTO and SVP of Product at Live Gamer<br />We’re a platform company: we provide virtual currencies, virtual i...
Caveat<br />I’m a CTO and you’re a potential customer<br />But … I’m not selling you anything and this is not a sales pitc...
Virtual Economies are Different From Real Economies<br />
Recirculation<br />In real economies, money circulates endlessly.<br />“Multiplier effect”<br />“Velocity of money”<br />I...
Absolute Control<br />What can people own?<br />How often can people buy things?<br />How often can people trade? <br />An...
Perfect Information<br />Real world economic statistics are approximations<br />“We can’t actually compute this, but we ca...
Physics and Scarcity Don’t Apply<br />1980:  Lands End revolutionizes mail-order with their policy of “shipping before you...
Testing is (Close to) Frictionless<br />How does Walmart do price testing?<br />Physically reprice all the inventory <br /...
Discrimination is Perfectly Legal<br />“I want to charge men more for ….”<br />“I want to charge premium members less …”<b...
Very Low COGS<br />Sure, creative costs money<br />And there are CDN costs for bandwidth<br />But compared to real world i...
Things You Control<br />
Rollout of New Content<br />Staged accessibility<br />Seasonality<br />Level-based <br />Constant creation of new inventor...
Item Lifecycles<br />New<br />Depleted<br />Light Use<br />Heavy Use<br />You control how things wear out (and whether the...
Scarcity<br />Rare items<br />Only really matters<br />As a call to action<br />Or in a social setting<br />Most effective...
Currency<br />Paid and loyalty currencies<br />Cash creation vectors<br />How do people pay<br />When are they prompted<br...
Velocity Limits / Embargos<br />More about damage control in fraudulent circumstances than anything else<br />“Don’t spend...
Content Restrictions<br />MPAA, ESRB, ….<br />
Cash Out Vectors<br />Can people take money back?<br />What about player-to-player commerce?<br />“If there’s no secondary...
Metrics<br />
RPU<br />“Revenue per user”<br />Really should be “RFB” – Revenue From Bob<br />Everything starts with knowing how much mo...
TPU<br />Transactions Per User <br />Transactions Involving Bob<br />The most important measure of an economy’s health is:...
Velocity of Money<br />Classically a macro-economic notion<br />Micro-economic version<br />Pretend the wallet is a FIFO q...
Available Cash Per User<br />Analogous to savings metrics in real world<br />Again, split it up by demo<br />Equally inter...
Stagnation<br />Stagnant money is money that will never be spent<br />It belongs to users who’ve abandoned the game<br />I...
Abandonment<br />If your application is high churn<br />And you’re not going to do much about it<br />Then maximize the ca...
The Conceptual Control Room<br />
Differential Currency Pricing<br />Exchange Rates<br />Differentials<br />
Use Stores for Item Price Testing<br />If you change the price on a single item , people buy something else. <br />Instead...
Selling More Items<br />If you can increase the number of purchases your users make<br />Without lowering prices<br />They...
Recommendations<br />Technology can be sexy<br />Simple business logic is often best<br />“If they look at the yellow coat...
Gateway Metrics<br />What percentage of revenue do you pay to your payment processors?<br />Do you know what payment proce...
Demographics Matter<br />Do you know your users?<br />Are you collecting information 		        about what they’re doing?<b...
Who’s Your Daddy?<br />
Thank You<br />Talk available at  http://www.slideshare.net/wgrosso/managing-a-virtual-economy<br />
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Managing a Virtual Economy

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My talk from VGS 2009.

Published in: Technology, Economy & Finance

Managing a Virtual Economy

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

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