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Last week, I attended an event coordinated by the MIT Alumni Association titled “It’s a Small World: How Virtual Communities Are Changing the Ways We Relate”. The event included lectures and a Q&A discussion conducted by Professor Henry Jenkins and Professor Beth Coleman of the MIT Comparative Media Studies Program. There were several interesting threads of discussion including how virtual worlds act as a social laboratory and how avatars act as interpretations of our ideals and fantasies.
I wrote a guest post for Virtual World News about the event. The full story is available here.
According to the New York Times, Chinese experimental artist Cao Fei, known in Second Life as China Tracy, is creating the world’s first virtual art installation. RMB City is a virtual city in Second Life that is meant to be an artistic commentary on the rapid industrialization of China. The virtual city will incorporate elements of famous Chinese landmarks such as the Forbidden City, the Great Wall, and Tianamen Square.
Lombard-Freid Projects, a New York art gallery, is currently exhibiting RMB City. The exhibit is part art showcase and part real estate sales office. Cao Fei is offering art collectors and virtual real estate investors a chance to sponsor individual structures in the city for prices as high as $120,000. Sponsors get two years access to their structure in RMB City and a commemorative artwork at the end of their “lease”.
If Cao Fei is able to get those prices, she may just find herself in the 2009 Guinness Book of World Records for “Most Expensive Virtual Object”. She would be dethroning Jon “NEVERDIE” Jacobs, the current recordholder, who purchased an asteroid space resort in Entropia for $100,000.
With all the focus on the electronic entertainment industry, its easy to forget that the video game industry has a long lineage that extends back to tabletop games. Tabletop games consist of traditional board games (e.g., Monopoly), pen-and-paper role-playing games (e.g., Dungeons and Dragons), collectible card games (e.g., Magic: The Gathering), and miniature wargames (e.g., Warhammer).
Of course technical advances have thrust electronic entertainment, including video games and virtual worlds, to the forefront of the broader games industry, but the tabletop games segment still attracts both a large casual audience and a smaller, but highly dedicated hobbyist audience. The tabletop gaming industry’s largest trade show organization, Gen Con, draws an audience of over 27,000 consumers to its U.S. Gen Con event.
The collectible card packs and miniatures that form the nucleus of many hobbyist tabletop games is the closest real world analog to the in-game virtual items that are driving the growth of the virtual goods economy. We can gain a new perspective on how to create engaging virtual goods experiences by looking to the example set by collectible card games and miniature wargaming.
Collectibility
Tabletop game manufacturers take significant steps to enhance the collectibility of their trading cards and miniatures:
High Production Value. Each trading card or miniature is designed to have high production value and adhere to an overall artistic theme. This focus on design enhances collectibility by making each piece an “art object” that can be admired and collected based solely on its aesthetic value.
Collectible Sets. Trading cards and miniatures are often grouped into sets of varying size. At the highest level, Magic: The Gathering groups cards into categories based on five different colors. At a more granular level, Magic: The Gathering cards belong to dozens of different sets ranging from 92 cards to 422 cards. By grouping cards or miniatures into sets, tabletop manufacturers take advantage of the natural tendency for people to collect and complete groups of things.
Booster Packs. Collectible card games and collectible miniatures are often purchased as part of booster packs. Booster packs are sealed packages of cards or figurines that contain a small, random assortment of items (5-15 cards or 3-10 figurines). Purchasers of booster packs can generally expect to get at least one rare item per pack. As a result, these packs appeal to the same “lottery mentality” that makes slot machines so compelling.
Uncommon and Rare Items. The supply of trading cards and collectible miniatures is constrained by manufacturers in order to introduce scarcity into the market for their collectibles. Items are typically categorized as common, uncommon, or rare. Scarce items typically have a unique look and higher functionality than their more common counterparts which further increases their value. For example, there are less than 10 copies of the most rare Pokemon cards and these cards trade for thousands of dollars.
Deck Construction. The rulesets of many collectible card games and miniature wargames require players to construct a deck or army by selecting a limited set of items from the player’s full collection. Oftentimes players construct a gameplay deck of fifty to sixty cards from their collection of hundreds or thousands of cards. Players construct decks based on what they know about their opponent, the strategy they wish to employ, and any variants to the game’s rulesets that are in place. This dynamic encourages players to amass as large a collection of cards as possible so that they have the most strategic options when they go to play the game.
The collectible nature of trading cards and miniatures is a significant revenue driver for the tabletop games industry. As a result, tabletop game manufacturers can afford to give their rulesets away for free while generating a lot more revenue per customer by selling collectible content. Virtual world and MMO operators in Asia have already figured this out and now that model is beginning to be adopted outside of Asia.
Personalization
Personalization of miniature figures is an entire cottage industry unto itself. Miniatures are typical sold as cast metal figures that must be painted before they are ready for the tabletop battlefield. For some players, figure painting is an integral part of the hobby, and for others its a job best left to professional figure painters. For the most serious hobbyists, there are even miniature painting competitions.
Personalization goes beyond mere painting. Some hobbyists alter the appearance of their miniatures by swapping parts of their figures, such as heads and arms, with parts from other miniatures or part collections purchased as “conversion kits”. Many wargamers also spend considerable time designing and constructing the battlefield scenery on which the miniature wargames are played.
For many hobbyists, personalizing miniatures and battlefields is actually more fun than playing miniature wargames. Tabletop game manufactures figured out a long time ago that personalization adds an entirely new dimension of enjoyment to the gaming experience.
Functionality
At their heart, trading cards and miniature figures are simply game pieces like a rook in chess. They aren’t just decorative, they are functional. Trading cards in particular have detailed functionality that is described on the card itself - for example, a particular Pokemon card might be able to steal a card from the other player’s deck. Many virtual items, such as a sword in World of Warcraft, are also functional, but there are still lessons to be learned from tabletop games.
For example, scarce items are generally more powerful in both tabletop and video games. However, game balance issues are much more acute for tabletop games due to the need to support fair competition. In other words, a player with the most rare cards should never be the defacto winner in a Magic: The Gathering tournament. How then do collectible card games tackle this issue? Rare cards have more powerful and unique functionality, but they require significantly more resources to deploy (i.e., they are only an advantage if the player has the tactical wherewithal to find the right time to deploy the item).
This alludes to a second lesson from the collectible cards industry. Oftentimes, the functionality of different cards can be used in concert to get a greater combined effect. Players call these combo decks, and these combinations further enhance the collectible nature of trading cards.
So while MMOs have learned the basic lesson that functionality should be proportional to scarcity, there is fertile ground for innovation in thinking about how to balance the impact of rare items on the economy and how to leverage interactions between a player’s collection of virtual items.
Tradability
In many respects, tradability is a knock on effect of the collectable and functional nature of trading cards and miniatures. However, tabletop game manufacturers also take deliberate steps to enhance the tradability of their products.
Firstly, tabletop games are designed to be highly social. When players gather into ad-hoc groups or at formal events, trading naturally occurs. Secondly, manufacturers deliberately create an economy where one man’s trash is another man’s treasure. They do this by creating clusters of items that work well together (so that a player with an existing collection is naturally inclined towards that cluster) and ensuring that booster packs contain a range of items, including rares, from several different clusters. As a result, every time a player buys a booster pack, he may get items that he doesn’t want but are valuable to his friends.
Tabletop game manufacturers know that a vibrant trading community may not directly generate revenue, but it does enhance engagement with the manufacturer’s product and indirectly drives booster pack sales. Instead of prohibiting aftermarkets, MMO operators should be following the lead of their tabletop brethren and doing everything they can to foster an active aftermarket.
Lessons for the Electronic Entertainment Industry
There is currently a raging debate about whether the MMO industry will move to a free-to-play model with virtual goods driving revenue or whether monthly subscriptions will continue to be the modus operandi outside of Asia. As today’s game designers envision the future of MMOs, they will be well served by looking to the past for inspiration on how to create a virtual goods economy that both enhances the game experience and maximizes the revenue opportunity.
Update (3/2/2008): Take a look at Saga which bills itself as “world’s first collectible online real-time strategy game”. Instead of charging a monthly subscription fee, they generate revenue by selling booster packs of troops for $2.95.
Last week’s Game Developer’s Conference put the limelight on the rapidly growing game industry, but it also highlighted a significant pain point - virtual good sales create very real accounting issues for successful virtual worlds and MMORPGs.
The video game industry has been way ahead of the game when it comes to implementing a variety of business models and accepting a variety of billing methods. In this case, necessity has been the mother of invention since many of the industry’s young consumers don’t have access to credit cards. Sulake, the makers of Habbo Hotel, have been particularly innovative in this space. The company accepts 186 different payment methods in 31 countries including credit card, SMS payments, money orders, and prepaid game cards available through major retailers such as Target and Walmart.
Sulake even manages to pass some of the transaction costs to consumers by varying the exchange rate between cash and coins, Habbo’s in-world currency, based on the billing method used and amount of currency purchased. Consumers get as little as 5 coins per dollar for high transaction cost billing methods such as prepaid cards and as much as 6 coins per dollar for low transaction cost methods such as credit cards or ongoing subscriptions.
Now that the industry has figured out how to get money into the system, it’s now faced with the challenge of keeping it there. The industry faces a number of challenges:
- Lack of Parental Consent. If a child fails to get the consent of his or her parent before making a purchase, that parent can have the charge reversed. Although there may not always be sound grounds for reversal, credit card companies often side with parents regardless of circumstances. This not only results in customer service overhead for the virtual world or online game operator, it can result in lost revenue from the sale of limited edition or exhaustible items which cannot be reclaimed.
- Outright Fraud. In many of the major virtual worlds and online games there have been cases of fraud where a user converts cash into in-world credits, uses those credits to purchase a rare item, sells that item for real currency on a sanctioned or unsanctioned aftermarket, and then cancels their original credit card payment. As a result, the user commits a form of “cybertheft” by profiting from virtual goods that the user never paid for. In some cases, the operator can recover the payment, but the credit card dispute process is time-consuming and often biased to the cardholder.
- Stored Value Accounting. For years, airlines have had to keep significant liabilities on their books related to the accumulation of frequent flyer miles. The industry faces a similar problem. Should operators recognize revenue when cash is converted into in-world currency? Should the accumulated balance of all in-world credits by accounted as a liability on the balance sheet? What happens if a user abandons their balance? Should users have the right to claim a cash credit for their account balance at any point in the future? The answers aren’t clear.
As Joshua Jaffe mentions in his TechConfidential.com article, there is no turnkey payment solution that addresses the unique needs of the video game and virtual world industries. Certainly, with the emergence of economic platforms like PlaySpan and TwoFish, we’ll start to see industry-wide platforms and best practices related to payment collection, chargeback risk mitigation, and fraud deterrence.
