Posts Tagged ‘virtual economy’

Niko Partners: Chinese Game Revenues to reach close to $10B by 2014

Friday, April 2nd, 2010

Niko Partners, a leading research firm focused on providing market intelligence about the Chinese video game industry, recently released data from their upcoming study, projecting $9.2 billion in revenue from online games in China in 2014. This study falls right in line with their 2013 projections, which place the market at a valuation of $8.9 billion.

According to the report, the vast majority of revenue generated in the Chinese online gaming market is derived from sales of virtual goods in free-to-play titles. To put this growth in perspective, Niko currently estimates the 2009 market to generate around $3.57 billion. Their 2010 prediction indicates a 21 percent growth to $4.5 billion.

The report also references a survey conducted by Niko of Chinese gamers. Conducted in 10 various major Chinese cities, the survey reveals that 65 percent of gamers in China access games from Internet cafes (still), and that their spending increased a whopping 63 percent in the past year. While most gamers do own their own PC’s, they indicated that the “gaming café” culture is still alive and well, as most Chinese gamers prefer to café game because of the social interaction.

“While the global economic downturn hurt video game publishers in much of the world, China’s online game industry reflected no pain in 2009 and gamers continued to embrace online games as the best inexpensive source of social entertainment available,” said Lisa Cosmas Hanson, managing partner of Niko Partners. “While the era of online gaming is generating lots of interest and growth opportunity in the West, China is one of the countries where online gaming is a well established market segment that extends its reach to more and more Chinese consumers every year.”

Other figures of note from Niko’s release:

  • Chinese gamers prefer the Free-to-Play (F2P) model of online games in which online operators generate revenue via the virtual economy, rather than the time-based model in which access is provided for a fixed number of pre-paid hours.
  • Social Networking Sites (SNS) games have gained popularity among Chinese consumers, and 88% of the gamers Niko surveyed claim to play SNS games.
  • At least 65% of gamers use Internet cafés at least part of the time.
  • There were 68 million online gamers in China by our definition at the end of 2009 and by 2014 the number should reach 141 million, a 15.5% CAGR.

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Planet Calypso does it again – virtual egg sold for $70k

Tuesday, February 9th, 2010

Just over one month after The First Planet Company saw a record breaking $330,000 sale of a virtual space station, it appears as though they’ve done it again, as the company recently announced the sale of a virtual egg for a whopping $69,696.00.

62418This past Sunday, Jon “NEVERDIE” Jacobs put his virtual egg up for public auction.  The winning bid was placed by David “Deathifier” Storey.  The Atrox Queen Egg is not a new addition to the virtual economy, as NEVERDIE originally purchased the egg in 2006 for $10,000 from a player who had received it as loot from a completed quest.  However, the story of the egg doesn’t end here, as according to Planet Calypso, eggs are bound to hatch, and thousands of players are now left speculating if the outcome will be worth the high price tag.  In other words, is Deathifier set to double his investment, or, quite literally end up with egg on his face.

If Storey’s name rings a bell, you may remember that he’s the current owner of Planet Calypso virtual destination “Treasure Island” for $27,500 in 2004.  It’s reported that Storey recouped his investment within the year, and continues to reap profits from his hunting and mineral rights fees imposed upon anyone wishing to visit his property.

Likewise, NEVERDIE is no new comer to Planet Calypso, as he mortgaged his Miami home in 2005 to purchase a virtual Asteroid for $100,000.  Jacobs then went on to convert the Astroid into a nightclub, aptly named, NEVERDIE.  Jacobs’ $100k investment is currently valued at over $1 million.  Both Jacobs and Storey have been featured in the Guinness Book of World Records for their virtual world purchases.

“The sale of the Atrox Queen Egg is another example of the incredibly unique world and  economy we offer in our game. While you don’t need thousands of dollars, or even tens of dollars to play Planet Calypso, it’s sales like these that truly separate our virtual world from any other on the planet,” said Marco Behrmann, CEO of First Planet Company.   “We are introducing a new quest system soon and the epic price tag of this Egg, which was a quest treasure itself, will energize a new generation of virtual pioneers looking to make their mark.”

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Record $330k buys Planet Calypso virtual space station

Monday, January 4th, 2010

Score another record for Sweden based virtual world developer MindArk. The First Planet Company, a part of MindArk, and creators and developers of Planet Calypso set out last year to put one of it’s biggest offerings to date up on the auction block: a fully functional (virtual) space station. The final selling price? 3.3 million PED – Project Entropia Dollars, with an exchange rate of 10:1, making the real world price a staggering $330,000.

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The winner is one ‘Buzz “Erik” Lightyear. Buzz now holds the property rights to Crystal Palace inside the Planet Calypso world. Granted, a $330k purchase for a virtual property might seem a bit steep to some, as this purchase has raised the bar substantially on private investments in virtual properties, but it’s not without precedent. Back in 2004, David Storey paid $26,500 for a virtual plot of undeveloped land in Project Entropia, while a year later Jon Jacobs dropped $100k on a Project Entropia virtual resort. And let’s not forget about Anshe Chung becoming a real life millionaire via Second Life in 2006.

2009 saw the rise of free-to-play gaming, and a multitude of monetization options. Microtransactions, virtual offers, etc., we’ve seen quite a bit of activity in the sector as of late. With this said, it’s almost a bit surprising to see Mashable author Ben Parr baffled by the sale. Yes, it’s a bit off the beaten path, but given the staggering amounts of revenue social gaming companies such as Zynga are pulling down each month, is it really so unreasonable to treat virtual properties as real world investments? Yes, there are a million and a half unforeseeable variables that could turn your virtual investment into bunk over night….but isn’t that the case with any real world investment? As a point of comparison, we hear about venture capitalists dropping massive amounts of cash into new media companies or web or app development firms. These are physical ‘real world’ investments, but they (more or less) operate on the same platform – all tied to a platform that arguably does or does not exist. With that said, given the economic climate, who’s to say that a real world investment is more concrete than a virtual one? Who’s to say the virtual investment isn’t the safer bet?

Lightyear could be poised to make a killing. Planet Calypso boasts the world’s largest virtual economy, and Buzz now has dibs on one of the biggest, and after the sale, most probably one of the most popular destinations for Planet Calypso players. Within his virtual world within a virtual world, Buzz has complete control over tax rates, what will be sold, to whom, and at what price. With an investment of this size, it’s a forgone conclusion that Lightyear probably already has a virtual world business model in place, and perhaps a team in place to capitalize on the new real estate. If Erik’s investment in Crystal Palace is a success, I wouldn’t be surprised to see a small niche crop of investors that would be willing to take the same leap. If this is the case, the ‘backburner’ secondary, or player-to-player, market could see a massive surge in popularity.

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Friendster to launch microtransaction based virtual goods sales

Thursday, October 29th, 2009

Friendster. Remember them? While they’re still busy gobbling up the patents, they’ve also managed to remain on the radar. At least in the Southeast Asian market. That’s not to say that Facebook isn’t closing in on their action (in so many more ways than one), with Friendster only edging out Facebook in terms of users in the Phillippines according to ComScore. In neighboring countries Indonesia, Malaysia and Singapore, Facebook has already taken the lead. The increasing interest and involvement in Facebook has naturally carved into Friendster’s last remaining turf. They’ve seen a decline in both visitors to the site, as well as how long these visitors remain on the site. “Friendster has to find new ways to make money but at the same time they have to maintain their market share and have a reason why people would stay with Friendster and not go to Facebook,” says Ben Poole regional head of interaction for media agency, MEC. “They also have to up their engagement levels.”

FriendsterIn order to maintain their foothold, as well as open new revenue streams, Friendster is upping their ante, instituting a virtual goods market, powered by microtransaction purchases. They’re also getting into physical, real-world events such as their recent Pinoy Friendster Day in the Phillippines that included live performances by local bands, speed dating, style make-overs, and fireworks that attracted over 7,000 participants.

Currently generating revenue via advertising and sponsorship deals, the new virtual goods sales will open up new revenue streams for the social network on the decline. Alla Facebook and MySpace, Friendster’s virtual goods system will include and API that will open up development to advertisers, game publishers, and application developers – all of which Friendster will take a cut of purchases made with their proprietary currency, Friendster Coins.

Based on the popularity of prepaid cards in Friendster’s area of influence, “We’re extending that model to work on Friendster,” says Friendster’s global product director Jeff Roberto. “We’re applying it to a variety of products and services that have realized success in other micro-payment ecosystems.”

“Once you establish a virtual economy, it’s just your creativity, or best practices that you can integrate, that limit the type of things you can sell,” points out Benjamin Joffe, CEO of Beijing-based digital specialist +8. “There’s so much you can sell, so many existing proven ideas and so many new ideas to find.”

So while Friendster is still chugging along after missing the boat so many years ago, the only question that can really be asked here is – is history, yet again, repeating itself? In the region where the microtransactions model was born, Friendster is only now getting around to instituting the model? We’ve seen the dramatic increase in revenues generated via social networking virtual goods sales, as well as casual gaming sales, primarily in the Facebook court. Once an industry innovator and leader, is this new virtual goods market just another ‘follow the leader’ for Friendster?

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Researchers study virtual economies to track and model real world economies

Friday, October 2nd, 2009

In what very well be the beginning of a full circle trend, researchers at Indiana University are now studying and analyzing trends in virtual economies in hopes of better understanding real world economies. MMO’s that attract huge numbers of players, think WoW, Aion, and EverQuest II, all present users with both basic, and sometimes complex economic situations and simulations. As a result Indiana University professor of telecommunications Edward Castonova is now studying these economies, hoping to gain insight into human societies in games, as he believes this response to virtual stimuli closely mirrors that of real world situations.

EverQuest2 2007-08-05 12-44-45-93“We can do controlled experiments in virtual worlds, but we can’t do that in reality,” said Castronova.

“Controlled experimentation is the very best way to learn about cause and effect. We are on the verge of developing that capacity for human society as a whole.”

Taking Sony’s long running EverQuest series, specifically EverQuest II, as it’s case study, Indiana University researchers found that the average age of EQII players is 31, whereas the overall population average is 35. 80 percent of players are male, contrasting to the average of 50 percent, and players skew more Caucasian than the general population. And while the average household income of EverQuest II players is above the average, $84,000 vs. $57,000, this difference should hold no barring on how players react to and instigate financial decisions and actions within the virtual world.

Researchers studied 314 million transactions within EverQuest II’s virtual economy, albeit on only one server, by which they were able to calculate the populations’ GDP. Notably, researchers found that as more accounts were created and the server population, i.e. the mirror of the real-world population, the virtual world saw an inflation spike of over 50 percent in a 5 month period. Fellow researcher Dimitri Williams, assistant professor at the USC Annenberg School for Communications points out that this run of inflation may not be directly related to the economy being virtual, but much like a real world economy, the game has volatile elements.

“We have seen that kind of volatility during times of war and in developing nations in the real world,” said Williams. “Our own economy has turned out to be less stable than we’d all assumed.”

A number of valuable lessons and analysis can certainly come from studying virtual economies, and researchers are beginning to see their value. However, what’s notable about this research is that academics have chosen a subscription based virtual world as their platform. If real world lessons are to be applied, wouldn’t it make far more sense for free-to-play/microtransaction supported titles to be chosen as the case subjects? The last time I checked, I didn’t have to lay down $20.00 a month to participate in the economy. By studying the free-to-play genre, I argue that this would be a far more realistic simulation of economic situations, with users creating and selling their own content on a virtual marketplace, a situation that more closely resembles what we see day in/day out in the real world. So again, while it’s a great thing that researchers are doing, studying virtual economies to gain insight into real world ones, choosing a platform that more closely resembles the real world would bring far better results and insight into human behaviors.

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$1 Billion of user-to-user transactions taking place in Second Life

Friday, September 25th, 2009

Building on their information released at last week’s GDC Austin, Linden Lab has recently revealed some truly staggering numbers with regards to their secondary market transactions platform. The company stated that Second Life residents have transacted the real world equivalency of over $1 billion in player-to-player transactions, while spending over 1 billion hours inhabiting the virtual space.

Second_Life_LogoAgain, adding to their statements at the GDC focused on retaining current users, the company revealed that Second Life’s economy has grown 94 percent year-over-year from Q2 2008 to Q2 2009. “Now at nearly USD50 million each month in user-to-user transactions, the Second Life economy is on an annual run rate of more than a half billion US dollars, making Second Life the largest virtual economy in the industry,” the company stated. With an economy like that, it’s no wonder Linden Labs is focusing on keeping current players happy, and staying right where they are. Perhaps a larger challenge than originally thought, as Linden Lab received an F from the better business bureau back in February of this year.

Linden Lab was also quick to point out that the total in-world hours, approximately 1 billion, has the real world equivalent of 115,000 years. But what exactly are these users doing? “Everything from meeting and socializing with friends; to attending live concerts; to creating, selling, and shopping for virtual goods; to learning a foreign language; to attending business meetings; and much more. User hours grew 33% year-over-year to an all-time high of 126 million in Q2 2009,” stated Linden representatives. On average, Second Life residents spend approximately 100 minutes in-world per visit, which the company is proud to point out is, “significantly greater than those seen with popular social networking Web sites and reveals the uniquely high level of engagement Residents have with Second Life.”

Specifically speaking to the in-world virtual items trading and sales, Linden Lab reports that residents are creating over a quarter of a million new good each day. These items may range from clothing to vehicles to buildings to automatic language translators, and just about everything else imaginable under the sun. At the time of the statement, Linden Lab reported that more than 270 terabytes of content is available within Second Life, with a growth rate of around 100 percent each and every year. Speaking from a primary marketplace point of view, since Linden Lab is the creator and vendor of virtual land, the company is not only the worlds largest platform for user-generated virtual goods, but also an industry leader in the sales of virtual goods. Perhaps the virtual world equivalent to Donald Trump?

Other statistics from Linden Lab include:

  • More than 18 billion minutes of voice chat have been used in Second Life since voice was introduced in 2007. Voice minutes grew 44% year-over-year from Q2 2008 to Q2 2009, and more than 6 billion minutes of voice have been delivered in 2009 alone, making Linden Lab a major VoIP provider.
  • Approximately 1,250 text-based messages are sent every second in Second Life, and more than 600 million words are typed on an average day. Roughly 60% of active Second Life Residents are based outside of the US, representing more than 200 countries, and the Second Life Viewer is available in 10 languages.
  • The total land area of Second Life is now equivalent to approximately 2 billion square meters — roughly the size of the state of Rhode Island. Land in Second Life has grown roughly 18% since Q1 2009 and approximately 75% since Q1 2008.

“These metrics give a sense of some key aspects of Second Life — the deeply engaging nature of the 3D world, the immense use of Second Life as a communications platform and the scale and strength of the economy based on the huge number of unique virtual goods users are creating,” commented Mark Kingdon, CEO, Linden Lab. “These numbers are a snapshot of the success of Second Life and its Residents today, and a validation of Linden Lab’s leadership in the virtual worlds space, but there’s much more to come. This is a year of renovation for Second Life, and we are well positioned for reinvigorating our growth in 2010 with a range of strategic initiatives that will enhance the experience for existing Residents and propel our expansion with new users.”

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Sweden wants to tax MMO Items and Avatar sales

Tuesday, July 21st, 2009

Be forewarned Swedes and those the trade/sell with Swedish residents – the taxman commeth. The eagle-eyed folks at GameCulture caught the Stockholm News report detailing efforts by the Swedish government to come to terms with the growing global virtual economy.

swedishchef460According to the Stockholm News, “The Swedish Tax Agency [Skatteverket] hold that you have to pay tax for selling an avatar from a computer game. The agency has investigated the trading in avatars during a 14 month period and found the advertised sum of avatars for sale by Swedes to be 662 million SEK [$85 million]. But no one has ever declared any income for trading in avatars to the Tax Agency.”

In other words, if you sell your account either in Sweden or to a Swedish national, the government wants a piece. As much as I can moan and groan about this, I almost kinda/sorta see their justification. However, this is where all logic and reasoning end, as the Swedish government may legally push things a bit further, and have the option to enact taxation on purely in-game/virtual world sales. Courtesy of the Virtual Economy Research Network, an interpreted snippet of Swedish Tax Law states:

“Transactions between participants in a virtual world, where the deal is about the sale of a “product” or a “service” against reimbursement in an internal currency, should be considered, according to the Swedish Tax Agency’s ruling, [actual] sales of electronic services, if the internal currency can be exchanged to a valid legal means of payment.”

In other words, if you need the services of another in game character, let’s take blacksmithing for example, if the crafter charges you 10 gold to make your new mace, if s/he’s Swedish, technically, s/he should be charging you 13 or so gold for this, as they will then have to pay a real world tax on this virtual transaction. With that said, obviously, this argument hinges on proof that this in-game currency can be “exchanged to a valid legal means of payment.”

And while most major MMO publishers, and even the Chinese government have put actions in place that should prevent real world trading of virtual currencies, a quick perusal of eBay shows no shortage of characters, virtual goods, and virtual currencies all for sale, i.e. “valid legal[?] means of payment.” Obviously, this is highly suspect, as eBay trading isn’t an officially recognized trading platform, with no organized currency exchange, rates, or even oversight. However, this does constitute a form of virtual to real currency exchange, and therefore, would fall under the “we want a piece” Swedish taxation law.

Moreover, what does this mean for the free to play market? MMO’s with secondary markets could be a prime target for Swedish tax officials. What’s even more disturbing (as noted above) is that even residing outside of Swedish borders could have far reaching consequences. Regardless of your nationality or place of residence, if you sell/buy/trade with a Swedish national, the Skatteverket might want a slice of your purchase. According to the Economics of Virtual World’s:

[Note that] a sale has taken place in Sweden if the seller is a Swedish trader who sells [to]… a private person in Sweden or another EC [European Community] country. A sale from a foreign trader to a Swedish trader has also [legally] taken place in Sweden. The same applies if a trader from outside the EC sells services to Swedish private persons.

Thus, even U.S. citizens are subject to Swedish taxes in virtual worlds, as long as one of the participants is Swedish. The implication is that if similar tax rules are adopted around the globe, U.S. citizens could end up owing taxes to Sweden, Japan, South Korea, and other nations (depending on which and how many worlds they are part of) – all because they played some games…

Obviously, this is something that could effect gaming on a global level, and something we’re watching with great interest. On a lighter note, is it just me, or did every Swedish MMO player just get a seriously bad name, and can get used to grinding as no one’s going to buy/sell/trade a single thing with them?

“LF Enchanter”

“I can Enchant”

“Nationality?”

“Swedish”

“K. TNX. BAI.”

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Stevie Case (aka Kill Creek) featured on Avault.com podcast

Friday, February 20th, 2009

fatfoogoo’s own Stevie Case has recently been interviewed by the Avault.com podcast team.  Speaking with Chris Micieli, Bill Bolton, and Mark Turcotte, Stevie joins the crew to talk about everything ranging from Stevie’s career as a pro gamer to micro-transaction powered games are how they are the future of gaming.

Speaking first to her role as Vice President of Business Development and Sales with fatfoogoo, Stevie lays out our technologies and how and why game development studios should be talking to fatfoogoo when they are ready to monetize their product.  Noting that microtransactions are a relatively new way to monetize gaming, Stevie goes on to explain that with the current state of the economy, combined with falling advertising rates, microtransactions are a great place to be.

“It’s a good way to get users to not only spend small amounts of money, which isn’t as intimidating, but it also makes games sticker and doesn’t really break game play,” explains Stevie.

Stevie also highlights a quintessential point of microtransactions: user generated content, “I think it’s really cool to see users be able to create their own content and then actually sell that; have it become a part of the game, and become a part of the world.”

When asked about how microtransactions and user generated content could effect the overall balance of a game (i.e. the ‘pay to pwn’ theory) Stevie comments, “It’s a valid concern; I think that the key is you’ve got to have great game design upfront, and you’ve got to take all that stuff into account.  A lot of people have tacked on this notion of a virtual economy later because it sounds like a good way to make money, but if you don’t design it in upfront, it can be challenging for those reasons.”

Coincidentally almost mirroring David Perry’s remarks at DICE 2009, Stevie says that when you create a virtual economy based game, you’re putting a large amount of power in the hands of your users, thus game design should be held to even higher standards.

Speaking briefly to microtransactions in the mobile space, specifically the iPhone, Stevie points out, “Microtransactions are prohibited within iPhone applications.”  She continues on to discuss what iMafia is doing with their unique “if you go buy our other app we will give you points in this app” approach, but “as of today microtransactions are not officially supported.”

When asked about fatfoogoo’s list of clients, Stevie talks about our European clients, our involvement with Sun Microsystems via project darkstar, and hints at our upcoming release with a major US partner, and our involvement with a European based FPS/MMO.  But more on that later….

Give the podcast a listen in it’s entirety at Avault.com (episode #20).

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fatfoogoo at the vgSummit 2008

Friday, October 10th, 2008

fatfoogoo is a proud sponsor of the vgSummit 2008 and both Martin Herdina and Stevana Case in attendance at the one day conference taking place October 10th in San Francisco.

Now in it’s second year, with over 300 participants last year, this event is expected to play host to over 400 industry experts sharing, discussing, and debating the future of market opportunities in virtual worlds, goods and economies.  The Summit is hosted by Charles Hudson, VP of Business Development for Serious Business.

Topics and panel discussions will include:

What Users Want — Branded and User-Generated Virtual Goods

One of the key decisions in any virtual goods offering is determining what users want. Looking for answers as to what your users want from your virtual goods offering? Curious about how to blend branded and user-generated virtual goods? Our panel of experts will share their experience on what it takes to get started and how to make a well-informed decision on this crucial topic.

Making Virtual Economies Work — Lessons from the Leaders

Managing a virtual economy is no easy task. Managing inflation, dealing with billing, and being vigilant on fraud are just a small fraction of the issues facing anyone managing a virtual economy. Our panelists will share their experiences and insights on this important subject.

Virtual Goods and Social Networks

Virtual goods are beginning to make a major footprint on leading social networks. Aside from offering an alternative to advertising, virtual goods offer application developers a solid opportunity to capitalize on the user engagement they generate. What will it take to fully take advantage of the virtual goods opportunity on social networks? Our panel of leading thinkers will share their views on this topic.

Generating Real Revenue from Virtual Goods

The goods are virtual, but the revenue is real. Interested in figuring out how to turn browsers into buyers and driving more engagement around virtual goods? We’ve assembled a strong group of panelists who can share their insights on how to tackle the challenge of converting virtual goods into real revenue.

Getting Paid – Build a Dominant Payments and Billing Strategy

Designing and merchandising virtual goods is only half of the equation. For a virtual goods model to work, determining what payment types to accept and how to combat fraud are critical issues. Our panel of experts will share their views on what it takes to succeed in this crucial part of the business.

fatfoogoo is proud to sponsor the Wi-Fi at this event.  We find ourselves in good company, with other sponsors including Mashable, socialmedia, and viximo to name a few.

Again, both Martin and Stevana will be at this conference.  If you missed speaking to them in person, feel free to get in touch via email:

Martin[at]fatfoogoo.com
Stevana[at]fatfoogoo.com

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