A Wholly-Owned Subsidiary of RealNetworks

The Economy is the GameAn Economic Approach to Social Game Design

Russell Ovans

Introduction

• Many social games are really just virtual economies– Freemium monetization model– Players compete by accumulating wealth over

long periods of time– Cooperative, non zero-sum game

• This is not the only way to build a successful social game that monetizes well– other models may work better, faster, stronger

An Economic Approach

Taking an economic approach to anything involves three basic premises:

1) Resources are limited2) Consumers act rationally3) Control is decentralized

#1: Limited Resources

• Free game play is limited– 5 to 10 minutes per day

• Players can't have everything– ...unless they are willing to pay $

• Examples of limited resources:– achievements, virtual currency, friends, virtual

goods, skill, time...

#2: Rationality Hypothesis

• Players face a resource allocation problem– game play involves choices about how to spend

their virtual currency or what to do with their virtual goods

• Rational = maximize utility• Two types of utility– strategic: improve score in the game– social: improve status within community

#3: Decentralized Control

• Players interact with each other directly• Players share an environment– the game defines a market– the actions of one affects everyone

• Examples:– rankings–marketplace buying/selling– gifting virtual goods

Virtual goods are social objects

• A game is social iff it lets you do something to your friends– Social verbs: challenge, give, sell, trade...– Social objects: game instances, virtual prizes...

• Scarcity of social objects makes them valuable– e.g., limited edition, difficult to win

• Necessity also makes them valuable– e.g., stage advancement blocked (friction)

Virtual goods can be worthless

• A virtual good has no intrinsic value unless it:1) is coveted by other players (limited)2) can be used as the owner chooses (rational

choice and free will)3) can be exchanged with other players (market)• Intrinsic value leads to pay-to-play– people will spend real $ to acquire virtual goods

that increase strategic and/or social utility

At Backstage, we don't make games...

• Scratch and Win is not a game– a gifting app where the prizes are won through

virtual gambling

• Our user community turned the market for rare win-only prizes into a competition– In response, we built the in-game Marketplace

• Over time we added game mechanics– stage advancement, achievements, rankings

...we build virtual economies.

• Scratch and Win implements all three premises of the economic approach– Daily credits (virtual currency) are limited–Win-only prizes create friction–Marketplace provides decentralized trading– Community forums (social utility) are HUGE• 8 minutes of game play, 3 hours in the forums

– 3+ years old– still makes at least $0.02/DAU

Pros and Cons of Approach

• Pros– addictive: engagement (DAU/MAU) is high– economy keeps bringing people back–monetize well

• Cons– not inherently fun: it's a slog– not inherently viral– players have a love-hate relationship with the

game

Summary

• People will pay real money to acquire virtual goods/currency, but only if:– they are limited– they have agency over what to do with them– there is a market for them