Loaded fromhttp://sulka.net/

Sulka Haro @ GDC 2010

The Evolution ofHabbo Hotel’s Virtual Economy

(let’s start) Sulka Haro

lead concept designer

The Evolution ofHabbo Hotel’s

Virtual Economy

what is Habbo? virtual world for teens

free to playpay for stuff microtransactions

2008$74M

global operation

offices in 13 countries

Habbo community aimed at31 countries on 6 continents

16 instances of the world=

16 virtual economies

how are we doing?Dec 2009 - Feb 2010 timeframe

highest usage levels everhighest monthly sales ever

~16.5 million uniques / month(source: Quantcast)

50M hours of play / month(source: Sulake)

turning 10 in 2010!

year 2000 year 2010

2000 2010

Virtual Worlds

when market changes, you change or die

The Evolution ofHabbo Hotel’s

Virtual Economy

6 phases of change in Habbo’s economic system

payment networks

magic circle

1 No currencies at all (even paid!)

2 Emergent currencies

3 Paid currency

4 Tradable paid currency

5 Dual currency!

6 “Official” secondary market

Habbo economic system phases

Phase 1No currencies at all (even paid!)

2000

persistent goods usingSMS microtransactions

Text“HABBO CHAIR SULKA”

to 555-1234 to get this chair

(No virtual currency!)

Why did we choose this?

• Super-easy setup

• Home market mobile penetration was very high

• Assumed customer acquisition is easier if the the cost barrier to purchase is lower

Problem: social engineering attacks

• Send “HABBO CHAIR 100x SULKA” to get 100 chairs

• Chair went to hacker called 100x

Problem: pricing

• Just two in-game price points, can’t optimize pricing structures

• Low-cost SMS transactions typically have higher commission rate (due to fixed cost / message), simultaneously high value SMS is too valuable for most virtual items

Phase 2Emergent currencies

Habbo allowed item trading from day 1

item aftermarket kicked off before the primary virtual currency market

economies need currency, so...

2001Habbo UK launch

Problem: multiple payment options

• When launching in UK, we had to integrate new payment mechanisms

• Needed a way to split £10 transaction to pieces

• Habbo Credits was born

Phase 3Paid currency

Credit value

• 1 credit = 15 cents

• Super cheap items: 1 credit each

• Regular items: 2-3 credits

• Premium items: 4-15 credits

fundamental change Items

!"!#$%&'()*+

,*+&#*-./*#/0)1234

Secondary market

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+3

4*(5)!"#$%&'(

Item Catalog

The credit pool makes it harder to predict sales

Increase credit consumption doesn’t necessarily result in increasing revenue!

Credit Purchases: CPItem Sales: IS

Accumulation CA Δ = CP - IS

High delta = danger!

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+3

4*(5)!"#$%&'(

Item Catalog

Persistent goods problem

Item Purchases: IPForgotten Items: FI

Accumulation IA Δ = IP - FI

High delta = danger!

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+3

4*(5)!"#$%&'(

Item Catalog great value proposition, good for customer acquisition

value piles up, need to deal with item value inflation

persistent goods

non-persistent value

servicesconsumable items

subscription and virtual goods are radically different

business models

subscription modelrevenue is linear

virtual goods model follows the power-law curve 1 2 3 4 5 6 7 8 9 10

Subscription Virtual goods

revenue / customer segment

combinable?yes

Habbo Club

monthly subscription paid with credits

different core value proposition so it doesn’t double dip into the the user’s pockets

some customers only go for the club, some for items, some for both

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+3

4*(5)!"#$%&'(

Item Catalog

Habbo Club

items club

room decoration, collecting avatar customization

optional membership, but...

2005a worrying trend

emergedMonth 1 Month 2 Month 3 Month 4 Month 5 Month 6

Trading non-payers Paying accounts

if having a trading aftermarket means people can opt not to

pay,why allow trading?

tradingis great content

(so users spend more time)

allows item value speculation(rare items = high value)

hence, trading drives sales

1 2 3 4 5 6 7 8 9 10

Users ARPU

trade activity correlation to monetization

(users split to 10 groups by trading activity)

expect power law“average” metrics lie

which currency are your traders using?

Phase 4Tradable paid currency

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+3

4*(5)!"#$%&'(

Item Catalog

Habbo Club

Credit trading

Allowed users to trade credits.

Economic theory: the most liquid currency is the most desirable currency, resulting in the most liquid currency becoming dominant.

it doesn’t matter who spends the money, as long as spending is maximized

before credit trading after credit trading

Buyers = SpendersTraders > Buyers

Spenders > BuyersTraders > Buyers

leading to

more buyers

credit tradingunanticipated side-effects

the smallest possible value expressible by the dominant currency defines the smallest unit of value in the market

Before credit trading

= 0.1 credits

After

= 1 credit

cheapest items went up in value

while working on the credit trading, a question was raised...

can we fix the item inflation problem somehow?

is establishing sinks for persistent goods possible, after the fact?

ecotron

“recycle your items!”

sink for items

put 5 items in,get a random rare item back

Inflation cash piling up is bad for your economy

primary market currency sales become unstable

secondary market prices increase so new players have

harder time entering the market

secondary market inflation causes items purchased from primary market crash in value, making

primary market purchase a bad deal

MeasuringInflation

time

user

s

without inflation, the average amount of currency

needed to operate on a virtual market should stay

fairly constant

metric techniqueamount of liquid cash /

operator in the secondary market

Credit Purchases CPCredit Spending CS

Accumulation CA Δ = CP - CS

Traders TAccumulation / operator

AO = CA / T

AO trend up, danger!

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+3

4*(5)!"#$%&'(

Item Catalog

Habbo Club

metric technique“consumer price index”

pick a set of items (especially emergent currency items) and track how the value of a “shopping

basket” of these items develops in the aftermarket

(more data on item valuation later during the presentation)

inflation causesgiving out paid currency for

free...

rewarding users

if you can’t (shouldn’t) reward with primary currency, how do you

reward users?

item rewards are cool,but production of cool items is not sustainable

Phase 5Dual Currencies

new economic model

paid currency: Creditsearned currency: Pixels

multiple currencies = multiple economies

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+34)#($1$0(#

5*(6)!"#$%&'(

Item Catalog

Habbo ClubPixels

!0&1)7)(&#+

Pixel catalog

credits pixels

how to get? buy & trade earn

good forpersistent goods,

consumables& services

consumables &discounts on the primary

(credit) market

purpose monetizationretention & conversion,

supporting primary market

ways to drive monetization: cross-link between the economies

multiple currencies:simple or complex?

“I’m using just one currency in real world, why do we need more than one in Habbo?”

", $, £

3 frequent flyer point systems

4 grocery store bonus point systems

credit card bonus points

shares and options

mortgage

pension fund

anyone who thinks the taxation system is simple

must be insane

one currency

“one size fits all” system

can’t optimize for anything

bound to become complicated

multiple currencies

larger number of systems, but:

each is optimized

each is simple

World of Warcraft39 currencies

GoldHonor & arena points, [Warsong Gulch Mark of Honor], [Arathi Basin Mark of Honor],

[Alterac Valley Mark of Honor],[Eye of the Storm Mark of Honor], [Strand of the Ancients Mark of Honor], [Isle of Conquest Mark of Honor], [Wintergrasp Mark of Honor], [Badge of

Justice], [Venture Coin], [Dalaran Cooking Award], [Dalaran Jewelcrafter's Token], [Stone Keeper's Shard], [Champion's Seal], [Emblem of Heroism], [Emblem of Valor],

[Emblem of Conquest], [Emblem of Triumph], [Emblem of Frost], [Mark of Honor Hold], [Mark of Thrallmar], [Glowcap], [Spirit Shard], [Arcane Rune], [Holy Dust], [Halaa Battle Token], [Halaa Research Token], [Sunmote], [Winterfin Clam], plus Tier 3 to 10 tokens

2009a new thought occurred

ifreducing friction in

credit spending = increased salesand

trading correlates to spendingwould

remove friction in trading = increased spending?

let’s experiment!Phase 6

official marketplace

marketplace economic theory

removing friction (removing a disincentive) from trading should increase the amount of people participating in trading

if participating in trading (the secondary market) correlates to spending, the participation to monetization causality should be present in all forms of secondary market participation

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+34)#($1$0(#

5*(6)!"#$%&'(

Item Catalog

Habbo Club

7-662''2-+

how trading used to work

surf around fansites looking at item valuation charts

see if you have something valuable to sell

log in and start running around the Hotel looking for buyers, by spamming the screen with “say 3333333 if you

want to buy a HC”

get kicked out of rooms a lot

when you find a potential buyer, haggle for 10 minutes

settle for an item you didn’t really want in the first place

in economic terms

a lot of supply and demand didn’t meet

theory proven correct

removing friction increased the probability of a player

wanting to participate in the economy

couple (small) surprises

underestimated how much safer the users think the marketplace is, compared to regular trading

huge amount of arbitrage still present in market, even in the marketplace

marketplace rules

posting an item offer costs 0.2 credits(purchase 5 marketplace tickets at 1 credit)

offer is valid for 48 hours

sale price is the offer price + 1% commission(minimum of 1 credit)

sale price is the offer price + 1% commission

(minimum of 1 credit)

actual commission 50% to 1%

how valuable shoulda paid virtual currency

be?

1 Habbo coin = ~15 cents

1 Facebook Credit = 10 cents

(1 WoW gold = ~1.25 cents)

the smallest possible value expressible by the dominant currency defines the smallest unit of value in the market

decide your scale

1 item = 1 credit?

1 item = 10 credits?

1 item = 100 credits?

1 item = 1000 credits?

1 item = 1m credits?

make sure you’re in control of your currency

converting between virtual currencies is confusing

there good and bad points tohigh and low value

payment networksSecondary

market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+3

4*(5)!"#$%&'(

Item Catalog

initially just 3

methods

added over 100 payment system integrations between 2001-2010

why so many systems?

• huge variation on commission structures depending on market

• system viability changes from market to market

• Credit Cards are not viable globally

• SMS is not viable globally

• prepaid cards are not viable globally

payment network optimization

• a true art in itself

• very difficult if you want to do it well, but essential if you want to operate globally

• part of Sulake’s Secret Sauce

The Big Balancing Problem

primary marketand

secondary marketfollow different rules

there is nomagic circle

primary marketreal world inflation,economic situation

secondary marketvirtual world inflation

adjust primary market item prices to follow secondary market inflation?

yes: $ price of items goes up, lose new customers

no: newly bought items are of no value compared to valuable secondary market items, less incentive to spend on primary market, causing even worse

inflation, loss of sales

real world inflation

currency exchange rate changes

Facebook creditshow stable will the Facebook credit

value be?will Facebook continue allowing

intermediate virtual currencies in apps?

will Facebook continue allowing intermediate virtual currencies in apps?

1 credit = 10 cents1 credit = 7 cents after commission

at 3% inflation, 7 cents = 6.59 cents after 2 years

raising price from 10 to 11 a Very Difficult Decision

The Evolution ofHabbo Hotel’s

Virtual EconomyItems

!"!#$%&'()*+

,*+&#*-./*#/0)1234

Secondary market

2000 2010

Secondary market

Credits

Items

!"#$%&'()*#&+'&$,-+

.'(#)'*-/')/0&12+34)#($1$0(#

5*(6)!"#$%&'(

Item Catalog

Habbo ClubPixels

!0&1)7)(&#+

Pixel catalog

8-662''2-+

does economics matter for virtual worlds?

do virtual worlds need an economic system?

yes!

economics helps you create a sustainable virtual

economy, which is a requirement for sustainable

virtual communities

thinking of your world in economic terms is not just about optimizing

value flow, but also things like understanding how to make your world a safer place to invest time and money into

unleash your inner economist!

Thanks!

Please remember to return the evaluation sheets