This was a guest post by Matt McAllister and Jaini Shah of Offerpal Media on Inside Social Games. The article addresses issues that developers should consider when implementing virtual currencies. It focuses on the tradeoffs of how to manage two types of currencies within a game.

You can download the full white paper here: Monetizing Dual Currency Economies in Online Games – October, 2009

Virtual economies are quickly becoming as complex as real ones. As more and more developers monetize their games by selling virtual goods and services, they face many of the same issues and challenges that leaders of real-world economies must deal with every day—inflation and deflation, balance and disparity, supply and demand, security and fraud prevention—plus other challenges that are unique to the online environment.

Some game and virtual world developers, such as Gaia Online, have gone so far as to hire full-time, professional economists to help them navigate the murky waters of creating a virtual economy, so important is it to their monetization numbers and overall revenue.

One common way many developers have chosen to deal with these issues is to implement a dual-currency system. In these cases, one type of currency is typically earned within the game by completing tasks or missions, and another currency can be purchased directly, either with real money or by completing advertising offers. We refer to the former type of currency as “in-game” currency, and the latter as “Real Money Transfer” (RMT) currency.

Why Two Currencies?

When implemented correctly, there are a number of advantages to creating a dual-currency system: it can help you balance the game economy and manage inflation, track and reduce fraudulent behavior, create a more level playing field for your users, and so on.

But the primary reason to adopt a dual-currency system is to engage and monetize the two distinct sets of users: paying and non-paying. Paying users are willing to fork over a few bucks, cents, or in the case of completing ad offers, a few minutes of their time in order to get premium items within the game. These typically make up between 5 to 15% of your overall user base. The non-paying users, on the other hand, just want to play your game for free. Paying users are valuable for obvious reasons. However, even though non-paying users might not generate direct revenue for your company, they can often be equally valuable, because:

* their mere participation creates value for paying customers
* they contribute to your word of mouth growth
* their visits and page views create advertising opportunities
* they might eventually turn into paying customers.

RMT currency is for users who are willing to pay real money for virtual currency instead of spending a lot of time in the game trying to earn it, whereas the in-game currency is for non-paying users who are willing to spend time playing the game in order to earn virtual currency but are not willing to spend real money on it. Having multiple currencies in a virtual economy thus helps maximize revenue and engagement across both sets of users.

4 Likely Scenarios

Two important questions that must be asked when first considering a dual currency economy are (1) whether you want to allow your currency to be converted from one type to the other (RMT to in-game currency and vice versa), and (2) whether players should be allowed to trade or transfer currency with one another. Allowing conversions and transfers opens up a slew of challenges that make it more difficult to balance your economy and prevent fraud, so many developers tend to go the safer, easier route of prohibiting both conversions and transfers. Let’s therefore begin by examining this type of economy first.

Scenario 1: Prohibiting Conversions and Transfers

Overall, this model is the least risky of the four because the game economy is completely under the control of the developer. The major advantage of this model is that it allows the developer to focus their efforts on one type of user – paying vs. non-paying – or the other depending on where they stand in the user lifecycle. For example, in order to motivate non-paying users to pay, developers may introduce a premium item that can only be purchased through RMT currency. In contrast they may also introduce certain items that can only be bought with in-game currency in order to motivate users to engage more deeply and spend more time in the game. The downside of this model is that you must give up potential virality and monetization, as we’ll see in the other scenarios.

Scenario 2: Prohibiting Conversions, Allowing Transfers

This scenario is commonly found in poker and other card-playing games, where the function of players transferring their “chips” to other players creates a powerful viral channel, such as when one poker player invites several friends and offers a few “chips” to get them started. However, this scenario creates many loopholes that can easily lead to crippling amounts of fraud if the economy isn’t closely monitored and managed, and most developers decide that the risk isn’t worth the reward.

Scenario 3: Allowing Conversions, Prohibiting Transfers

This scenario is mostly found in Role Playing Games, where many developers prohibit transfers but allow users to gain in-game currency in exchange for RMT currency at a fixed exchange rate. They may also let the paying users earn the in-game currency faster as compared to non-paying users when they use RMT currency. This model is less risky than scenario 2, since it helps keep the currency flow in check and also keep the developers in control of the game economy. It also supports monetization efforts by creating more reasons to purchase RMT currency.

Scenario 4: Allowing Conversions and Transfers

When player-to-player currency transfer is enabled, users can transfer either of the currencies (in-game or RMT) from one player to another, whether in a developer-controlled marketplace or through external methods like eBay. Found in applications such as Fish Wrangler, Fallen Sword, and Mouse Hunt, this type of system can often increase monetization by driving up demand for your RMT currency. Currency trading is specifically useful if the sinks (uses) for both currencies are different. For example, if there are certain premium items or special features that can be unlocked only through RMT currency, and there are certain activities or items which require in-game currency, then both types of users can benefit through currency trading. However, allowing player-to-player currency transfer can be risky and may lead to issues such as fraud and gold farming.

Tips for Implementing a Dual Currency System

Okay, so you’re ready to build a dual-currency system into your game. Here are a few tips to keep in mind as you do so:

1. Engage first, monetize second

Promote your currencies based on the users’ life-cycle. First engage them in the game through some in-game features and currency before promoting the RMT currency and driving them to the payments page. If you push RMT items before the users are fully hooked, you risk turning them off and losing them for good.

2. Balance your sinks

Maintaining a balance between the sinks for both currencies is very important. If there are a lot of sinks for in-game currency but very limited sinks for RMT currency, then it might affect the value of the RMT currency. In the same way, if there are limited sinks for in-game currency, then users may get stuck at some point and not engage in the game at all. Try to balance the RMT-only sinks with an equivalent number and type of in-game-only sinks to appeal to both types of users.

3. Offer multiple sources

For in-game currency, make sure there’s more than just one or two ways to earn the currency, or your users will quickly grow bored. For RMT currency, make sure you offer enough payment options – not just credit cards and PayPal but mobile billing methods, offline stored-value cards, and offer-based payment methods – to effectively monetize a broad set of users across different genders, age ranges and other demographic profiles.

4. Spell it out

Dual currency systems, by their very nature, are more complicated than single-currency systems, and therefore must be explained more thoroughly. Use all of the tools at your disposal – FAQs, customer support, in-game feedback and notifications, etc. – to explain the differences between your two types of currency and erase any confusion that might occur for your users.

5. Test, Measure & Optimize

As with everything in your game, you should be testing and re-testing all variables affecting your engagement and monetization. Test your exchange rate. Test your price points. Test anything and everything involving your virtual economy. Keep in mind that small fluctuations can often have a large impact on your overall revenue. At the same time, keep an eye out for inflation, imbalance, fraud and other factors that could be detrimental to your efforts, and quickly squash these before they have a chance to grow.

Conclusions

Dual currency systems aren’t for all games and all developers, but as virtual economies continue to evolve, many developers are finding that the rewards of having two currencies far outweigh the risks. If you’re thinking of implementing a dual currency system, take a look at your game and the types of users it attracts, and decide how you want to handle conversions and transfers. Do transfers make sense given the game dynamics? Do conversions make sense given your users’ willingness to pay, or would they simply rely on conversions to gain large amounts of in-game currency without actually engaging in the game (which might actually cheat non-paying users)?

Offerpal Media continues to develop its ‘Thought Leadership Video Series ,‘ in which we will interview some of the foremost experts, entrepreneurs and, yes, “thought leaders” in the field of online gaming and social publishing. In the first video interview, we sat down with Blake Commagere to talk about various topics. In the second interview, he spoke to us about gamer’s psychology, social networks bringing new audience to gaming and much more…

Blake is the creator of the highly successful Zombies, Vampires, and Werewolves games on Facebook. Previously, he led the development of the Causes application on Facebook.

EPISODE 1: “What social game developers can learn from traditional games?”
In this interview, Blake revealed his insights on social versus traditional (PC/console) game development.

EPISODE 2: “Are gamers moving away from pricey console games?

Topics include:
- Gamer’s moving away from pricey console games?
- Social networks bringing new audience to gaming
- Challenges to traditional game developers in this new social gaming environment.

Offerpal is  excited to partner with Girls In Tech as a media sponsor for the upcoming Virtual Gaming Summit.  Girls in Tech is a social network enterprise focused on the engagement, education and empowerment of like-minded, professional, intelligent and influential women in technology.

Offerpal is a sponsor of the Virtual Gaming Summit is San Francisco on Oct 30th. And is official sponsor for the after party at Harlot. Girls in Tech and Offerpal join hands as a media sponsor to reach out to publishers who are attending the gaming conference and to those who are involved in this space to invite them to the party so that they get to network with experts in this space.

Anu Shukla, CEO and Founder, Offerpal Media, extends this invitation and looks forward to meeting you there.

We are excited about it and have invite you to event. Please RSVP at the Event FB page and come and JOIN the fun.

Here is the link on FaceBook. You are welcome to bring friends.

RSVP: Offerpal VGS after party.

Zynga launched Cafe World about a week ago, and already it’s becoming one of the largest games on the Facebook platform.

In fact, it grew from 0 to 10 million users in just one week. It has even gained 1.5 million users today alone.

And now it’s the #1 app on InsideSocialGame’s list of Top Gainers: Café World Hits 10M, Easily Takes #1 Spot on This Week’s Top 20 Games

Here is the official description of Cafe World:

“In Café World, you’re in charge of your very own restaurant. Choose from dozens of dishes to cook, then slice, chop, saute and bake your way to the top of the culinary world!

It’s up to you to decorate your café any way you want with hundreds of items and styles to choose from. And if you need a break, you can always visit your friends’ restaurants and try their daily specials… you might even find someone you can hire!”

“What about monetization?” you might ask.

Zynga is monetizing its users through virtual goods, where players buy virtual items for small chunks of money. And Facebook’s users are opening up their pocketbooks far more than other buyers of virtual goods.

To increase distribution, Zynga’s cross-promotion efforts include strategically placed buttons for Café World in other games, including hits like FarmVille, Mafia Wars, YoVille and more. Plus, a lot of Facebook Advertising. And of course, your friends becoming “Tikka Masala experts” and their statuses populating your Facebook feeds.

Read the full story on Insidesocialgames :Zynga’s Café World Goes from 0 to 8.6 Million Users in a Week, with Big Implications

Engage! Expo, taking place September 23-24 at the San Jose Convention Center, provides insight into the best practices, current trends, and effective strategies of social media and user engagement.

Sept 23rd

Anu Shukla, CEO of Offerpal Media, is speaking  at 11am on a panel  “Virtual Goods:  The State of The Industry”
The virtual goods market has grown to $5.5 billion globally. The North American and European markets, which have traditionally lagged behind the Asian market, are now the fastest growing segments of the market and are estimated to be $700 million in 2009. In this expert panel Offerpal participates to discuss the factors that are driving the rapid growth of the virtual goods market, how those factors can help you develop a successful virtual goods business model, and where the virtual goods industry is heading in the future.

Sept 24th

Anu is participating at 4pm on a panel, “Monetization of Social Games & Applications: What Works & What Doesn’t“.
The online economy of social games and applications requires new and innovative payment methods to convert users to customers. She will share her insights on various payment models and will discuss where they excel and where they come up short. Plus, she speaks to the impact universal currencies and payments with mobile devices will have on driving the market forward.

The real question for game developers is “If you build it, will they come?”

And, if they do come, “Will we make money?”

Here are some stats shared at the GDC Austin, 2009.

Monetization Stats: Notes from GDC Austin: Juicy MMO and Virtual World Monetization Numbers

The top methods to monetize:

1. Selling currency
2. Micro transactions
3. Subscription models

The market opportunity:

A study that came out recently from the Pew Internet Trust, talking about how many “economic users” go online as a diversion, including to play games.

The youngest online economic users (those ages 18-29) are significantly more likely than other age groups to engage in a wide range of online relaxation activities.  Roughly half play online games (52%) or go online to chat with friends (55%).

BOTTOM Line is Monetization + Market = Revenue

Are you ready to capitalize on this momentum, visit : www.offerpal.com

Offerpal’s Facebook Developer Garage takes place this afternoon at Mezzanine in San Francisco.

For those of you who aren’t local and can’t make it, we’ll be streaming the event live on Ustream.tv. You can watch it here starting at 3:15 pm Pacific.

We’ll also be posting edited versions of the video on our blog after the event is over.

Hope to see you there!

Next Wednesday, Offerpal is hosting a Facebook Developer Garage that focuses on the ins and outs of monetizing Facebook apps through virtual currency. We’ll look at the different ways to create a virtual economy within your app and the best practices for extracting real revenues from your virtual dollars. We’ll examine such issues as how to:

- Offer virtual goods and services that will inspire and motivate your users
- Promote virtual currency where it will gain the most traction
- Integrate virtual currency into the user experience
- Optimize revenues

Speakers include:

- Anu Shukla, Founder & CEO, Offerpal Media
- John Hwang, Director of Products, RockYou
- Siqi Chen, Founder & CEO, Serious Business
- Nicholas Talarico, Director of Operations, Sibblingz
- Markus Weichselbaum, PhD, CEO, TheBroth

Also, we are excited to announce that Kelly Winters, Platform Program Manager at Facebook, is going to be attending to give an update on Facebook Platform.

Here are the details:

Facebook Developer Garage
Date: Wednesday, November 19th, 2008
Time: 3-7 PM (Doors open at 2:45)
Venue: Mezzanine
Address: 444 Jessie Street @ Mint in the SoMa neighborhood of San Francisco.

Space is limited, so RSVP now.

If you can’t make it, we’ll be recording all or parts of the event and will try to stream them through Ustream.tv. We also plan on posting edited versions of the recordings on this blog afterwards. We’re hoping to get one or two people to live-blog from the event as well. I’ll post an update next week with more details as they’re firmed up.

Hope to see you there!