Inside Social Games

Founder of both Electronic Arts and a relatively new mobile start up, Digital Chocolate, Trip Hawkins has said that the way to monetize iPhone games was with virtual goods. However, if recent data has taught us anything, growth isn’t just limited to the mobile space. On the contrary, free to play virtual goods revenue models are being seen more and more across the board; be it iPhone, PC, Xbox, mainstream, or casual. Of course, we have covered many of these before, but what we haven’t looked at closely is just how many mainstream developers are going this route.

Virtual goods in the US were worth roughly $265 million this year, according to Piper Jaffray (an estimate we think is very low) but around $5 billion in Asia, according to +8* | Plus Eight Star. So the concept is proven elsewhere and growing here.

Electronic Arts has been one of the most prominent behemoths to slowly lumber its way into the virtual goods realm.

The EA Mobile release of the Sims 3 marked a small step into the social space for the company, but greater plans are still in store for the high quality iPhone title (which according to EA was classified as a mere “test” to see if high production value for a social iPhone game was worth it). Well, with over 1.4 million sales within one week, it is probably safe to assume the game did well, but shortly thereafter came virtual goods that were purchasable using a virtual currency called SimPoints. Supporting both PayPal and major credit cards, the virtual goods store for Sims 3 would mark one of the earlier renditions of mainstream virtual goods.

Another PC game from EA, the real-time strategy (RTS) and collectible card game (CCG) hybrid BattleForge was a project intended to test the waters of virtual goods in a full price game, forcing players to purchase virtual cards to further grow their fantasy-like armies. Initially, the game cost about $50, but even after a $20 price drop, the game still sold less than 100,000 copies. Developed by Phenomic, the RTS/CCG creation was bombing.

BattleForge was not a sinking ship yet, though. To EA’s surprise, the virtual goods – card booster packs – were selling amongst users like wildfire. Noticing this, EA Games President Frank Gibeau made a curious call. BattleForge would go freemium, granting access to all of the game’s content, but offering fewer cards to start out with (originally, players began with 16). To Gibeau’s elation, the unorthodox move (from EA’s perspective) would lead to “record sales.” Unfortunately for us, Gibeau has not revealed average revenue per user (ARPU) metrics specifically, but he has stated that some freemium players were spending over $100 for virtual goods.

According to the LA Times, the freemium change may have single handedly saved Phenomic from a rather expensive failure. To that end, Gibeau also stated to the Times that EA did, indeed, have “four or five” new freemium projects in development. This was at the start of June.

Perhaps one of the aforementioned projects was Battlefield Heroes, as about a month later it appeared on the scene. This online, freemium, and multiplayer shooter announced, shortly after release, that it had over 1 million registered players. With two forms of virtual currency to purchase items for a player’s avatar, Valor Points for playing and excelling, and purchased Battlefunds, the game offered two very viable options for advancement. But, with a matchmaking system that was designed around skill levels, EA kept players from advancing strictly because they had a lot of money to spend.

As Virtual Goods News noted in July, “industry standards suggest that less than half of Battlefield Heroes’ 1 million registered players will be active and that fewer than 10% of the active players will ever purchase anything.” This is a common sort of revenue distribution in freemium games. EA is actually expecting around $80 million dollars in revenue, from digital sales (which includes virtual goods transactions) for 2009.

Electronic Arts isn’t the only developer looking into virtual goods. More recently, Atari made a similar movement with the closed-beta launch of its first-person shooter/RTS mix, Battleswarm (developed by Reality Gap) earlier this month. This system utilizes a virtual currency system called MetaTix, which according to Atari founder Nolan Bushnell, functions a bit like those found in arcades.

Through it, users can purchase virtual items that might allow them to gain an early advantage. Sounds useless for just Battleswarm, doesn’t it? Well, not to worry, because this currency will actually work across multiple games. The idea is that if a player has a number of MetaTix, they are more likely to try a game they know little about. Furthermore, with MetaTix costing about one penny and be attainable through in-game means (such as selling items), there is going to be quite a few in circulation and available for use.

As a matter of fact, the system is all ready live in the game Monato Espirit which is licensed from the Korean developer, Gamasoft. That in mind, Reality Gap Co-Founder J. Mark Hood told VentureBeat that seven developers have thus far agreed to participate in using the virtual currency system.

Even the largest game developer in the world, Activision-Blizzard, may be looking into virtual goods. The possibilities, at the moment, stem more from the Blizzard end of the table, but according to Battle.net Project Director, Greg Canessa, the company is not going to “rule anything out” in regards to a virtual goods platform addition to the Battle.net online gaming service. In essence, Blizzard commentary suggests that it would be remincient of Xbox Live’s current Avatar Marketplace, but the question lies in how such a new system would play out. Since its launch in 1997 with the role-playing game Diablo, everything from Battle.net has been free.

“Blizzard’s reputation is about providing an amazing value — an amazing amount of stuff for free. And then enabling additional stuff, like value-add services, to maintain the free level,” said Canessa in comments to 1up.com. “Okay, you pay for StarCraft 2, and Battle.net is free. All the stuff we’re talking about: the Achievements, the profiles, the Avatars, the unlockables, the leagues; it’s all included for free. Then there’s value-added services — like for [World of Warcraft] where you have a paid subscription with tons of stuff, and we then added paid character transfer services on top of that later. So we may add some stuff to Marketplace, but it won’t interfere with the free tier.”

Certainly the road leading to these new virtual goods possibilities can be seen, and with the upcoming release of the StarCraft 2 RTS, a relaunch of Battle.net will include a new store, the Map Marketplace, where players can purchase new game maps (something that was free in the original StarCraft). As it stands, the fees are likely to be very small,. Of course, the availability of anything beyond the StarCraft 2 maps is mere speculation, but the probability seems high.

In the end it doesn’t matter who you are. Virtual goods are not something to be taken lightly. These minuscule pieces of digital art, animations, and sound have been adopted by the public. As a billion dollar industry world wide, some of the largest players are stepping forward to take a crack: Electronic Arts used virtual goods to boost the sales of the Sims 3 for the iPhone, mend a wounded BattleForge, and attempt to repeat the success with Battlefield Heroes. One of the oldest developers, Atari, even stepped in with both virtual goods and its MetaTix virtual currency to promote new, and unfamiliar games. And even the best of the best, Blizzard Entertainment looks to be considering a virtual goods bonus for its players for its new releases. Suffice to say, virtual goods have proven to be one of the fastest evolving and most successful new additions to come to not just social games, but the gaming world as a whole.