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10 Ways In-Game Fraud and Abuse Erode Video Game Profits

Loss of crucial revenue as a result of player churn has become one of online game publishers' biggest concerns. Here are 10 ways that in-game fraud costs operators money, and why a proactive approach is better - and cheaper - in the long run.

A 2016 survey report published by Akamai titled Online Gaming Trends and Challenges cites retaining and acquiring customers as the top two business challenges reported by video game companies. With player acquisition costs on the rise, keeping players playing and paying is critical to recoup acquisition costs and turn a profit. Even non-monetized players add value to games, maintaining a critical mass of players to keep games fun and able boost important stats like monthly active users (MAU) that put games at the top of the charts.

But, in the end, people primarily play video games for fun. Despite the most well-thought out game design, outside forces can negatively impact a game’s entertainment value. When they become not fun -- when an account is hacked or a virtual world is filled with cheats and bots -- players will leave a game and take their money elsewhere. This isn’t unique to the video games industry; if consumers are unhappy or feel unsafe, then they won’t return.

Harmful activity in video games comes in many forms, including account hacking, cheating and botting, and credit card fraud. All of these activities negatively impact games, its players, and ultimately, its revenue. Player churn directly and indirectly impacts top line revenue, but bad activity has other financial consequences for games as well. As players leave the game, the decreasing player base leads to:

 

1) Fewer microtransactions. Fewer players = fewer purchases.

2) Decreased Ad Revenue. Fewer players = fewer clicks.

Decreased revenue as a result of player churn is pretty straightforward, but account hacking, botting, cheating, and credit card fraud also fuel the online gray market for virtual items and virtual currency, which means that:

3) You’re losing virtual item sales to the gray market. Because gray market sellers often sell items for a fraction of the cost compared to the in-game store, some players will purchase from them regardless of the long-term cost to the game. This loss may be as high as 40% of total revenue.

4) You’re being forced to lower your prices to compete with the gray market. Economic principles of supply and demand apply to virtual economies as well.

5) You’re losing out on prime revenue opportunities from paying players. Credit card fraud best practices include setting virtual currency purchase limits. This can take the form of limiting the amount players can spend when the game first launches, limiting daily or monthly spend amounts, etc. We can all agree that limiting the purchase virtual items or currency is not ideal.

Bad in-game activity clearly decreases top-line revenue, but it also eats away at bottom-line profits as well, by increasing costs in the following ways:

6) Increased staff costs. Customer support staff, fraud analysts, and developers are all directly involved in fighting fraud and abuse. Often, they must rely on clunky, hard-to-use rules and reports to find and investigate bad activity.

7) Credit card chargebacks and fees. Unauthorized credit card transactions, which supply the gray market, are expensive. According to Merchant Risk Council, they cost a merchant on average, an additional $2.40 for every $1 of losses.

8) Server costs. Servers are an accepted cost of doing business, but you’re also paying for bad actors and bots, which are, in turn ruining the experience for real and paying players. (For example, Pokémon Go restricted API access that enabled unwanted activity to “ensure the game was played fairly and to reduce the amount of strain being placed on its servers.”)

9) Legal Fees. Recent legal actions taken against bad actors by online video game publishers are detailed here, here, here, and here.

10) Reputational Damage. In today’s online game environment, where every new game must compete for players with hundreds of competitors, and where  players can easily communicate their satisfaction (or dissatisfaction) with the world through social media, a game’s reputation and relationship with its players is more critical than ever. According to Shahid Ahmad, the former Director of Strategic Content for Sony PlayStation:
 

“…one of the most important things you have as a developer is the community you can take with you, and your ability to engage with that directly and authentically… The most important thing a developer can do now is build their reputation. And that reputation is now as important, if not more important, as the games they make.”

 

Reputation is not only important to players, but it is also important to a game’s investors and shareholders as well.

The online video game industry has tended to think about fraud and abuse as a cost of doing business that can be dealt with reactively as situations arise. Unfortunately, this is the worst way for publishers to deal with these threats. Once a game is launched, the developer should be focused on providing regular game updates, patches, and new content required to keep the game competitive and interesting (to keep players playing and paying). If they are continuing development, they often don’t have the capacity deal with cheating and fraud. Worse, every day that bad actors are allowed to continue to operate within a game is a day where good players are driven away by their activities, all while making it progressively harder to remove them.

While nobody likes thinking about fraud (game developers tell me all the time that "I didn't get into this business to fight bad guys - I just want to make fun games"), the good news is that cheating, fraud, and abuse do not have to be a cost of doing business. If you're developing, or are considerting publishing, a game that relies on online payments, or that features virtual items or currency as a key gameplay component, do yourself a favor and think about these issues now, before they become a problem, because in the long run investing in effective and proactive tools designed to keep bad actors out will be cheaper - and make your players happier - than reacting. 

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