Is your microtransaction-based game set up for failure or success? Consultant and writer Ramin Shokrizade discusses a new class of goods that is likely to damage the health of your user base -- and in this article, posits rules for goods as well as taking a hard look at how some games function.

Modern microeconomic theory classifies various goods and services as "inferior," "normal," or "luxury," based on their behaviors in markets and how they are selected by consumers. Interesting discussions also arise regarding goods that defy the intuitive ways they are expected to behave in markets, like "Giffen goods" and "Veblen goods."

The purpose of this article is to introduce a new model for one of these (at least initially) unintuitive goods that are exceedingly rare in the "real" world, but that are the most common type of good used in the sale of online games: supremacy goods.

My study of microtransaction monetization models since 2001 was the inspiration for this new goods model. Microtransactions are currently the preferred method of charging for online games, and the sole method of direct content sale (not counting indirect revenue streams, such as advertising) for many large companies such as Zynga and Nexon.

Microtransactions involve the sale of specific virtual goods or services, as opposed to a flat one-time fee or subscription. Typically hundreds of microtransactions are available to gamers in each title, and in most cases they can be used to increase the success of players in reaching game objectives relative to those that do not make these microtransaction purchases.

This gives rise to the term "pay to win." For those that do not pay, these games are described as "free to play".

The "Golden Ticket" Scenario

Imagine that I have a ski resort that operates 18 ski lifts with associated runs, and that I charge $50 for a daily use general lift ticket that allows unlimited use of any run (with one catch). I sell 2000 of these tickets every day. My new marketing consultant comes up with a great idea to boost revenues: the "Golden Ticket." The Golden Ticket allows the holder to have exclusive use of any run they desire. Any general use ticket holders on the run will be escorted off and directed to another run. By selling these at $10,000 each, I am told that we can boost revenues from $100,000 per day to perhaps $180,000 or more per day.

On the first day, it works like a charm. We sell five Golden Tickets and our usual 2,000 general lift tickets and make $150,000, for a 50 percent increase in revenue! On the second day a strange thing happens: We only sell four Golden Tickets, and 1600 general tickets. We take in $120,000, which is not as good as the previous day, but still an improvement over the old monetization model.

By the end of the first week we are bottoming out at three Golden Ticket sales and only 200 general ticket sales -- we only made $40,000!? How did this happen? This seemed like a sure winner.

For the general ticket holders, being bumped was very inconvenient, and reduced the value of the lift ticket purchase in their eyes. What was even worse was the anxiety created over not knowing when they would get bumped.

For those purchasers that valued their time more highly, this inconvenience was enough such that they would not have come to our ski resort even if the general tickets were given away free of charge. For some of our wealthiest skiers, they could have paid the $10,000, but for them skiing with others and meeting new people was part of the fun so they had no desire to take advantage of our Golden Tickets.

For those that did buy the Golden Tickets, the novelty soon faded, such that repeat buyers were rare. Some of these big spenders actually enjoyed watching the looks on people's faces when they got ejected, and as the number and enthusiasm of remaining general ticket holders decreased, this thrill also waned. While this situation might offer them the chance to meet others just like themselves (fellow Golden Ticket holders), these people had a propensity to want to ski by themselves (that's what they paid for, after all), so their social interaction with their limited number of peers was close to nil.

The Golden Ticket is an example of a supremacy good. A supremacy good is a good or service that reduces the value of all other linked goods and services in its space, including itself. Supremacy goods can initially appear to monetize very high, but over time consumers become adept at identifying any monetization model that contains them. This causes the advantages of the introduction of supremacy goods to self-extinguish. There are two exceptions:

Good examples of the first case would be online games in China, or games on Facebook. In both cases, there are essentially no alternatives. The sale of SUVs (sport utility vehicles) in the United States is an example of the second condition. In this case, the purchaser is buying a perceived unfair (independent of skill) survivability advantage over those that do not have SUVs in the event of a crash.

While the proliferation of SUVs makes driving more dangerous for everyone, most consumers in the USA perceive automobile purchases as non-optional. Thus to compete (survive), there is strong pressure to also purchase an SUV. As SUVs fill the roads, the initial safety advantage that was purchased decreases in value, because two SUVs colliding are less safe than two small cars colliding. Thus SUVs are a rare example of a non-virtual supremacy good that does not auto-extinguish (at least not for safety-related reasons).

Microtransaction-Monetized Games

These products are almost always sold as online "free-to-play" games. In multiplayer games, where inter-player competition is strongly encouraged (to drive sales via the "SUV" exception) there is no charge whatsoever to log in and be defeated by a payer. This is an undesirable outcome for a number of reasons, so people not wishing to buy victory will tend to leave these products for alternative offerings. In China, or perhaps on Facebook (more on this later), this option may not immediately present itself.

Multiplayer games are generally played on servers, where each server is a distinct play environment that is separate from other servers. For payers on these servers, a game of "virtual chicken" arises where the committed spenders will attempt to outspend each other.

Once the "winner" has been determined by spending the most, monetization activity rapidly approaches zero and servers become similar to ghost towns. The typical Asian microtransaction model-based product adapts to this by starting new servers every few weeks to allow players on dead servers to start the process over again on a new server. Unless you plan to "spend the most" on this next server, at some point the whole process becomes apparently futile, and the consumer will adapt by realizing the only way to win is to not play.

Multiplayer games on Facebook currently exactly follow the trend described in the last paragraph. While no company was willing to give internal numbers, I was able to confirm informally that this scenario is occurring in both Asian and Western mid-core social network games by discussing the subject with developers at GDC 2012.

Single player games, like the now-famous FarmVille (a Zynga product based on a number of other products), are generally referred to as "social games" on Facebook because they are run on that social network. They have a number of anti-social elements, like spam, so I refer to these products as "social network games" to be clear.

Since inter-player interaction is limited in these games, purchases cannot be used to directly harm the play experience of others not spending as much, as in multiplayer microtransaction games. Nonetheless, social network games are designed to foster a certain amount of "hey, look what I did", to create peer competition. Thus the sale of game objectives will act as a more mild supremacy good unless peer pressure is intense inside a friend network, in which case you get the "SUV effect" boosting sales.

The History of Supremacy Goods in Games

The first example of a supremacy good that I can recall seeing in the industry was introduced to a product I was helping Nexon develop in 2001 called Shattered Galaxy (the first MMORTS, massively multiplayer real time strategy game). This was possibly the most extensively beta tested MMO of all time (a good thing, considering its complexity). Apparently Nexon at some point decided to abandon its first USA-based game to focus again on Asian development, so it went out with a bang by dropping an overpowered unit into the game for an additional fee. This provided a quick short-term injection of funds before Nexon transferred the game to a third party.

Declaring success, and claiming to be the first to use microtransactions, Nexon went on to develop the popular MMO MapleStory. By now the emphasis was totally on microtransactions and supremacy goods. At the time, gamer budgets in Asia were not as large as they are today, so microtransactions were seen as a way to provide lower initial price points (a good thing) and discriminatory pricing (also a good thing). These two characteristics made the microtransaction monetization model more effective in Asia than the unlimited (flat) subscription monetization system (a set price per month of service).

Without the same cultural emphasis on sportsmanship and fairness, Eastern players were less adversely affected by the presence of supremacy goods, and these became ubiquitous in all products produced in Asia (outside of Japan) from 2005 on.

Meanwhile, MMO projects in the West were having significant difficulties managing real money transfer attacks on their virtual worlds. These attacks, while not solely originating in China, mostly were directed from there.

These quickly undermined the virtual economies of those worlds, making them less enjoyable over time. The lack of discriminatory pricing and flexible price points in Western subscription based games further challenged Western MMO profits.

The result was that English-first subscription-based MMO games released from 2003 to 2011 had extremely high, and costly, failure rates. Only the most exceptional products (such as World of Warcraft, EVE Online, and City of Heroes) managed to really perform well during this period. Others (too many to mention) either were shut down quickly or were converted to microtransaction-based monetization models in order to try to salvage some additional revenue.

It must be noted that even EVE Online and City of Heroes, both profitable with subscriptions, have added microtransactions to their monetization models in recent years. World of Warcraft boosts its revenues by charging for regular content expansions.

Supremacy Goods Dynamics

If everyone buys the same supremacy good, it is no longer a supremacy good, as no one gains an advantage from it. In such a situation, it is more appropriate to describe such a transaction as a "content purchase". Greater advantage comes when one can stack multiple supremacy good purchases in a short time frame.

Some game developers, such as IGG in its Galaxy Online series, actually broadcast supremacy goods purchases in world chat in their games.

While this has been extremely useful to me in my research as I attempt to understand supremacy goods dynamics, I have always found it odd that some companies think this will improve monetization.

If you look at their whole monetization scheme, it seems apparent that they are trying to copy the methods that major casinos like those in Las Vegas are using. Winning in Las Vegas does not generally prevent anyone else from winning -- at least on slot machines -- so Las Vegas does not use supremacy goods to drive revenues.

From my experience, when one player spends $5,000 in the period of a few weeks on a game server, it does not motivate others to do the same thing. Rather, the tendency is for groups of players to join essentially a "death watch", which involves them waiting for the next new server to be opened so that they can escape sure and unfair destruction on their present server.

Similarly, if an amusement park wants to sell "front of the line" passes, it should be very careful to make sure others (that have been in line for an hour or two) do not have to suffer watching VIPs stroll right to the front of the line. If you charge enough for this service, it will yield short-term gains, but long term, this is a disastrous strategy. Disney's Fastpass system is an example of this sort of system -- and it's very carefully designed to be both free and fair.

I have developed a number of advanced and intuitive monetization models that completely avoid the problems with microtransactions and "pay to win", but for those limited to using microtransactions for lack of an alternative, I have a number of rules to optimize that model:

Don't allow microtransactions to be stacked an unlimited number of times. If you let someone buy a 50 percent boost an unlimited number of times, and they buy 40 of them, it will be like Godzilla stomping on Tokyo...

Make your price menu so simple that a novice will understand it the first time they read it. If reading the Encyclopedia Britannica is fun for you, you are so self-entertained that there is no game we can provide you that will make your life even better.

Allow multiple price points, but keep the number of choices a single digit at all times. If my eyes start bleeding and it takes me two days to read all the items in your premium store, I'm gonna make Santa put coal in your stockings. Remember, it's a game, not a Sears catalog.

Make them earn it (I also call this "play to pay"). No one wants to see a new player walking around with something it took you six months to earn. By the same token, a person will feel more prestige having something earned and paid for, rather than just paid for. Make them earn the item before you let them buy it.

Most virtual goods change in value over time. Most goods drop in value over time; some don't. How this works is a bit complex, and analytics apps don't know how this works any better than you do. I will give an example in the next section.

Experts only - Gamify your microtransaction model. Make a microtransaction purchase a strategic decision. You can do this by limiting how often or when players can purchase one, or better yet give every boost some disadvantage along with it. This is more difficult. Make sure you are comfortable with the first five rules before trying this one.

Examples

Since I can only find two recent (I believe my Shattered Galaxy game design from 2001 had similar elements) examples of monetization/game designs that largely follow my suggested rules to limit supremacy goods, I am going to discuss both of them. I will follow by using a counter example that breaks almost every rule I propose, while appearing to be certain to succeed due to its quality and genre popularity.

The first example is World of Tanks by Wargaming.net. The game allows the purchase of a subscription to boost experience point and coin gain from every battle. Since everyone can purchase this, and only purchase this once (no stacking), the subscription is perceived as "fair". There are some cash-only tanks that can be bought for use, but all of these have both advantages and disadvantages so they are also perceived as "fair".

Special ammo can be purchased with cash, but the effects on play are not enough to be considered "unfair" by all players I have interviewed. The highest tier tanks tend to cost more to repair than is earned from battle, so over time players must buy additional currency to keep playing.

This would be perceived as unfair if all tiers of tanks were present in all battles (because the payers would have bigger tanks), but because World of Tanks is designed to match players in battles with other tanks of similar tier, fairness is maintained in each battle. Thus payers get bigger tanks, but only play against other payers with big tanks, so there is no abuse of the pay advantage.

World of Tanks never confronts the customer with more than a few price decisions at a time, the most complex choice typically being which of six upgrades to their current tank to purchase next.

All of these choices are clearly explained. No one is allowed to just step into the biggest tanks without earning them first, no matter how much money they are willing to spend. Thus it meets my definition of "play to pay". The value of goods in this game is stable, so there is no need for "sales", and those that pay one price won't be upset later when that price gets discounted. Equity is conserved.

Play in World of Tanks involves team co-op (you must coordinate with your team members to win), which is a strong social reinforcement. World of Tanks also has consensual "fair" PvP, which is also a strong reinforcement. This is a very potent combination. If the co-op play was considered "unfair" (one guy hogging all the kills/points), or if the PvP was considered "unfair" (one or more opponents is undefeatable for reasons other than skill), then these would be potent turn-offs for participating consumers. This means that if you try to copy this design type without being conscious of the effects of supremacy goods, what looks like a winning design will turn out to be the opposite.

World of Tanks gets it all right, and apparently the game is hugely successful. So successful, in fact, that Wargaming.net is now developing two additional games, World of Warplanes and World of Warships, both presumably using exactly the same combination of game design and monetization elements.

My next example is League of Legends by Riot Games. League of Legends has gameplay that involves team-based balanced consensual PvP, just as World of Tanks does. The scale is smaller, with each team having three or five members depending on the map, as opposed to 15 vs. 15 in most World of Tanks battles. The graphics are not as photorealistic, but gameplay is intense, and there is less downtime after defeat than there is in World of Tanks because you respawn again after a short time.

Purchases are primarily in the form of Champion unlocks. There are over 100 champions available for play in the game. Every day, a few of these are made available for anyone to use for free, but the "free" Champions rotate, so that if you want to use your favorite Champion on a regular basis, you must pay to unlock it. The price is about $8, with some bundles available allowing you to buy 20 or so Champions at once at a steep discount. Some of the less-desired Champions are also discounted to boost sales.

This is essentially a "pay for content" purchase, and as long as all the Champions are balanced, this does not create supremacy goods. To drive sales, new Champions are introduced on a regular basis, and these tend to be slightly better than older Champions.

To be competitive, players are generally encouraged to use the new champions, which act as mild supremacy goods. Riot maintains careful balance, so the community does not perceive the situation as overly unfair. If the new Champions were much stronger, then all equity invested in previous Champions would be erased, and existing players would begin to reject the product.

Champions level in each bout from level 1 to up to 18. These levels are not persistent between bouts. The primary account does level from 1 to 30, but the benefits of this are relatively modest. Riot sells experience boosts to allow faster leveling, but since the benefits of this are so modest, this is not perceived as unfair -- so these are not treated by consumers as supremacy goods. Runes can also be purchased, but again these are of limited benefit, so they are perceived as mild and tolerable supremacy goods.

Success in matches is largely determined by a player understanding the strengths and weaknesses of his Champion vs. the strengths and weaknesses of opposing champions. Given that there are now over 100 Champions, this presents a fairly steep learning curve for new players, but the game is fairly easy to understand overall, so the model is well received. As players will presumably purchase their most desired Champion first, the utility of each additional purchase will go down. This is not accommodated in the model, and is a missed opportunity to maximize monetization.

With a Metacritic rating of 78, and fairly simplistic gameplay, the game still manages to have over 32 million registered users and is rapidly expanding to allow play in more parts of the world. As the game is doing better than the Metacritic rating would suggest, I propose that this is due to the careful attention to mitigate the presence of supremacy goods in its model. This may be because there are so many hardcore gamers on the development team, and this is a primary concern during the hiring process. They understand supremacy goods on at least an intuitive level.

My last example is War Inc. Battle Zone by Online Warmongers Group, a game that is being distributed aggressively via Steam and which looks very high budget. The developer describes it as "The most realistic, tactical, clan-based combat experience coupled with one of the deepest customization systems ever developed for an online shooter." Again, this is a team-based PvP game, but this time there is no attempt to maintain balance.

What made this product stand out for analysis was this interview. Here, the founder of the company, Sergey Titov, clearly states that he understands that there is an advantage to games that are perceived as balanced, and that having the lower price points available in free-to-play games can also be a boon.

He also says "all games are social by definition", which might be an exaggeration, but clearly he means to communicate the importance of social interaction in online games. He also states that he is charging during the beta test of his product (which was ongoing when this article was written.) In this case, I treat his game in its current condition as a retail product since it is being charged for.

Mr. Titov volunteers that over 1 million players have tried the game, 200,000 play it every month, and that they monetize at the rate of about $0.40 per player per day. Similar retail games, such as Call of Duty: Modern Warfare 3, sell at a price point of around a $60 one-time charge. A microtransaction system should perform better, due to its multiple price points. Right now War Inc., if played for a full month, is bringing in about $12 per user. That's not an increase; it's a decrease of 80 percent vs. a flat $60 fee. If microtransactions perform better than retail purchases with subscriptions (the popular consensus), then this should not be happening.

Perhaps a closer look at how this product is selling what might be helpful. Before the potential consumer can even log in fully for the first time, they will be offered at least one weapons package for around $40. What is the message that is communicated to the potential customer here?

Clearly, there must be some advantage to buying these weapons up front, even if there is no description of what that is. The consumer is left to conclude that these weapons will give her an advantage in the game if she purchases them. She can tell instinctively that this game is "pay to win" and is loaded with supremacy goods. If she does not buy these goods, someone else will, and they will be used on her.

New gamers (like the first wave of Facebook gamers) don't immediately make this connection, but over time they do, and this has created a communal gamer sensitivity to this relationship.

Once in the game, the starting player can click on the item store to see what things are available for purchase. The consumer is immediately confronted with 625 (!) options to spend on item upgrades. Some of these cost in excess of $30, but most are in the $5 to $10 range.

Why would someone spend that much for gear unless it was needed to play? Experienced online game players will tend to be repelled immediately and will in time (if not immediately) reject the monetization model.

Note that even though I am an expert gamer, I could not figure out what to buy in the store even if I had to spend $200 in one hour or lose the money. Some of the items were marked as requiring higher levels, as high as level 30, before they could be used by non-paying members. Items are sold either permanently or for rent. As in League of Legends, each item purchase after the first will have reduced utility to the buyer, but this is not accounted for in this game's model.

You can see that this title breaks every rule I propose for mitigating the negative effects of supremacy goods in your monetization model. The designers involved in the product are industry veterans with a large budget. They could have made any game they wanted to. Here, their misunderstanding of the nature of microtransactions (more is better) is, in the author's opinion, going to cost them at least 10 million dollars if the product is of the quality they claim.

Analysis

The most important concept in this paper is that it's not just how you sell your product, but what part of your product you sell. A great part of the attraction of virtual worlds is that participants see them as a Grand Meritocracy, as opposed to the real world, which can often seem arbitrary and unfair. As Jane McGonigal points out, there is no unemployment in virtual space. Everyone has opportunities. Absolute care must be taken in the design of your virtual world to maintain this perception -- whether you consider it real or illusion is irrelevant.

Selling the game objectives in your world makes your game unfair and just reminds your customers of the inequities of the world they are trying to escape from. They literally won't buy this. Sell them opportunity, in the form of content, and they will buy up that opportunity with an enthusiasm that will shock you.

If your otherwise very awesome game is failing to monetize, chances are good that something in your monetization design has turned your customers off to your product and they are rejecting it. Player to payer conversion rates of under 10 percent are an almost certain sign that this is occurring. Note that conversion rates on Facebook are currently around 2 percent to 5 percent, depending on the product.

Setting multiple price points for customers of varying motivations and means is also extremely important for maximizing monetization. This is one reason why flat subscriptions do poorly. If a happy customer has $100 and wants to give it to you, you should let them. If a somewhat happy customer is struggling in real life and would like to give you $10, you should let them. Don't punish the $10 customer; just give the $100 customer more opportunities. If you give the $100 customer the opportunity to punish the $10 customer, this is the same as if you had punished the customer yourself.

The contents of the previous paragraph imply that any advantage that can be bought should be allowed in cooperative play, but not in competitive play. This is the opposite of conventional wisdom in our industry. This also implies that there is a vast untapped market for massively multiplayer cooperative games that, to my knowledge, do not exist yet. Was FarmVille, on some level, perceived by the community as the first massively cooperative game? If so, this might explain its unprecedented success. If cooperation could be boosted, and anti-social content (like spam) mitigated, I predict the results would change the game industry forever.

Various studies have shown that putting too many people in too small a space makes them more aggressive. This means that multiplayer games that reward you for spending more time in them could create a negative effect on participant enjoyment from crowding. We also know that people enjoy social interaction, if it is perceived as positive, and this is a big draw in multiplayer games. This implies that somewhere between one player and "too many" players, there is a "sweet spot" that all games should strive to achieve. Where that sweet spot is is largely determined by participant perception of how benevolent that social interaction is.

Examples of negative social interaction include world chat spam, the presence of gold farmers, non-consensual player vs. player combat (I call this "player vs. victim", or PvV), and any activity that interferes with your preferred activity. Positive social interaction includes trade, talking, cooperative play, and cooperative construction activities. In many cases, consensual PvP is also considered highly social, as it is in sports in the real world.

For an extremely small minority of players (on the order of 1 percent), these perceptions are reversed. These participants are often called "griefers" because they enjoy initiating anti-social interactions. These individuals can have a disproportionately negative effect on the experience of other customers, so care must be taken in your design to mitigate their influence. How well you do this will actually effect the concentration of griefers in your product, since griefers will lose interest in your product if their primary mode of entertainment is not satisfied. The converse is also true -- so unchecked, they will route your other customers.

The more your customers perceive the social interaction in your world to be benevolent, the more you can crowd into that world, and the more you can charge per world. Social interaction in social network games is still very limited. If this can be improved, social network games will monetize much higher than they do currently.

As my final point, I would suggest that the crowding effect of unlimited use subscription monetization models makes these monetization methods a moderate to strong supremacy good, favoring those that spend more time in them. If you allow a player to get powerful by spending 16 hours a day in your world, and then allow that player to punish your customer that only plays two hours a day, then you as the game designer have punished the two hour player. There is no upside to this, and if they are both paying you the same amount, this is just self-defeating design on multiple levels.

The solution is, again, to make all play cooperative, or balance the amount of time players are allowed to spend in each world. This means the time metric itself becomes a critical component of all multiplayer monetization models. While I will not present specific solutions here, the creative designer should be able to, in time, solve all of the possible confounds presented here.

[Ed. note: The author wishes to include a note that the majority of this piece was originally penned in February, and while he believes that there have not been significant changes to the information contained within since, nor have his predictions proven false, it's written from the perspective of that time.]