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According to my Facebook News Feed, we are facing an agricultural crisis: I have more than 20 friends whose FarmVille crops need fertilizer. However, since FarmVille’s debut last June, the popular Facebook application has done more than flood my feed with farm-related requests. It has enabled its creator, Zynga, to reportedly rake in more than $200 million in 2009. But how can such revenues be possible if social gaming is supposed to be free? The answer lies in the sale of virtual goods and the games’ use of compulsion loops.
In social games, users are encouraged to enhance their farms or strengthen their mafias through the purchase of virtual goods. These can include fanciful structures (Ferris wheels), seasonal items (mistletoe-shooters) or tools (tractors) that enrich gameplay. Such goods allow users to customize their profiles, advance more quickly in the game or “keep up” with other players. In short, virtual goods are a graphic extension of common user behaviors such as self-expression or competitiveness.
For users who are patient, some of these goods can be earned after long hours of play and hoarding in-game profits. However, most are only available in exchange for a large quantity of the game’s virtual currency, which the player can buy for real money. For instance, for $5 Zynga will provide a user with 7,500 Farm Coins. Now, if you think it unlikely anyone would pay for such intangibles, you’d be wrong: TechCrunch reports that Americans spent nearly $30 million on virtual goods in November and December of 2009. Again, why would so many players, who would never describe themselves as gamers, make such a purchase? It is because they have fallen into what is known as a compulsion loop.
Venture capitalist Tim Chang described how a compulsion loop works in an interview with GamesBeat in October 2009: “You get your users addicted. You start annoying them with how long it takes to get something done. That triggers impulse buys of [virtual] goods that will save them time.” Virtual goods and compulsion loops are not unique to social gaming on Facebook. For years, gamers have used similar systems to purchase cooler weapons or stronger armor in MMORPGs (massively multiplayer online role-playing games) such as World of Warcraft (WoW). But there’s a difference in scale; thanks to the wide reach of free-to-use social networks, Zynga’s FarmVille reached 11 million daily active users (DAUs) two months after its release, whereas it took WoW four years to reach that many subscribers. Zynga CEO Mark Pincus sees his games as ongoing services that users pay for in small increments: “Our story has been about finding games people could play forever and giving them a reason to do it.”
Zynga is cashing in on what Chang describes as the k factor, or the “inherent virality of the application,” that makes all the micropayments add up to millions of dollars in company revenues. As of this writing, Zynga has reportedly over 66 million daily active users (DAUs), and although it is difficult to determine how many of those users are purchasers, consider this: If 1% of Zynga’s DAUs spent $5 each, the total amount would be $3,300,000. Now, whether such profits are truly sustainable remains to be seen. However, with other game companies such as Electronics Arts (developers of The Sims and Rock Band) investing in social gaming, the virtual goods market is likely to stay open for business.
Megan Jeffrey is a graduate student in the MCDM program at the University of Washington. She has a bachelor’s degree in journalism and public relations from Cal Poly University, San Luis Obispo. She has worked as an account assistant for Verdin Marketing Ink, a community manager for Serra Media and as a HubPages.com columnist. Megan is currently the social media strategist for the UW School of Drama.
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This was a really interesting post, Megan, thanks for writing it. As someone who has never had an interest in playing FarmVille, Mafia Wars or any other social media videogame for that matter, I actually learned a lot from your post and found the statistics fascinating. I find it amazing that there is so much money to be made from these social media videogames, as I had no idea that these games were set up for monetary exchange or that people would even pay for such a thing. It’s interesting to think about how social media videogaming will further evolve in the future especially as social media presence and participation grows and evolves. It seems like these games have only just tapped the market and technology capability and there is vast potential for various sources of revenue. Though the future of social media videogames might be hard to predict, based on the research you presented, it appears to have a very promising future.
Thanks, Holly, glad you enjoyed it. What I find the most astonishing is how people rarely think of games as an “industry” (myself included, sometimes). Too often it gets lost when people discuss “entertainment,” despite the fact that it makes billions of dollars per yer, and shows no signs of slowing in its growth.
There’s a slight difference in the way these applications operate that makes them interesting — and very different — from the traditional model of microtransactions in games. This is mostly because the game developer is complicit in these transactions, as opposed to a third party.
To use World of Warcraft as an example, Activision Blizzard currently monetizes their content in three ways: ancillary objects (trading card game, t-shirts and other swag, virtual pets); ongoing subscriptions; and initial game sales. However, there is a truly massive black market where independent companies sell in-game objects — gold, equipment, or other currency types — for cash, and this is a market in which Blizzard and other companies are unlikely to ever participate.
Users enter these secondary markets primarily for the same reasons outlined in the parent post, like keeping up with friends or bypassing annoying content. However, these games foster a sense of community where legitimacy matters, because interactions at higher levels of the game are usually made on the basis of equipment and other achievements. When those things are purchased from a third party, this leads to a disconnect between expected skill and real ability that often has ramifications for players other than the original buyer.
Because the skill to use the objects correctly cannot be purchased, people who do not adhere to the social rule of “earn it the right way” are disciplined by other players through ostracism or negative feedback, and occasionally punished by the game company itself. This has lead to a stagnation in the development of secondary markets, as companies that have tried to offer these services directly are badmouthed in the gamer press (see Sony’s EverQuest), generally shunned by more skilled users, and ultimately fail to deliver. Even companies that only introduce products for purchase that have no impact on game performance have been lambasted for simply dipping their toes in this fetid pool.
As such, I would suggest that these secondary markets are probably going to be limited to more casual or exclusively single-player games. This avoids the “appearance of evil,” so to speak, and allows for the perception that skill cannot be allowed to be tied to the user’s credit card.
I enjoyed your post and it reminded me of something I saw on our local news channel a couple of weeks ago about “internet addiction”. You point out that Venture Capitalist Tim Chang states that “you get your users addicted”. I am very interested in the behavioral side of the internet and social media, both as a parent and as a marketing professional, and I found this topic very intriguing. Not only are businesses capitalizing on the “k-factor” as you point out, but other business opportunities are popping up to deal with the other side of this coin…internet addiction. Right in our own Pacific Northwest backyard, a rehab center called reStart (or I’ve also see them called Heavensfield) has been established to help people addicted to the internet and gaming. ( http://bit.ly/bq8SCL ). Their first patient was addicted to World of Warcraft, was an A Student and had to drop out of school.
You state, “For users who are patient, some of these goods can be earned after long hours of play and hoarding in-game profits”. It will be interesting to see IF and HOW how this translates, over time, into bonefide addictions. “My name is Bob and I’m an internet addict….Hello Bob!”
Megan, thank you for the great post. I couldn’t help thinking along the way what a scam the “virtual goods” market is. It’s unbelievable that people would pay for something that doesn’t actually exist. Then again, it reminded me of hearing that American users of WoW, or some other similar game (I’m not too familiar with the gaming industry), were/are hiring skilled players overseas to advance their avatars. Even though “virtual goods” don’t really amount to anything tangible, what the users are actually purchasing is a status symbol. This is something that, while somewhat depressing, is still understandable. People will pay to make themselves look good. The fact that gaming companies are exploiting this by “getting their users addicted” and “annoying them” into making impulse purchases is disgusting, but if it’s a multi-million dollar market, then hey- someone’s bound to capitalize.
In response to Teri’s comment, reStart sounds like a perpetuation of the scam. $14,000 to cure an internet “addiction”? What happened to alcoholism? Or drug addiction? The “internet” has no place alongside these clinical disorders. Sure, gamers might get rather obsessive compulsive about it, but maybe that’s a pre-existing tendency that needs treatment other than being unplugged for a while.
What about all the MCDM students and faculty? According to reStart’s “are you addicted?” survey (http://tinyurl.com/lnrfxt) my prediction, by their recommendation, is that quite a few of us would need the $14,000 treatment. Take a vacation, and leave your laptop at home.
Nice article. Social gaming definitely opens the door to a new market. A few of days ago I ran into this article “Bing Quintupled Its Facebook Fan Base By Bribing People With FarmVille Cash” and it immediately came back to my mind while I was reading this post. In summary, the results of this Bing campaign are strong: 400,000 Bing Fans in Facebook in 24 hours, not bad right?
What are the possibilities of social media video gaming? How high is up? As Holly mentioned, this is a prediction more than a fact. For perspective, taking a look at the Infographics of World of WordCraft, we can see that it took WoW several years to get approximately 11 million users whereas it only took Farmville two months to accomplish the same.
Big part of Social Media Gaming is their ease of use. Clearly, these Facebook games, are not targeted to “gamers”. This is sort of the Wii vs. Xbox comparison. For perspective, only 1 out of 5 World of Wordcraft users is a woman; would this rate be higher in FarmVille? Well, new research from PopCap Social Gaming Research, shows that women are the norm in Social Gaming. In fact, the average online social gamer in the U.S. is a 48 years old woman with a full-time job.
These women had no previous interest in the old way of playing video games. They would never spend money buying consoles or play popular RPGs games but there’ is something about the format of the games that we find, for instance, in Facebook (i.e. Farmville, Pet Shop Society). Behind this success, two words, simplicity and community . As Katherine mentioned “virtual goods” don’t really amount to anything tangible, what the users are actually purchasing is a status symbol. This takes a whole new meaning in the context of social media as mentioned by Ben Parr of Mashable (http://mashable.com/2009/05/12/zynga-social-gaming/): “This is the social media in action – it’s simply a more relevant and meaningful experience when you’re playing against your best friend.”
Good post – I’m trying to figure out if I think the compulsion loop is a great marketing tactic or a morally-compromising technique. It reminds me all the stories I’ve read in the papers about gamers (ranging from 13-28 years old) that have died as a result of exhaustion or game-playing induced causes. What’s even crazier is that there already are facilities that are designed to treat internet addiction (http://www.gmanews.tv/story/169191/chinese-teen-dies-at-internet-addiction-rehab-camp) but even rehabilitation centers can go awry. For companies that capitalize on the addictive tendencies of their users, there should ALSO be some moral code of conduct that the company should be required to uphold to ensure that while their customers can continue to consume their product and provide them with a profitable revenue stream, the consumer’s personal welfare is being acknowledged.
As somebody who recently started playing FishVille, I can see how they designed these games to be addictive. The addition fuels the digital spending.
I’ve talked to a lot of very smart people who still struggle with the idea that people are spending real money on fake goods that are not real. It seems easier for people to understand paying for something that previously existed as a physical good, but has now transitioned over to digital good, e.g. music. The items that never existed as a physical good are the stumbling block. For some reason, it doesn’t make sense as to why people would pay for something that has NEVER existed. It is an interesting concept for sure and something that I will continue to follow and talk to people about.
@Katherine, it will be interesting to see how the “Internet addiction” industry (if you can call it that) evolves. The problem I see with treating this kind of addiction is that, for many people, Internet usage and e-mail are an integral part of their work day. As the digital age continues to evolve, recovering Internet addicts will be hard-pressed to find a source of income and go “cold turkey” off of the Internet. At the very least, treatment of this disorder will have to involve very different protocols than traditional addiction treatments.
Cat, that is exactly what popped into my mind, too. Most of the stories I’ve read regarding video game-related exhaustion and deaths have been overseas. I was blown away by the $200 million figure that Megan threw out there and it made me wonder where this money was coming from. As Farmville is so popular in the United States, I would guess most of that money is coming from American gamers but I’d love to see a country by country break down. I understand the theory of compulsion loops but I’m also surprised that it works – people hate paying for things they can get for free.
Great article Megan! It’s made me think some about my feelings toward social games. As a serious gamer, I rarely pay attention to the casual – let alone social gaming space. I’ve always thought it would be interesting to work on a AAA title, but after reading your post, I have to admit it would also be fun to design for the social game space as well. In particular, it would be interesting to understand the nuances of design for the different audiences and objectives.
That is surprising high money flows for virtual goods. It’s interesting why people pay money for virtual stuff. What is their motivation?
I’ve tried to play FarmVille as well but it took so much time and the gains were very controversial. My motivation in the beginning was helping to my friends as they asked me. But later on more advanced levels of the game the scenario of the game and routine have become too obvious. There was no conundrum or mystery.
Many people seek in these games benefits that they cannot find or fail to find in real offline world. They want to be winners, to have better status, or have more respect. But do they get it if they spend time and money online? Arguable…
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