Need to build a virtual storefront? Don’t have the resources to develop from the ground up? ItemStarter, the latest toolkit in the TwoFish Elements suite, is your answer.

Just input inventory into a CSV file, upload it with the easy API, and all of the storefront components are ready to use in real-time. For further customization, the out-of-the-box code can be reskinned with any look and feel. Features include:

Customizable Storefronts
• Skinnable and embeddable client-side html and Flash code
• End-user notification panels, such as My Items, My Purchases, Gifts Given, Gifts Received
• Full item and gift stores with integrated currency support (show financial balances and “get more credits”)

Ease
• Built-to-spec for fast-moving Facebook and MySpace application developers
• Set up a store in real-time
• CSV upload of inventory, user and price data

Flexible, Advanced Reporting and Analytics
• Complete sales, currency, catalog and user data
• E-Commerce reports pre-integrated with Google Analytics
• Full access to the comprehensive Elements Analytics framework

And Elements Analytics are provided for free with all Elements and EasyElements integrations.

Sign up here for more info on how to get started: http://www.twofish.com/developers/

Jessica Lee at InsideFacebook posted a fantastic article today on the virtual payments industry, based on a delightful discussion we had last week, focusing on some of my thoughts on virtual goods economies, Facebook’s move into virtual currencies and our latest analytics offering and EasyElements.

And on the topic of Facebook’s coming virtual payments platform, we also spoke with Nicholas Carlson at Business Insider this week. Read today’s article on thoughts for Facebook on their universal currency endeavor.

When Facebook started talking regularly about the social graph two years ago, it was many people’s introduction to graphing theory – used to map and better understand complex interrelationships, in this case, among people in
online communities.

At Twofish, the conversation of late has been around the transactional graph – what we can learn about online communities by mapping and analyzing their economic behavior. While much online social interaction is very personal, online transactional activity connects to broader constituencies. Understanding money flows and commerce patterns tells a deeply layered story about exchange and economy that augments the value of a social graph.

The transactional graph is all about the data. Where is money entering into these virtual economies, who is spending, who is buying what, who do we buy from or gift to, and how does a virtual “dollar” or good move within or out of a specific economy?

Twofish today introduced a new way to dig into the most granular details of a virtual economy with our updated analytics framework, the most extensive set of data reporting and analytics tools available. It offers an in-depth view of complete sales, currency, catalog, and user data, as well as actionable intelligence on item lifecycle, user engagement, macro and microeconomic conditions and much, much more. We’ve also done a pretty cool new integration with Google Analytics for partners who want to see their basic e-commerce data in a familiar format.

In order to get developers up and running, we’ve also launched Twofish EasyElements, a new application toolkit that makes it incredibly easy to set up and run a virtual economy in a matter of hours. You get the security of knowing you’re on our enterprise system, with the simplicity of only working with our most popular features.

The first application tool is the CurrencyStarter, which gives users the ability to turn on, sell and track virtual currencies. As with all of the starter kits, CurrencyStarter comes with skinnable, embeddable client side code, and is cross-platform, so you can extend multiple branded currencies across social networks and websites.



Special thanks to Alicia Ashby at Virtual Worlds News for her article on the new updates! http://www.virtualgoodsnews.com/2009/05/twofish-announces-simplified-easyelements-data-and-payment-platform.html

Our CTO, Bill Grosso, gave an awesome talk at last week’s Virtual Worlds SIG, discussing real metrics for virtual economies. Bill has a hardcore background in math and econ, so he kicks ass at illustrating real-world economic constructs and relating why they do (or don’t) apply in the virtual space. Watch and learn, people!

Learning From Monopoly. How Parker Brothers’ Classic Board Game Explains In-Game Currencies (Sort of).
In a previous article, we talked about what virtual currencies are and how to define them, winding up with the following definition:

A virtual currency is a currency, backed by a private company and not by a government or cross-government entity such as the European Union, which is used within a virtual world or online economic application, which meets the three classical criteria for a currency, and which is primarily used for the purchase of virtual goods and services.

Now that we’ve defined virtual currency, however, we get to the much meatier question of how to design one. And that’s a much more complex issue, involving gameplay, interaction with other application elements, and how users feel about, and react to, virtual currencies. (( And if that sounds like Heidegger instead of Aristotle, well yeah.))

In order to explore this better, it helps to take a step back away from “virtual” and look at one of the great examples of in-game currencies in action: the game Monopoly.

If You Haven’t Played Monopoly Recently, Please Go Do So Right Away.
Monopoly is a board game where players attempt to get a “monopoly” on property, and drive the other players out of business. It’s the most popular board game of all time, one of the all-time great games, and has been played by over a billion people since it was first released 74 years ago.

In 1935, Parker Brothers described the game as follows: (( Description taken from Niall Ferguson’s masterful book, The Ascent of Money. ))

“As the name of the game suggests, the players deal in real estate, railroads, and public utilities in an endeavor to obtain a monopoly on a piece of property so as to obtain rent from the other players. Excitement runs high when such familiar problems are encountered as mortgages, taxes, a Community Chest, options, rentals, interest money, undeveloped real estate, hotels, apartment houses, power companies and other transactions, for which scrip money is supplied.”

It’s a great game, well-designed and the archetype of a “scrip” based game. You’ll learn more about integrating a currency into a game from playing it than by reading any 30 blog articles.

Monopoly Does a Lot of Things Right
From the perspective of designing a currency into a game, Monopoly does a lot of things right. Among some of the key features that make Monopoly money so powerful are:

• Players receive currency in the course of ordinary play. When players pass go, or get special cards from either the “chance” or “community chest” decks of cards, they get money. This enables people with little or no money to continue playing, and lets players who would otherwise be hopelessly behind, to have a hope of winning. Many Facebook applications use “logging in” as a metaphorical equivalent of passing go. For example, whenever I go to Friends For Sale, I am greeted by a message like “You earned $250,000 for logging in.” However, this design tactic usually involves a much greater degree of stimulation than passing go in Monopoly, and it can result in significant hyperinflation.
• It is possible to survive (and enjoy the game) without money, at least for a time. Even when a player has all their properties mortgaged, they can still pass go, get some money, unmortgage a property, and attempt to claw their way back into the game.
• Almost every turn involves money in some way. When a player takes a turn, they roll dice and then move along the board. Almost every place they land involves money: either an opportunity to purchase property, or being forced to pay rent. When they pass “Go”, they get $200. Even when a player is waiting to take a turn, they often receive rent.
• There are lots of sinks, and they are important to gameplay. You have to spend your money in Monopoly if you want to win the game. Players buy real estate, finance the construction of houses, and pay rent to other landowners… not to mention the luck of drawing a bad chance card.
• Monetary success is public knowledge. Players know, at least roughly, how much money and property the other players have. The amount of money you start with is public knowledge, and all transactions are publicly known.
• Money is physically represented and highly visible. The presence of actual bank balances, in the form of play money, is a visual reminder of the public knowledge about monetary success.
• Money is an important part of “who’s winning.” When you go up to a monopoly game and ask who’s winning, you’re likely to get an answer like “Well, Bob has a lot of money, but Marsha has more property. They’re leading.”
• Money rebalances between players. In virtual economy terms, Monopoly involves both primary market (bank to player, first time purchases) and secondary market (player-to-player trading of properties), as money moves not just from the bank to players, but also between players.
• Money is social. Not only do players know how much money each has, and not only does it factor into estimates of who is winning, people change their behaviors based on money. Players are often more generous to other players who are “losing”, and will “gang up” on players who are winning. And, as stated above, one of the primary determinants of “winning” is “how much money does the player have”
• Inflation is minimal. This is more of a technical note. But the game is well-balanced. Players acquire property and money. But there is a limited amount of property in the game and, over time, the players don’t accrue vast amounts of money. Players start with $1,500 (( Under the standard rules, that is. )) and rarely have more than $10,000 during the course of the game.

Coming Soon
This article was a discussion of one of the all time great “currency-based” board games.

In the next installment in this series, we’ll examine a typical Facebook Role Playing Game (RPG) and examine how they use virtual currencies. Like Monopoly, most role playing games use currency well, but they also overlook some important aspects.

I get asked a lot about when the US free-to-play market is going to catch up to Asia. It’s a question that I find pretty frustrating, because there’s a very important and wildly incorrect assumption in there: that “free-to-play” is a singular business model that can be ported to different cultures and consumers, with no regard for market dynamics.

“Having trouble retaining advertisers? Just add a virtual economy!”

“Monthly subscriptions down? Layer in virtual goods!”

It really sounds magical…take an existing game or application, create some new items and tell your users that they have to pay to own or access them.  Sadly, it’s actually an incredibly naïve assumption. Just because you sell something, doesn’t mean consumers will buy it (real-world examples here).

Asia’s free-to-play market grew out of the need for a new business model that could sustain an industry being crushed by black market IP theft. But that’s just not the case in the US. So when people saw the success of F2P in Asia and tried to import it to the US, they forgot to ask “what’s the consumer get out of this?” Sadly for an entire industry, the answer has been very little.

Virtual economies and virtual goods WILL take off in the US, but it won’t be because everyone starts starts selling items and setting up currencies to monetize…It will be because innovative developers come up with engaging and interesting game play mechanisms that are made possible by robust economies.

As an industry we don’t need a F2P business model nearly as much as our consumers, who are craving experiences that are different, deeper, and more engaging. And to our consumers, what we can do with the addition of a virtual economy is staggering.

A great example is the idea of “vintage.” In the real world, there are items that become more valuable over time based on their origination and providence. Take the dress Marilyn Monroe wore when she sang Happy Birthday for John F. Kennedy in 1962, which sold at auction in 1999 for $US1.26M. Or the upcoming April auction of Michael Jackson’s personal property. I’m betting his Crazy Taxi machine is worth more than the one down the street from me at Abbey’s. And the Polaroid photo booth? Or the Bucking Bronco kiddie ride? How about his DDR arcade set? I can’t stop myself…You know the prices will be ridiculous…

Another example is scarcity pricing. For good examples, we don’t need to look any further than the toy shelves: Tickle Me Elmo, Cabbage Patch Dolls, and McDonalds Beanie Baby Happy Meals. Every Christmas, it seems at least one poor grandma gets trampled by the teeming throngs at Walmart. Why? Because when supply doesn’t meet demand, ownership indicates status and collector value.

Finally, there’s the idea of “getting a deal” – having enough information to spot a bargain, buy it low, and then sell it high. The TV shows “Antiques Roadshow” (1979) and “Cash in the Attic” has been running since 2002 based purely on this premise.

All of these concepts are wildly successful at driving retail sales, and they succeed online, as well.

For virtual gifting applications, just think about the difference between sending someone a generic bottle of perfume and Chanel No. 5.  The former borders on tacky, but the latter can telegraph personal thought and value.

For MMOs, keeping item histories can add such depth to gameplay. If I need to make my starlet more famous in Star Fever Agency, do I want to risk using a new stylist, or do I want to pay a little extra to use the same colorist who just re-did Jennifer Aniston’s hair? And what if I find a gorgeous dress for her to wear to the Oscars? I better know for sure that it wasn’t worn the prior year, or the “Who Wore it Best?” photos could get really ugly.

The bottom line is that virtual goods and economies are much more than a business model. For folks who are just trying to make a quick extra buck, they’re going to keep seeing their launches delayed and their consumers complaining. But for developers who see an opportunity—who are willing to work to integrate truly novel features—the payoff will be huge.

Sometimes, it feels like we’re in the middle of a virtual currency bubble. Articles about virtual economies, virtual item sales , and the benefits of using virtual currencies to implement “freemium” business models are appearing all around us. It’s clear that the market has caught on and that virtual economies are going to be central to the way the web is monetized from now on.

And yet, for all the current fascination and hype about virtual currencies, it’s almost impossible to find a definition of what a virtual currency is, best practices on incorporating virtual currencies into applications, or even a list of the things a virtual currency platform should provide.

At this writing, the number one hit on google for “Virtual currencies”  is the Wikipedia entry for Virtual Economies . There is no wikipedia entry on virtual currencies.

Over time, the Twofish blog will help to fill this void. For now, I want to talk about how virtual currencies fit into game or application design.

So What is a Virtual Currency Anyway?

What most of us think of as currencies in the “real world” are sovereign or fiat monies that are supported by or tied to national or multinational governments. These government-backed currencies are classically defined as having three core properties:

• They are a unit of account. That is, money provides a standard way to measure of the market value/cost of goods, services, or assets. In short, relative prices accurately reflect relative valuations of items.
• They are a store of value. That is, you can save money and then use it later. Money isn’t perfect at this because of inflation (and the remote possibility that the government that issued the money has been overthrown), but, in the short-term, money is a good way to store value.
• They are a medium of exchange. You trade money for the stuff you want. Other people accept it.

The folks at Offerpal, when they tried to define virtual currencies, more or less took this definition, focused on “medium of exchange” and came up with “Virtual currency, as you might imagine, is what you use to buy virtual goods or virtual services. It is essentially as good as real currency.” (( http://mashable.com/2008/12/18/virtual-currency))

If you were a little more academic, you might take this as a starting point and say:

A virtual currency is a currency, backed by a private company and not by a government or cross-government entity such as the European Union, which is used within a virtual world or online economic application, which meets the three classical criteria for a currency, and which is primarily used for the purchase of virtual goods and services.

But … But … That’s Kind of Useless

Definitions like the above, while they’re very satisfying from an academic point of view, and can help you recognize whether your virtual currency is performing well once you’ve designed your application, are kind of beside the point when it comes to application design.

To see what I mean, consider for a moment how you would define a door. Wiktionary defines one as follows:

A portal of entry into a building or room, consisting of a rigid plane movable on a hinge. Doors are frequently made of wood or metal. May have a handle to help open and close, a latch to hold the door closed, and a lock that ensures the door cannot be opened without the key.

It’s hard to argue with this; it’s approximately true and, if you already know what a door is, it seems correct. On the other hand, it doesn’t seem terribly useful. In short, it’s a lot like our definition of virtual currency.

Here’s a very different definition of door, though:

A door is a device which simultaneously allows friends in, keeps enemies out, makes the house warmer, and makes the occupants feel more secure.

This second sort of definition is more useful when you’re trying to understand what doors are for, and figure out how to add one to your house. More importantly, it can tell you whether a given door is a good door.

The trick is figuring out a similar definition for virtual currency.

Think About How People Feel About Money, and How It is Used Socially

The starting point for thinking about adding virtual currencies to your application is that you should focus on how people feel about money, and how they use it in social interactions, instead of focusing on the role it plays in economic analysis. It might seem obvious, but your virtual currency should be integrated into the rest of your application and feel like money.

The more your virtual currency behaves like money in the real world, and the more people think of it as money, the more compelling the application will become (and the more interested the user will be in acquiring, and spending, currency).

In particular, a large percentage of the user’s actions should have an economic consequence. E.g. they should either generate currency or cost currency.

Thus, when adding a virtual currency to your application, you should be thinking about:

• How do people acquire the currency? Is the acquisition (and loss) of currency firmly embedded in almost all application events and actions?
• How do people feel about the currency? Does it matter to them?
• How does the presence (or absence) of currency change their feelings about themselves, about each other, and about the game. Can people see other people’s currency? Can they see the impact of currency on the application? Do they feel envy, or at least a mild jealousy, when they interact with wealthier participants? How do social interactions change in the presence (or absence) of currency?
• How does the presence (or absence) of currency change what users do? Having more money should change what’s possible, and what’s likely.

Further Reading

Along these lines, I have two recommendations for further reading:

• Juho Hamari over at the virtual economy research network, posted a great article listing many of the ways in which virtual currencies can be used within an application. If you’re designing a game, or trying to add virtual currencies to an existing application, this article is the basis of a great checklist.
• Yang Wang and Scott Manwaring wrote a very interesting paper entitled Human-Currency Interaction: Learning from Virtual Currency Use in China that goes over some lessons they learned by watching how people use virtual currencies.

It’s an exciting time for us here at Twofish, as we celebrate a round of partners in the casual/social gaming and virtual goods space: MEG Toys (Pocketville®), Ignite Skill Gaming, Pangaea, Star Fever Agency and RevNjenz®. These folks are doing some very cool things with virtual goods and micro-transactions!

MEG’s Pocketville is a retail-integrated online virtual world where kids adopt, collect and care for interactive virtual pets. Using Twofish, MEG can track their users’ behavior, recording what they do, when they do it, where they do it and what they buy. Data like this lets them further tailor the game to provide a fantastic user experience. This way Pocketville stays relevant and exciting for the kids playing. After all, we’ve come a long way since Tamagotchi. Kids can even redeem vouchers from retail packaging or online sources in exchange for virtual currency and/or items in Pocketville. Because we use a double-ledger system and track items individually, it’s super secure, easy to manage, and Pocketville gets full reporting against vouchers as a payment instrument.

Ignite SG is creating the world’s largest online sim racing community – simraceway.com – based on their SkillQuant game engine. It’s revolutionary for competitive prize games, giving developers the ability to accurately measure a player’s skills at a per frame level and then skill match them to infinite numbers.

Also in the auto sphere, there’s Edgeracers, a casual MMO racing and car collecting game, and Revnjenz, which integrates retail-purchased “drivers licenses” for kids with a virtual world.

Love the Angelina-Jennifer feud? Can’t wait to see what Britney’s up to next? Then you’ll be dying to join Rabbit Hole’s virtual Hollywood talent agency, Star Fever! Sign up clients and see how famous you can make them!

We’re launching some other cool partners and unveiling some top-secret product features over the next month, so stay tuned!

I read a great post by Andrew Mayer at Inside Social Games last week about how social networking sites are really just status games.

In fact, the status nature of social games is actually one of the reasons why social networks have become so broadly popular.

We’ve been preparing for Facebook our entire lives. Barbies, bugs, stamps, baseball cards…everybody collected something as a kid, and it wasn’t because someone told you to… it was because there is something inherently simple about the idea of amassing an impressive collection and showing it off to your friends.

But what is so awesome about good collecting games is that there is always more than one way to be “impressive.” You could complete a set, just try to grab a few rare items, or you could go for pure scale—the key is that there are any number of different ways that people can excel…which makes collecting games both popular and incredibly inclusive for kids and teens.

Flash forward to our adult games. The beauty of Facebook and LinkedIn is that there are lots of ways to collect. Personally, I only add people that I really know and value (either as friends or colleagues), and I like that my “collection” is meaningful. My husband, on the other hand, accepts any invite, even from people he doesn’t know (go ahead and friend him—you’ll see). I love that I know all of my friends, while he embraces the dregs of the internet that occasionally show up via the strange and wonderful social graph.

Regardless, what we’re seeing as the “new” paradigm of social games is really as old as the hills. From my grandfather’s immense stamp collection (a large but incomplete set) to my college roommate working her way through the backfield of the Penn State football team (a small but complete set), to the brave souls who take pride in refusing to play, EVERYONE can find away to win.

And ultimately, isn’t that what we all want?

Meez CEO Sean Ryan originally posted this on his SharkJumping blog.

McDonald’s Corporation (NYSE: MCD) is the world’s largest chain of fast food restaurants, serving nearly 58 million customers daily. McDonalds started in 1940 and yet in February 2009, 69 years after it launched, it again turned in a stellar sales month, increasing same store sales 1.4% over the previous February, in spite of one fewer day and a horrible economy. This wasn’t always true – 10 years ago, the critics were saying that McDonalds was over in the US as a growth company, that the format was tired, and that it would never again increase sales. But instead, a series of new CEO’s (the old ones kept dying) re-invigorated growth by refocusing on the core business of serving fast, simple, value-priced food to its customer – the company has since continued to increase its same store sales almost every single month, which is the key business health indicator in most retail businesses.

So how is that relevant to virtual economy-based companies? It’s becoming increasingly relevant because some of the more “mature” virtual economy-based firms are starting to see slower sales in their core business, leading some critics to say that a virtual item business outside of China or Second Life just can’t exceed $2-3M a month in revenue. That statement is wrong, but let’s look at the reasons behind it.

In the last few years, the rise of social media and community sites has created hundreds of companies of that have millions of registered users, lots of repeat visitors and high levels of engagement. For example, virtual world Meez is now #10 in the US in overall engagement with 2M+ monthly unique visitors, or Inside Social Games lists here more than 25 Facebook games that had 1M+ users in February- these sites and games didn’t exist 2 years ago, but are now growing like crazy.

In spite of all of this engagement, or sometimes because of it, advertising rates have simply plunged due to massive over supply of impressions, a weak economy, and low click through rates on traditional display ads since the users are engaged in a discussion, not a commerce experience. Therefore, many sites have intelligently begun to roll out virtual currency systems to enable their more committed users to purchase different types of status – each time the site rolls out different things to purchase, the revenue goes up. At Meez it went from avatar items to virtual room items to in-room animations to gifts, etc. So you keep rolling out more things to buy, and revenue increases, but generally less so with each new feature.

Then the last thing new virtual economy sites do to increase revenue is to increase the number of ways to purchase virtual goods. At Loki Partners, we’ve studied a wide variety of virtual economies and the most popular payment options in order are credit cards, Paypal, mobile, pre-paid cards, Offers/cpa/surveys, and cash in the mail, but this vibrant industry keeps producing new ways to facilitate currency purchases. Each time a site offers a new payment option, revenue increases 10-20%, although that decreases with most succeeding options as the law of diminishing returns kicks in.

So now what does a virtual economy-driven site do? It has lots of engagement, lots of things to buy, and lots of ways to buy the currency. Well, it’s kind of like McDonalds – once you’ve saturated the country with stores, and your stores can’t hold any more equipment, and you can’t generally increase prices, then in order to keep growing, you actually have to run a business, and not just throw payment options and new items at the users with no real method behind the madness – its far more effective to run your business more efficiently than to continue to market to new users or to always build new games.

As the Wall Street Journal stated last week in its big McDonalds article (here) about how the company is continuing to grow: Behind the effort is an increased focus on examining reams of customer data measuring everything from whether customers are trading down to smaller value meals or dropping Cokes from their orders to exactly how much they’re willing to pay for a Big Mac. “I love numbers,” Mr. Alvarez says. “I think data used well really tells a story.”

And that is the key driver: DATA/ANALYSIS. Eventually a business has to truly understand its operations, such as what’s driving purchases, what type of user is buying items, which items are they buying, are the prices elastic or inelastic, which purchase methods are used by the most profitable customers, where do the most profitable customers come from, etc?. Many virtual economy sites I see can’t even produce a simple report detailing their Money Supply/M1 – that means each week did the economy grow in the overall money supply or shrink, and if so, what were the top sources of currency, and what were the top sinks of currency? Without that type of Analytics and Reporting, sites will never be able to approach McDonalds way of steadily growing their revenue each month, even without driving more customers or building more stores, both of which cost more money.

One example is that in Q3 2008 at Meez looked at our overall economic reports and we saw that there was too much currency coming into the economy – no user ever really had to buy anything. Therefore, we significantly adjusted how we awarded currency in return for labor – we reduced the number of coinz given initially at sign-up, we increased the spread of prices of our goods, and we really pulled back on the number of coinz given per level of game while increasing the coinz awarded for certain game trophies – this significantly increased our monthly revenue while still driving the type of user behavior we were trying to incent.

None of this would have been possible without a sophisticated reporting and analytics system which took us way too long to build, so make sure you either have a good team to build one as a key part of your business, or go license a system like TwoFish (where I’m on the Board) or a similar system which provides that deep level of analytics, reporting and catalog management. It’s the only way to organically grow a site’s virtual item revenue once you have tapped out the other obvious methods – it works for McDonalds and it will work for your sites as well as we all drive the virtual goods business to $1B+ in 2010.