Virtual Goods and Social Networks

Panel 3 of the day (Virtual Goods Summit 2008) has the following:

* John Hwang, RockYou
* David King, Lil Green Patch
* Shervin Pishevar, SGN
* Andrew Trader, Zynga
* Moderator: Mark Wallace, Wello Horld

Q: What are the advantages/disadvantages of doing virtual goods in a social network setting?

john hwang – updates are important; refresh content to keep users engaged; userbases on social networks is growing which directly correlates to your own userbase growth.

andrew trader – you do not control the users, the social networks do. that makes fraud and cheating a bigger problem. harder to build fraud and and cheating prevention systems. wants facebook to offer a payment processing system.

shervin of sgn – recommends you build a standalone service to go with your FB or Myspace app.

Q: what % of users on social networks purchase virtual goods? average revenue per user (arpu)?

AT – depends. estimates of 3-8% all seem high. economies are complex and you have to figure out how to manage the economy. (note from earlier in panel, AT mentioned $4K-$5K daily revenue on yoville)

JH – 3-5% is possible, but we see abt 10% of users try to pay for currency into the game. of the 10%, only 10% actually complete the transaction. also recommends a limit on able to level up via currency because it creates inflation of points and ruins the experience.  sees $20-30 revenue per thousand active daily users on speed racer.

DK- very limited percentage of users want to pay, so it avgs out to less than penny per user.

SP – its healthy but we will not disclose.   (lol)

everyone seems to want FB to develop a payment system. this would 1) help with getting users over the account registration hump, 2) make it easier to manage fraud, 3) see #1:)  but after seeing the fiasco of beacon, do we really want FB to have our financial information as well?!?!

Q: barriers for entry?

JH – apps in social networks have more virality because people want to show off their personalized creations. they buy, mod, customize and then show all their friends. therefore, there is room for innovation and success by individual developers.

AT – the entry costs for developers in the social network business is going up.  games are becoming better quality and more rich in experience, so it now takes more to build and launch.  (JH – jokes that AT just wants individual developers to go work for zynga instead)

Audience question: what is the ratio of active users to registered users and what are your retention rates?

DK – says those numbers dont matter so much because there are so many other factors at play – size of audience, activity of active users, etc.

no one else wanted to answer the question.

audience question: Pros & cons of using real dollars versus points or other forms of virtual currency?

JH – think back to when you were a kid in an arcade. after you changed you money into arcade coins, you didnt know what you were spending. it encourages people to spend more.

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