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The problem with virtual goods

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[font=Arial][size=2]Making a business out of a game is hard work. It takes great design, unique mechanics, creative marketing and some serious dedication to build a successful game. Turning this successful game into a business requires all of the above, plus a large amount of users that are willing to give you their money. And, if you want to give away access to your game or app for free, as many game makers now do, you will need an even larger number of total users to derive your paid user base from.[/size][/font]
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[font=Arial][size=2]The problem with virtual goods is that you need millions of users in order to reach $1M in revenue, especially with free-to-paid conversion rates for most social games being in the single digits and average revenue per user (ARPU) often hovering around $1. I wrote a blog post about this on my GameDev journal ([url="http://www.gamedev.net/blog/1228/entry-2250475-the-problem-with-virtual-goods/"]see it here[/url]) and would love some feedback. Thanks![/size][/font]

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Sure Tom, I was just trying to put it in the game design forum because the topic is game design and game monetization. Would the business forum be the appropriate place for these posts in the future?

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[quote name='TylerBetable' timestamp='1312589356' post='4845281']
Sure Tom, I was just trying to put it in the game design forum because the topic is game design and game monetization. [/quote]

Game design? Really? Here's what you wrote:

[quote name='TylerBetable' timestamp='1312566296' post='4845109']
Turning this successful game into a business requires all of the above, plus a large amount of users that are willing to give you their money. And, if you want to give away access to your game or app for free, as many game makers now do, you will need an even larger number of total users to derive your paid user base from....
The problem with virtual goods is that you need millions of users in order to reach $1M in revenue, especially with free-to-paid conversion rates for most social games being in the single digits and average revenue per user (ARPU) often hovering around $1.[/quote]

That sounds like business to me. Not design. I don't see anything about design in the above.

[quote name='TylerBetable' timestamp='1312589356' post='4845281']
Would the business forum be the appropriate place for these posts in the future?
[/quote]

For business discussions, yes. I understand that it's best if designers are aware of business aspects, but the posts about business should be in the business forum. Unless you can write the post in terms of "business for designers" and describe exactly how business information impacts design. If you did that in your blog, you didn't do that in your announcement.

P.S. The article is important, it's a good thing that you wrote it.

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[quote name='TylerBetable' timestamp='1312566296' post='4845109']
[font="Arial"][size="2"]I wrote a blog post about this on my GameDev journal ([url="http://www.gamedev.net/blog/1228/entry-2250475-the-problem-with-virtual-goods/"]see it here[/url]) and would love some feedback. Thanks![/size][/font]
[/quote]


Feedback: Interesting post but you are several decades late in your realization.

It might have had some significance back in the 1950's. The current term for it is "economies of scale" and it is a very basic issue in economics. It's been around since at least the 1700's in Smith's [i]Wealth of Nations[/i], but only in the past generation has it really exploded. The way you reached your ideas are a bit different than I've ever heard, but that's probably just because you're using the latest round of newcomers. A few years back it was stated in terms of Walmart.

Centuries ago it was given in terms of farming and slave labor, and in Wealth of Nations it was discussed in depth with the costs being computed as costs of the scale of slavery, differences between summer and winter wages compared with the cost of summer and winter storage, and the balance between experiences of master, journeyman, and apprentice workers. He used different terms but explained the same concept.

The concept itself is not news. It is simple a business reality, something implicitly or explicitly present in even the earliest product pitches, and [s]any[/s] [i]every [/i]good businessperson has thought about it with their plans.

[quote name='TylerBetable' timestamp='1312566296' post='4845109']
[font="Arial"][size="2"]Turning this successful game into a business requires all of the above, plus a large amount of users that are willing to give you their money. ... The problem with virtual goods is that you need millions of users in order to reach $1M in revenue, especially with free-to-paid conversion rates for most social games being in the single digits and average revenue per user (ARPU) often hovering around $1.[/size][/font]
[/quote]



Again this is basic economics. This is in fact a much older concept going back as far as the beginning of economics.

It is the very simple concept of marginality. It is the basis of business calculus. It is necessary to understand in order to figure out opportunity cost, which is something you will be required to discuss before getting any serious funding.



If you are interested in the theories but honestly are as ignorant about them as your posts imply, I would suggest taking a few economics courses would either satiate or empower your curiosity. Either way, you would be better for taking them.

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