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Designing Virtual Markets forFun and ProfitDr Vili LehdonvirtaLondon School of Economicshttp://vili.lehdonvirta.com/Twitte...
What this lecture is about• Item shops, NPC traders, trade  windows, auction houses, real-money  marketplaces...• Any exch...
What this lecture is not about• Designing virtual goods   – see my GDC 2010 lecture• Designing virtual currency   – see my...
Where this lecture comes from• Web/mobile game dev 10 years ago• Virtual economy researcher since 2004• Consulting for EVE...
3 Qs of designing a great marketFor each type of good in your game, ask thefollowing questions:1. Market or no market?2. W...
1. Market or no market?                       Has a marketDoesn’t have a       market
Reasons for having           a market for a good• Buying/selling is fun• Players can specialize in content they like• Publ...
Reasons for not having           a market for a good• Buying/selling doesn’t fit the story• Specialization makes the game ...
Typical solution• Have a market for  – basic gear, commodities, consumables• Don’t have a market for  – trophies, achievem...
2. What is the market structure?• Publisher-to-player?• Player-to-player?• Publisher-to-player-to-player?Market structure ...
Six basic market structures                                      BUYER(S)                         Publisher     Players   ...
Unregulated market
Price ceiling     Publisher supplies an unlimited quantity at P1P1
Price ceiling     Publisher supplies an unlimited quantity at P1P1
Price floor                                             P2Publisher buys an unlimited quantity at P2
Price windowP1                    P2
Choosing a market structureMarket structures for fun:• Monopoly – predictable game experience• Unregulated market – dynami...
Choosing a market structureMarket structures for profit:• Monopoly – sell premium items to players• Price ceiling – sell p...
Example: WoW market structures                                       BUYER(S)                         Publisher      Playe...
Example: Habbo market structures                                         BUYER(S)                         Publisher       ...
Distribution of virtual item prices in PC F2P games30.0%                                                (VirtualEconomists...
3. What is the exchange mechanism?
Basic exchange mechanismsPersonal trade      Two persons meet, negotiate and tradeEscrow              Two persons execute ...
Advanced exchange mechanismsAuction            Seller announces an item for sale; buyers bid for itDutch auction      Sell...
Choosing an exchange mechanism                                                                 Good                       ...
Choosing an exchange mechanismMost social   Personal tradeinteraction      Escrow                   Fair                 B...
I see markets everywhere• Drops, harvesting = market where players  trade their time i.e. services for goods• Does publish...
Summary3Qs of market design    1. Market or no market? 2. What market structure?    3. What exchange mechanisms?Choose a m...
Thanks!Leave your address at http://vili.lehdonvirta.comto get a message when the book is out.Find me on Twitter as @ViliL...
Bonus slides
Example: EVE market structures                                      BUYER(S)                         Publisher      Player...
Market structure: Advanced designs• Additional buyer and seller types: third-party  developers, advertisers               ...
Market structure: Advanced designsMarkets can be chained to create ecosystems              The Facebook Credits ecosystem
Effect of a buying pricebot (before)     Price        Supply        P                       Demand              Q         ...
Effect of a buying pricebot (after)    Price             Supply     PB                           Demand            Qd   Qs...
Designing Virtual Markets for Fun and Profit - GDC 2013
Designing Virtual Markets for Fun and Profit - GDC 2013
Designing Virtual Markets for Fun and Profit - GDC 2013
Designing Virtual Markets for Fun and Profit - GDC 2013
Designing Virtual Markets for Fun and Profit - GDC 2013
Designing Virtual Markets for Fun and Profit - GDC 2013
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Designing Virtual Markets for Fun and Profit - GDC 2013

Lecture given at the Game Developers Conference, San Francisco, 27 March 2013. Hit play to hear the audio! Some bonus slides not shown during the lecture are at the end.

Abstract: Today's games are full of different kinds of markets for buying and selling virtual goods and currencies, such as item shops, auction houses, NPC vendors, and real-money marketplaces. Some markets are player-to-player, some are publisher-to-player, and some involve even more parties. Some markets are fun to use, some are quick and efficient, and some generate social interaction. Based on economic theory, consulting experience, and real examples, this lecture shows you how to approach this complex space in a structured manner in order to design great markets that support your gameplay or monetization goals.

About the speaker: Dr Vili Lehdonvirta is one of the world's leading scholars dealing with virtual goods and currencies. He is a visiting fellow at the London School of Economics, an adjunct professor at the University of Turku, and the principal author of the World Bank report on virtual economies. He has advised leading interactive entertainment companies including Rovio (Angry Birds), Sulake (Habbo), CCP Games (EVE Online), Digital Chocolate, Gameforge, and Live Gamer. He has lectured at the Game Developers Conference, Game Developers Conference China, Online and Social Games Summit, Virtual Goods Summit, and numerous other industry events. Before his academic career, Lehdonvirta worked as a game developer, creating some of the web's first real-time multiplayer games with a micropayment revenue model. His book on virtual economy design (with Edward Castronova) will be published by MIT Press.

http://schedule2013.gdconf.com/session-id/822302

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Designing Virtual Markets for Fun and Profit - GDC 2013

  1. 1. Designing Virtual Markets forFun and ProfitDr Vili LehdonvirtaLondon School of Economicshttp://vili.lehdonvirta.com/Twitter: @ViliLe
  2. 2. What this lecture is about• Item shops, NPC traders, trade windows, auction houses, real-money marketplaces...• Any exchange through which goods change owners• How to design it in a structured manner to support game experience & monetization goals?
  3. 3. What this lecture is not about• Designing virtual goods – see my GDC 2010 lecture• Designing virtual currency – see my GDC 2012 lecture• Designing sinks, sources and your overall virtual economy – see my forthcoming book Virtual Economies (MIT Press) with Edward Castronova
  4. 4. Where this lecture comes from• Web/mobile game dev 10 years ago• Virtual economy researcher since 2004• Consulting for EVE Online, Habbo, Rovio, Mojang, Gameforge, ...• VirtualEconomists.com
  5. 5. 3 Qs of designing a great marketFor each type of good in your game, ask thefollowing questions:1. Market or no market?2. What is the market structure?3. What is the exchange mechanism?
  6. 6. 1. Market or no market? Has a marketDoesn’t have a market
  7. 7. Reasons for having a market for a good• Buying/selling is fun• Players can specialize in content they like• Publisher can earn revenues by selling goods for real money
  8. 8. Reasons for not having a market for a good• Buying/selling doesn’t fit the story• Specialization makes the game too easy• Rare and exclusive items lose their signal value
  9. 9. Typical solution• Have a market for – basic gear, commodities, consumables• Don’t have a market for – trophies, achievements, items needed to complete a mission
  10. 10. 2. What is the market structure?• Publisher-to-player?• Player-to-player?• Publisher-to-player-to-player?Market structure answers the question, “Whocan act as buyers and sellers in this market?”
  11. 11. Six basic market structures BUYER(S) Publisher Players Both Publisher MonopolySELLER(S) Players Monopsony Unregulated Price floor Both Price ceiling Price window
  12. 12. Unregulated market
  13. 13. Price ceiling Publisher supplies an unlimited quantity at P1P1
  14. 14. Price ceiling Publisher supplies an unlimited quantity at P1P1
  15. 15. Price floor P2Publisher buys an unlimited quantity at P2
  16. 16. Price windowP1 P2
  17. 17. Choosing a market structureMarket structures for fun:• Monopoly – predictable game experience• Unregulated market – dynamic experience• Price ceiling – guaranteed affordable items• Price floor – guaranteed minimum rewards – Monopsony – fixed level of rewards
  18. 18. Choosing a market structureMarket structures for profit:• Monopoly – sell premium items to players• Price ceiling – sell premium items to players, but also allow second-hand trade – Second-hand trade can both cannibalize and boost sales
  19. 19. Example: WoW market structures BUYER(S) Publisher Players Both Publisher Monopoly: Premium itemsSELLER(S) Players Monopsony: Price floor: Tokens Rare items Both Price window: Common items
  20. 20. Example: Habbo market structures BUYER(S) Publisher Players Both Publisher Monopoly: PetsSELLER(S) Players Monopsony: Soft currency Both Price ceiling: Price window: Furniture Hard currency
  21. 21. Distribution of virtual item prices in PC F2P games30.0% (VirtualEconomists.com 2013)25.0%20.0%15.0%10.0% 5.0% 0.0% $0.00- $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00 $17.00 $18.00 $19.00 $20.00 $1.00- $2.00- $3.00- $4.00- $5.00- $6.00- $7.00- $8.00- $9.00- $10.00- $11.00- $12.00- $13.00- $14.00- $15.00- $16.00- $17.00- $18.00- $19.00- +$20.00
  22. 22. 3. What is the exchange mechanism?
  23. 23. Basic exchange mechanismsPersonal trade Two persons meet, negotiate and tradeEscrow Two persons execute a trade by using a trusted third party as an intermediaryFair (aka ”market”) Many individuals meet at a fixed location to negotiate and tradeSilent fair Many individuals meet at a fixed location to negotiate and trade;(à la EverQuest) buy and sell offers are listed in a central registry to facilitate finding a buyer/sellerBazaar Professional merchants buy and sell goods at a fixed location; prices negotiableStore A professional merchant offers goods for sale at fixed prices at a fixed location
  24. 24. Advanced exchange mechanismsAuction Seller announces an item for sale; buyers bid for itDutch auction Seller announces progressively smaller prices until one buyer accepts the dealReverse auction Sellers make bids to get the buyer’s businessAuction house Sellers list goods for sale in a central registry; buyers bid for them through the registryBuyout house Sellers list sell offers in a registry at fixed prices; buyers make deals through the registryBourse Sellers list sell offers; buyers list buy offers; deals are conducted(aka ”exchange”) through the registry
  25. 25. Choosing an exchange mechanism Good Frequently traded Thinly traded or commodity good unique good AuctionMarket structure Monopoly structure Store Dutch auction Personal trade Structure with multiple Bazaar Auction house buyers and sellers Buyout house Bourse
  26. 26. Choosing an exchange mechanismMost social Personal tradeinteraction Escrow Fair Bazaar Auction house Bourse Most efficiency
  27. 27. I see markets everywhere• Drops, harvesting = market where players trade their time i.e. services for goods• Does publisher have a monopsony on service work?• Or can players buy services from each other? – If so, using what exchange mechanisms?
  28. 28. Summary3Qs of market design 1. Market or no market? 2. What market structure? 3. What exchange mechanisms?Choose a market structure for fun or profit:• Unregulated for dynamic sandbox fun• Monopsony or price floor to guarantee rewards for play; monopoly or price ceiling to guarantee affordable items• Monopoly or price ceiling with hard currency to monetizeChoose appropriate exchange mechanism(s), using the following criteria:• market structure vs. the characteristics of the good• tradeoff between social engagement vs. efficiency
  29. 29. Thanks!Leave your address at http://vili.lehdonvirta.comto get a message when the book is out.Find me on Twitter as @ViliLe.Check out our reports and data on virtual goods &currencies in F2P, social and mobile games athttp://virtualeconomists.com
  30. 30. Bonus slides
  31. 31. Example: EVE market structures BUYER(S) Publisher Players Both PublisherSELLER(S) Players Monopsony: Unregulated: Price floor: Mob tags Modules Ships Both Price ceiling: Price window: Minerals Trade goods
  32. 32. Market structure: Advanced designs• Additional buyer and seller types: third-party developers, advertisers BUYER(S) Publisher Players Advertisers All Publisher Monopoly Monopoly Monopoly SELLER(S) Players Monopsony P2P P2A Price floor Advertisers Monopsony A2P A2A Price floor All Monopsony Price ceiling Price ceiling Price window
  33. 33. Market structure: Advanced designsMarkets can be chained to create ecosystems The Facebook Credits ecosystem
  34. 34. Effect of a buying pricebot (before) Price Supply P Demand Q Quantity
  35. 35. Effect of a buying pricebot (after) Price Supply PB Demand Qd Qs Quantity

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