Gaming social games: virtual goods fraud
In case you haven’t heard, there’s real money in virtual goods—serious money. Just read this weeks’ TechCrunch article on how the big three (Zynga, Playfish and Playdom) rake in a combined $335M in estimated revenue. The combined number of monthly users named in the TechCrunch article pushes 300 million. Need more proof that virtual goods are hot? For the second day in a row virtual goods made TechCrunch in a report about Live Gamer, an online marketplace for players to trade and buy video game virtual goods. The TechCrunch article says “Live Gamer has over 72 customers and supports over 56 million registered users across all of partner implementations, exceeding 3 million micro-transactions per month.”
The TechCrunch article goes on to explain the revenue model for social gaming like this: “Get new users playing for free, give them incentives to message all their friends to signup, hit them hard for cash or lead generation for revenue, and move them up the levels. Rinse. Repeat.” Of course the hard cash exchanges hands in the form of an online credit card transaction—and whenever lots of money, credit card purchases and millions of transactions come together on the Internet there’s online fraud.
This interview by Michael Zenke of MMO web daily Massively with John Smedley, CEO of Sony Online Entertainment reveals one of the areas where fraud rears its ugly head in online gaming: gold farming. Gold farming describes when a player tries to acquire items of value in a massively multiplayer online role-playing game (MMORPG) to sell for in-game currency. SOE’s Smedley comments on the high cost of chargebacks in gold farming:
Massively: Earlier you mentioned the problem of farmers with regards to Station Access. I know that’s something the company feels very strongly about?
John Smedley: I think the issue of farming is higher on the radar now than it ever has been. The behinds the scenes things are really frustration. A lot of these farmers are essentially stealing from us. What they do is they charge us back all the time. They use a credit card–sometimes stolen, sometimes not – to buy an account key. They use the account for a month, and then they call the credit card company and charge it back. We have suffered nearly a million dollars just in fines over the past six months; it’s getting extremely expensive for us. What’s happening is that when they do this all the time, the credit card companies come back to us and say “You have a higher than normal chargeback rate, therefore we’ll charge you fines on top of that.” We’re really trying to get on top of that. We’re taking our current efforts up about five notches to Defcon 1 on this issue. They bug us even more than they bug our customers, and we’re definitely taking steps to implement rigorous anti-farming efforts.
It’s actually really amazing to sit and watch these people work. I’ve personally sat with them as they’re tracking a farmer, and you’ll see a mob spawn – this guy’s got a bot that within half a second has them moving towards the creature even if it’s halfway across the zone. It’s a serious problem.
Massively: And you can’t fight the chargebacks with the credit card companies?
John Smedley: No, and the reason for that is very simple. Visa and MasterCard have these rules about chargebacks, and I personally think they’re antiqued. Digital delivery isn’t covered by their rules very well. So if you order something from Amazon and pay thirty bucks for a book, if it doesn’t show up at your house you can fight it because you can say “I never received that thing.” They do not cover that with digital delivery. In my opinion the world has changed a lot and I think that needs to be addressed.
ThreatMetrix device identification can (and does) help detect and prevent in social networks, social gaming and virtual goods payments—to stop fraud and authorize good customers more quickly with less hassle.
Virtual goods is on the news radar this week because the Virtual Goods Summit hits San Francisco on Thursday and Friday. VG Summit 2009 is definitely on ThreatMetrix’s radar since we’ll be there both days as a sponsor.
The 3rd annual Virtual Goods Summit will take place in San Francisco, CA on October 29-30, 2009. The event will bring together thought leaders in this space to talk about what’s changed, what’s working, and the key challenges facing the industry. This year’s lineup features executives from the leading companies in the virtual goods ecosystem, including Tencent, Playfish, DeNa Global, Nexon, Zynga, Playdom, Bigpoint, IMVU, Outspark, Zong, PayPal, Perfect World, MyYearbook, InComm, NHN, Ning, TrialPay, Super Rewards, Viximo, Offerpal Media, Serious Business, Slide, Giant Interactive, and many others. An assembled panel of experts will share their thoughts on key issues such as trends in monetization in the United States and Asia, key learnings on how to best drive revenue from social games via virtual goods, market sizing estimates for the US and global virtual goods opportunities, and similarities and differences between user behavior in the United States and Asia
In addition to the exciting lineup at this year’s edition of the annual must-attend event in the virtual goods space, the Virtual Goods Summit is expanding in 2009 with the creation of “Virtual Goods Summit University” or VGSU. VGSU will offer attendees the opportunity to go in-depth on the fundamental business practices and capabilities required for success with a virtual goods business model. The Virtual Goods Summit University will cover some of the most important issues facing publishers today, including how to get started with virtual currencies, how to manage a virtual economy, key decisions when rolling out a payments infrastructure, and how to manage multiple virtual currencies.
If you’re thinking of going but you haven’t purchased tickets yet, you can save 15% on tickets by using the code THREATMETRIX at checkout when registering at Eventbrite.
- Tom
