Are online games going to kill themselves at retail?

Yesterday Raph Koster posted the photo on the right of a full rack of Target gift cards for online games, from Puzzle Pirates to Zwinky. That led Jeremy Liew to talk about the power of gift cards to allow young players who do not have credit cards to pay for virtual goods. And while I share Jeremy's enthusiasm that gift cards are an excellent monetization method, I am also worried about what it means for the next wave of online gaming startups.

It's no secret that monetization is one of the areas where virtual worlds and gaming can teach a thing or two to the web folks. From Maplestory gift cards to Rock Band tracks, consumers have shown they are willing and able to pay for digital gaming content. Even if the techniques are unique, including everything from virtual goods, gifting, dual-currency (time & cash) based economies, and level-based subscriptions, the culture is one of paying for playing. Which is good for those of us trying to keep the lights on.

Despite this willingness, virtual goods still have the penny gap. It is never easy to get someone, especially a teenager, to type in a credit card online. Which is why walking down a Target or CVS nowadays means easily finding cards hawking virtual 8bit furniture from Habbo, virtual DKNY gear from Stardoll, or a new sword for Nexon's Maple Story.

RE-INTRODUCING THE RETAIL PROBLEM

In all, there are now over 25 digital content cards being sold at retail. I've been tracking this and that's over double what it was six months ago. That means that at least a dozen online communities, and probably a dozen more in the next six months, are going to be submitting themselves to the vagaries of the retail shelf-space business. That's a business the online web folks have little to no experience in, and one that a lot of traditional gaming vets were excited to get out of.

This is creating a funnel problem that every creator or player should be a little worried about. It means that anyone can create an online game, but there is going to be scarcity around who can make money at it. Big media companies, communities that are already at critical mass, and big-hype start-ups get shelf space - while the next big thing in a garage doesn't get a shot in hell at monetizing.

In was a long hard slog at Ambient Devices getting our products into everywhere from Radioshack to the Museum of Modern Art store. It was even harder keeping them there despite strong sales as the hot new thing came out. That background will serve Conduit well when the time comes, but I'm still worried about what it will do the overall market. The last thing any of us wants to see is for monetization to be only held to the precious few so that everyone else is forced to go to completely free. That could collapse the market for everyone.

THE TARGET: THE ONLINE GIFT CARD?

How do you allow for monetization through retail to help with the credit card problem, but without introducing the shelf space problem that could hurt everyone? Perhaps there needs to be a standard

prepaid gift card for all online communities, think of it as Paypal for your virtual goods. A universal currency would let you buy a $10 card at Target and use it to buy flowers on Facebook or a mace in Maplestory. It would mean that the companies who succeed at getting money from customers do so because they are creating the better experience, not because they are the best at playing back alley retail shenanigans.

Far from a utopian vision, this is doable today if we can get past a few fundamental questions:

• Why would any of the successful players join up with a universal gift card instead of using their retail presence to their advantage?
  For the same reason that just about everyone is happy to rally around Visa or Paypal, the goal is to get people who want to pay to be able to pay, not to become a payment company. Perhaps Habbo and Nexon won't be the first on board, it would be a little too progressive even for them. But for the online communities #3-32 it's perfect. And a deal could easily be structured whereby brands could use their own branded card in addition to the Online Gift Card.
• Who would take on such a project?
  Well, if I wasn't already a little busy, frankly I'd be happy to. That said, the most natural player has already been mentioned, Paypal. They have the brand presence and market relationships to launch a universal gift card that could be an amazing boon to online communities. Another natural fit is the makers of Nexon and Habbo's card. They could move from being business services provider to major consumer brand and unite a large section of their customers. Lastly, it's a great opportunity for any startup and if there is anyone out there and I'm happy to help however I can - as an angel investor, adviser, or first customer.

We are at the very beginning of a new market -- we have products customers see value in, creators who love what they are doing, and a path to making sure that people can pay for it all to keep going. With a little foresight and planning between the incumbents and the start-ups, we can ensure we have the opportunity to keep it this growing this way.

Comments

[Nabeel Hyatt]

Folks at Virtual Worlds News pointed me at The Ultimate Game Card and i thought I'd share that here. It comes in both generic and branded flavors, but gives buyers access to over 150 online games and worlds - including Club Penguin and Runescape. It is not sold at Target, but is at Rite Aid and a few other places.

http://www.ultimategamecard.com/

[Tim Pechmann]

I was the head of Digital Entertainment for Target last year and was responsible for the launch of the prepaid game card category. I launched the Nexon game card and many other prepaid game cards.

I now work at GMG Entertainment. We run a business that helps digital partners bring their brand to retail in the form of prepaid cards. We see value to both models, i.e. universal card & single brand card.

If anyone is interested in learning more you can check out www.GMG-Entertainment.com or e-mail me directly at TimP@GMG-Entertainment.com

[PJ Gupta]

The opportunity for a payment system that is scalable in both the transaction amount (i.e. mircotransactions) as well as easily integratable with online merchants/gamers is huge.
Think of something like a "oneclick pay" where you don't need a minimum $10 but can simply pay as you go (from your bank account - or maybe even a credit card).

Take a look at www.noca.com Its building a payment system to solve this specific problem. You can pay as less as $0.01 with zero or minuscule fees/interchange to the merchant!

Disclaimer: I work for Noca.com

[Christian DeBaun]

Chiming in late here.

We agree that prepaid is a critical part of the revenue equation for online. We launched the Ultimate Game Card (UGC) because there wasn’t a unified answer in the United States. We’ve just achieved truly nationwide distribution. In addition to Rite Aid, we’re in 1500 Walmart stores now, with Blockbuster, 7-11, and Future Shop (Best Buy/Canada) coming soon. Second, the UGC is offered as part of the suite of PayByCash 70+ payment methods (http://www.paybycash.com/options/), so merchants get prepaid card acceptance in the EU, China, and Mexico as part of the same bundle, on very favorable terms.

Please feel free to contact me at any time for further information and thanks for the mention!

All Best,

Christian C. DeBaun
Director of Business Development
PayByCash – Internet Payment Solutions, Inc.
434.220.2491 phone
www.paybycash.com