The term “virtual goods” has been popping up more and more often, probably because people are starting to realize what most online gaming companies already know: virtual goods are big business. Ironically (or maybe not), the sale of virtual goods is highest in free games. Even though the games themselves are free for anyone to play, it turns out the majority of players end up paying small amounts to upgrade their characters’ abilities or add virtual goods to their accounts in order to enhance their experience or increase their status.

In order to shed more light on the trends in virtual goods purchasing, market researcher VGMarket, along with Playspan, conducted a survey in July of this year, asking players what kinds of virtual goods they were buying and in what kind of games. The findings of the survey, summarized in a recent article posted on VentureBeat, show that over half of all virtual goods transactions occur in free-to-play games.

In the past year, 58% of the players in free games made purchases of virtual goods, on average making 12 separate purchases over the course of a year, with a median total expenditure of $75. By comparison, in Massively Multiplayer Online (MMO) games, 34% of players purchased virtual goods, for a median expenditure of $60 over the course of a year.

These numbers support the trend of an increasingly popular business model in the online games industry, based around micro-transactions and the sale of virtual goods. Given the success of this model so far, likely, we will continue to see an increase in both the number of free online games and the amount of virtual goods being purchased. However, there is a downside. Like any venture involving online payments, fraud has to be a concern. Stolen credit cards are used to make all kinds of purchases, including the purchase of virtual goods.

And while you might assume that the theft of virtual goods wouldn’t have a noticeable financial impact—unfortunately, it can. Despite the fact that virtual goods may be nearly free to produce, the revenue from these in-game additions often ends up subsidizing the entire cost of producing and hosting free games, which can be significant. Also, high fraud rates drive up the cost of payment options and, if severe enough, can limit the type of payments a business can accept, in turn causing a decline in overall purchases.

In the ongoing conversations we have with our online gaming customers, the toughest part of dealing with fraud, especially as it relates to the purchase of virtual goods, is catching repeat offenders and those fraudsters that are working together. Because while fraud teams can ban a single account once it has been identified as fraudulent, it is really the individual behind the account who needs to be stopped.

Device recognition, coupled with device reputation, however, provides a valuable solution to this problem by identifying the computer, and thus the individual, behind a bad account. With the additional ability to see into relationships between individual computers and accounts, fraud rings and other organized crime can more easily be identified and stopped. This innovative approach to fraud management is something for current and emerging gaming companies to consider: as the trend in favor of virtual goods continues, how best to protect against the fraud that will inevitably follow?

Tags: digital goods, free-to-play games, gaming fraud, massively multiplayer online games, MMO, virtual goods fraud

This entry was posted on Tuesday, September 22nd, 2009 at 3:42 pm and is filed under Online Communities, Online Gaming. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.