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?

The gaming industry has been fighting fraud and abuse ever since games went online and it goes way beyond simple payment fraud. Here are a few of the problems we help our customers address:

• Credit card fraud – Using stolen identities and credit card numbers is a problem in the games industry, as it is for any online business. Whether sites support a subscription-based payment model or take micro transactions, finding repeat offenders who use stolen identities and credit information is a huge challenge.
• Account takeover and virtual asset theft – Many online criminals have learned to take advantage of the booming market in virtual goods and currency. One of their standard practices is to steal account credentials and then transfer and sell the virtual goods from the online characters.
• Gold farming – MMO games have resulted in the creation of a whole new industry called Real Money Trading (RMT) that maintains an exchange rate between real currency, like dollars, and game currency, i.e. gold. However, selling game currency for real money is against the terms of service for many online games, and the use of accounts to “farm gold” is strictly forbidden because of its negative impact on game-play and the in-game economy.

In order to effectively combat these types of fraud, online gaming sites need the right tools. The companies we’ve worked with have found that employing device recognition and device reputation makes a big difference. By being able to recognize and re-recognize a device, online sites can track device and account activity and expose the associations between accounts and devices that often help identify organized fraud rings and repeat offenders. By identifying the devices being used to commit these types of fraud, gaming sites can deny entry to fraudsters and ultimately protect the reputation and quality of their games.

For any gaming companies interested in learning more about our device reputation service, we will be at Austin GDC from Sept 15-18. If you are at the show please visit our booth (#304). We’d love to see you.