Loaded from The Evolution of

http://sulka.net/ Habbo Hotel’s Virtual Economy

Sulka Haro @ GDC 2010

(let’s start) Sulka Haro

lead concept designer

The Evolution of
Habbo Hotel’s
Virtual Economy
what is Habbo? virtual world for teens

free to play
microtransactions
pay for stuff
 2008
$74M

global operation
16 instances of the world
offices in 13 countries
=
Habbo community aimed at 16 virtual economies
31 countries on 6 continents
 Dec 2009 - Feb 2010 timeframe

how are we doing? highest usage levels ever

highest monthly sales ever

~16.5 million uniques / month

(source: Quantcast)
turning 10 in 2010!
50M hours of play / month
(source: Sulake)
 year 2000 year 2010

Virtual Worlds

when market changes,

you change or die
2000 2010
 6 phases of change in Habbo’s
The Evolution of economic system
Habbo Hotel’s payment networks
Virtual Economy magic circle

Habbo economic system phases

1 No currencies at all (even paid!)

2 Emergent currencies
Phase 1
3 Paid currency
No currencies at all (even paid!)
4 Tradable paid currency

5 Dual currency!

6 “Official” secondary market

 2000

Text
persistent goods using “HABBO CHAIR SULKA”
to 555-1234 to get this chair
SMS microtransactions
(No virtual currency!)
 Why did we choose this? Problem: social engineering attacks

• Super-easy setup • Send “HABBO CHAIR 100x SULKA” to

get 100 chairs
• Home market mobile penetration was very
high • Chair went to hacker called 100x
• Assumed customer acquisition is easier if
the the cost barrier to purchase is lower

Problem: pricing

• Just two in-game price points, can’t

optimize pricing structures
• Low-cost SMS transactions typically have Phase 2
higher commission rate (due to fixed cost /
message), simultaneously high value SMS is
Emergent currencies
too valuable for most virtual items
 item aftermarket kicked
Habbo allowed item
off before the primary
trading from day 1
virtual currency market

economies need
currency, so...
 Problem: multiple payment options

• When launching in UK, we had to integrate

new payment mechanisms
2001 • Needed a way to split £10 transaction to
Habbo UK launch pieces
• Habbo Credits was born
 Credit value

• 1 credit = 15 cents
Phase 3 • Super cheap items: 1 credit each
Paid currency • Regular items: 2-3 credits
• Premium items: 4-15 credits

!"!#$%&'()*+ Secondary
market

fundamental change Items

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 The credit pool makes it harder
!"#$%&'()*#&+'&$,-+ !"#$%&'()*#&+'&$,-+
to predict sales
Credits Credits

4*(5)!"#$%&'( 4*(5)!"#$%&'(
Increase credit consumption
doesn’t necessarily result in
Item Catalog Item Catalog increasing revenue!
Secondary
market
Secondary
market Credit Purchases: CP
Item Sales: IS
Items Items
Accumulation CA Δ = CP - IS
.'(#)'*-/')/0&12+3 .'(#)'*-/')/0&12+3

High delta = danger!

!"#$%&'()*#&+'&$,-+

Credits
Persistent goods problem persistent goods
4*(5)!"#$%&'(

Item Purchases: IP
Item Catalog Forgotten Items: FI great value proposition, good for
customer acquisition
Accumulation IA Δ = IP - FI
Secondary
market

Items High delta = danger! value piles up, need to deal with item
.'(#)'*-/')/0&12+3
value inflation
non-persistent value subscription and virtual
services goods are radically different
consumable items business models

Subscription Virtual goods

subscription model
revenue is linear

virtual goods model follows

the power-law curve
1 2 3 4 5 6 7 8 9 10

revenue / customer segment

 !"#$%&'()*#&+'&$,-+
Habbo Club
Habbo Club
Credits
monthly subscription paid with
4*(5)!"#$%&'( credits
combinable? Item Catalog different core value proposition

yes
so it doesn’t double dip into the
Secondary
market
the user’s pockets

Items some customers only go for the

club, some for items, some for
.'(#)'*-/')/0&12+3 both

items club

optional membership,
room decoration,
collecting
avatar customization but...
 Trading non-payers Paying accounts

2005
a worrying trend
emerged
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

if having a trading aftermarket
means people can opt not to
pay,
why allow trading?
trading
is great content
(so users spend more time)
allows item value speculation
(rare items = high value)
hence, trading drives sales
trade activity correlation to monetization
Users ARPU

expect power law

“average” metrics lie

1 2 3 4 5 6 7 8 9 10

(users split to 10 groups by trading activity)

which currency are

your traders using?
 !"#$%&'()*#&+'&$,-+

Habbo Club
Credits Credit trading
4*(5)!"#$%&'(
Allowed users to trade credits.
Phase 4 Item Catalog
Secondary market
Economic theory: the most
Tradable paid currency liquid currency is the most
desirable currency, resulting in
the most liquid currency
Items
becoming dominant.
.'(#)'*-/')/0&12+3

before credit trading after credit trading

it doesn’t matter who
Spenders > Buyers
spends the money, as long Buyers = Spenders Traders > Buyers

as spending is maximized Traders > Buyers leading to

more buyers
 the smallest possible value
credit trading expressible by the dominant
unanticipated side-effects currency defines the smallest
unit of value in the market

Before credit trading

= 0.1 credits

After
= 1 credit

cheapest items went up in value

 while working on the credit trading, a
question was raised...

ecotron
can we fix the item inflation problem
somehow? “recycle your items!”
sink for items
is establishing sinks for persistent
goods possible, after the fact? put 5 items in,
get a random rare item back
 cash piling up is bad for
Inflation
your economy
 secondary market prices
primary market currency increase so new players have
sales become unstable harder time entering the
market

secondary market inflation causes

items purchased from primary Measuring
market crash in value, making Inflation
primary market purchase a bad deal
 without inflation, the
average amount of currency
needed to operate on a
virtual market should stay
fairly constant
users

time

!"#$%&'()*#&+'&$,-+

Habbo Club

metric technique
Credits
Credit Purchases CP
Credit Spending CS
4*(5)!"#$%&'(

Accumulation CA Δ = CP - CS
amount of liquid cash / Item Catalog
Secondary market

Traders T
operator in the secondary Accumulation / operator
AO = CA / T

market Items AO trend up, danger!

.'(#)'*-/')/0&12+3
 metric technique
“consumer price index”
pick a set of items (especially emergent currency
inflation causes
items) and track how the value of a “shopping
basket” of these items develops in the giving out paid currency for
aftermarket
free...
(more data on item valuation later during the presentation)

if you can’t (shouldn’t)

reward with primary
rewarding users
currency, how do you
reward users?
 item rewards are cool,
Phase 5
but production of cool
Dual Currencies
items is not sustainable

multiple currencies = multiple economies

!0&1)7)(&#+ !"#$%&'()*#&+'&$,-+

new economic model Pixels Credits

Habbo Club

5*(6)!"#$%&'(

paid currency: Credits

Pixel catalog Item Catalog
Secondary market

earned currency: Pixels

Items

.'(#)'*-/')/0&12+34)#($1$0(#
 credits pixels

how to get? buy & trade earn

ways to drive
good for
persistent goods,
consumables
consumables &
discounts on the primary monetization: cross-link
& services (credit) market
between the economies
retention & conversion,
purpose monetization supporting primary
market

multiple currencies:
simple or complex?

“I’m using just one currency
in real world, why do we need
more than one in Habbo?”
anyone who thinks the
taxation system is simple
must be insane
bound to become complicated
", $, £
3 frequent flyer point systems
4 grocery store bonus point systems
credit card bonus points
shares and options
mortgage
pension fund
one currency
“one size fits all” system
can’t optimize for anything
 multiple currencies World of Warcraft
39 currencies
larger number of systems, but: Gold
Honor & arena points, [Warsong Gulch Mark of Honor], [Arathi Basin Mark of Honor],

each is optimized [Alterac Valley Mark of Honor],[Eye of the Storm Mark of Honor], [Strand of the Ancients
Mark of Honor], [Isle of Conquest Mark of Honor], [Wintergrasp Mark of Honor], [Badge of
Justice], [Venture Coin], [Dalaran Cooking Award], [Dalaran Jewelcrafter's Token], [Stone
Keeper's Shard], [Champion's Seal], [Emblem of Heroism], [Emblem of Valor],

each is simple
[Emblem of Conquest], [Emblem of Triumph], [Emblem of Frost], [Mark of Honor Hold],
[Mark of Thrallmar], [Glowcap], [Spirit Shard], [Arcane Rune], [Holy Dust], [Halaa Battle
Token], [Halaa Research Token], [Sunmote], [Winterfin Clam], plus Tier 3 to 10 tokens

if
reducing friction in
credit spending = increased sales
2009 and
a new thought occurred trading correlates to spending
would
remove friction in trading =
increased spending?
 Phase 6
let’s experiment!
official marketplace

!"#$%&'()*#&+'&$,-+

marketplace economic theory how trading used to work

Habbo Club
Credits
surf around fansites looking at item valuation charts
removing friction (removing a
5*(6)!"#$%&'( disincentive) from trading should see if you have something valuable to sell
increase the amount of people
Item Catalog Secondary market participating in trading log in and start running around the Hotel looking for
7-662''2-+
buyers, by spamming the screen with “say 3333333 if you
if participating in trading (the want to buy a HC”
secondary market) correlates to
spending, the participation to get kicked out of rooms a lot
monetization causality should be
Items
present in all forms of secondary when you find a potential buyer, haggle for 10 minutes
.'(#)'*-/')/0&12+34)#($1$0(#
market participation settle for an item you didn’t really want in the first place
 in economic terms
a lot of supply and demand
didn’t meet
 theory proven correct
removing friction increased
the probability of a player
wanting to participate in the
economy
couple (small) surprises
underestimated how much safer the
users think the marketplace is,
compared to regular trading
huge amount of arbitrage still present
in market, even in the marketplace

marketplace rules
posting an item offer costs 0.2 credits
(purchase 5 marketplace tickets at 1 credit)

offer is valid for 48 hours

sale price is the offer price + 1% commission
(minimum of 1 credit)
sale price is the offer price +
1% commission
(minimum of 1 credit)
actual commission 50% to 1%
1 Habbo coin = ~15 cents
1 Facebook Credit = 10 cents
(1 WoW gold = ~1.25 cents)
how valuable should
a paid virtual currency
be?
the smallest possible value
expressible by the dominant
currency defines the smallest
unit of value in the market
 decide your scale make sure you’re in control of your currency
1 item = 1 credit?
1 item = 10 credits?
converting between virtual currencies is
1 item = 100 credits?
confusing
1 item = 1000 credits? there good and bad points to
1 item = 1m credits? high and low value

!"#$%&'()*#&+'&$,-+

Credits

4*(5)!"#$%&'(
initially
payment networks just 3
Item Catalog

Secondary

methods
market

Items

.'(#)'*-/')/0&12+3
 why so many systems?

• huge variation on commission structures

added over 100 payment depending on market

system integrations • system viability changes from market to

market
between 2001-2010 • Credit Cards are not viable globally
• SMS is not viable globally
• prepaid cards are not viable globally

payment network optimization

• a true art in itself The Big Balancing Problem

• very difficult if you want to do it well, but primary market
essential if you want to operate globally
and
• part of Sulake’s Secret Sauce secondary market
follow different rules
 primary market
real world inflation,
there is no economic situation
magic circle
secondary market
virtual world inflation

adjust primary market item prices to follow

secondary market inflation?
real world inflation
yes: $ price of items goes up, lose new customers
currency exchange rate
no: newly bought items are of no value compared
to valuable secondary market items, less incentive changes
to spend on primary market, causing even worse
inflation, loss of sales

Facebook credits
how stable will the Facebook credit
value be?
will Facebook continue allowing
intermediate virtual currencies in
apps?
will Facebook continue allowing
intermediate virtual currencies in apps?
1 credit = 10 cents
1 credit = 7 cents after commission
at 3% inflation, 7 cents = 6.59 cents after 2 years
raising price from 10 to 11 a Very Difficult
Decision

2000 2010

The Evolution of
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Habbo Club
Pixels Credits
!"!#$%&'()*+ Secondary
market

Habbo Hotel’s
5*(6)!"#$%&'(

Pixel catalog Item Catalog Secondary market

Items
8-662''2-+

Virtual Economy ,*+&#*-./*#/0)1234

Items

.'(#)'*-/')/0&12+34)#($1$0(#
 does economics matter for
virtual worlds?
yes!
do virtual worlds need an
economic system?

economics helps you create thinking of your world in economic

a sustainable virtual terms is not just about optimizing
value flow, but also things like
economy, which is a understanding how to make
requirement for sustainable your world a safer place to
virtual communities invest time and money into
 Thanks!
unleash your inner
economist!
Please remember to return the evaluation sheets