Live Service Layered Cake — Part II

The foundations of a virtual economy

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ironSource LevelUp

7 min readApr 10, 2023

This article is the second part of a new series about metagame design and live service monetization of free-to-play games. You can read the first part here.

Foundations

Before we get into the nitty-gritty of the monetization design we need to take a look at some fundamental notions.

Actually, I hate the term monetization. It is a neologism coined in the last twenty years in California. It is actually quite unclear to me why it was even introduced. What we are doing here is nothing but good old sales. User acquisition is about marketing. Monetization is about selling.

There is no way of overstating this. Above all, monetization is about creating value for your players. It is about presenting this value to the player.

It is surprising how often this is overlooked by novice teams. Monetization is not something you can slap onto your game. It is not something that can exist outside of your game. It needs to be an integral part of your gameplay experience.

There is no dark arcane craft to it. If your players see value in what you are offering they will be happy to spend the money. Free-to-play players are a very sophisticated bunch of customers. They get to try your game and evaluate every purchase they make. If they are not satisfied with what they are getting they will simply move away. There are plenty of other free games, just a finger tap away, waiting for their attention and their money. There is no way for you to cheat them. You can’t make a successful business by bamboozling your customers.

In order to provide value to your players, you need to understand why players spend money in general. It turns out that there are just three, very general reasons, why people spend their money:

To achieve more, i.e. to be able to do something that they couldn’t otherwise — for example, get into a concert venue to listen to their favorite band or drill a hole in a wall using the new tool that they just bought
To establish identity, i.e. to express themselves — as a fan of their club by sporting a new jersey in the team colors, or as a dapper gentleman in their new tweed suit
To maintain relationships — by sending gifts on Christmas or flowers on St. Valentines

Any sort of items, such as power-ups, card packs, character upgrades, new weapons, etc, that have a gameplay value, belong to the first category. Cosmetics, such as character skins, dance moves, emotes, etc. fall in the second category. The third category is about social spending features.

Finally, in order to establish value, what you actually need to do is establish the correspondence, i.e. exchange ratios between three very different sets of things. Number one is real money. This is obviously what your bottom line consists of.

The second variable represents the virtual goods you are selling. Your game should offer a variety of things to sell. However, in order to make your job easier, it helps to use one single virtual currency as a proxy for everything else. This is what hard currency stands for in games. It is sort of an interface between the real and virtual economy.

Finally, the third part of the equation is time! Time and money are in real life closely coupled resources. Money is actually a function of time. Quite often players will trade money for time in your game.

In other words, you need to establish how much money is one unit of virtual currency and one unit of the player’s time worth in your game.

This being said it doesn’t mean that this needs to be the first step in building your game economy. Most often, it is a good approach to do some benchmarking and use the values from similar games as a starting point.

In addition virtual currencies, like any currency, are prone to inflation. What is likely to happen is that over time, as your life service evolves the value of some items and indeed currencies will drastically change. You should be aware of these ratios whenever setting prices for anything in your game.

Sources and Sinks

Speaking of inflation, one last concept that you need to understand and map out is the concept of the sources and sinks of any currencies or types of items in your game. A source of items is any place in your game where any amount of a particular currency or any new item is added to the player’s inventory. A sink is any spot in the game where an item or a bit of currency can be used, i.e. removed from the player’s inventory. Ideally, the sum total of sinks and sources of each important currency would be in balance.

This especially applies to currencies and items that play an important part in your monetization. Double more so in the case of hard currency. Balancing sources and sinks is crucial, making your sources of hard currency too scarce risks one or both of the following things happening.

In the worst case, players might perceive your game as being too greedy and unfair and start abandoning it, ruining your retention and any chance of monetization.
Players might start to value the hard currency too much and start hoarding the little that they got instead of spending it, leading to a stagnant game economy, and ruining your efforts to actually monetize.

On the flip side, you might run a risk of being too generous with your hard currency. As expected this can lead to people simply having too much of it, again ruining your monetization efforts.

There is a surprising tendency I noticed. It is also a mistake I made several times. Quite often, when introducing new features into live games, the game teams tend to try to entice players to try them out by offering very generous rewards. This can lead to the inflation of the hard currency. The feature should be fun and rewarding to play intrinsically without relying on extrinsic rewards for user engagement. The feature’s FTUE (first-time user experience) needs to entice the players to engage with the feature. You should not have to bribe your players to interact with your features.

Another systemic mistake often made in the design of games is the pairing of infinite sources with the finite sinks of a currency. For example, if a player can earn a certain amount of currency, let’s say coins, each day just by logging in, this source is infinite. In theory, a player can accumulate an infinite amount of coins just by coming and logging into the game. This is how taxes in SimCity BuildIt work. On the other hand, if a player is expected to use these coins to purchase a limited selection of other items, the sink is finite. This means that inevitably, once they have purchased all the items on offer the players will start to accumulate the now-useless coins. The value of this currency, as with any useless commodity, will drop to zero. The same applies to any items that a player can produce at will and out of nothing in the game. This is why no farm game ever monetizes on stuff such as farm crops.

There is a lot of game design literature written on the topic of balancing sinks and sources of items in the game economy. It is a huge and important topic. I do not intend to go into specific details in this particular text. I am just mentioning it to emphasize the importance of laying the proper foundations. However, I will mention one of the industry’s dark secrets. Important as it is, the game economy balance is not, the be-all and end-all of metagame design. Some of the most successful and longest-running games in the industry operate with an economy that is out of whack.

Conclusions

Strictly speaking, these foundations of the virtual economy are not part of the live service. However, they are the prerequisite for running an efficient live service. Our layered cake is built upon these foundations

Key Takeaways

Monetization is about creating value for your players.
Monetization needs to be an integral part of the gameplay experience.
Players spend money for three reasons: to achieve more, establish identity, and maintain relationships.
Virtual goods belong to the first category, cosmetics to the second, and social spending features to the third.
Virtual currencies are an interface between the real and virtual economy.
The exchange ratios between real money, virtual currency, and time need to be established.
Benchmarking can be used as a starting point for the game economy.
Currencies and items are prone to inflation, and sources and sinks of currencies and items need to be balanced.
Making sources of hard currency too scarce or too generous can ruin monetization efforts.
Do not bribe your players — features should be fun and rewarding to play without relying on extrinsic rewards.