To start, thanks so much for joining our Facebook Page and contributing your thoughts and comments to our blog discussions – we really appreciate it! Since your feedback helps us craft this blog series, we wanted to address a particular topic that there has been a lot of buzz around: understanding micro-transactions (the sale of virtual goods) in social games.

You might (or not) be surprised to learn that just like understanding how game design and game mechanics can help motivate and engage people in gameplay, the same principles can be applied to understanding why people buy virtual goods in the first place.

This is important as virtual goods revenues are expected to hit almost $2 billion in the U.S alone this year. While we’re planning to address the more complex issues surrounding the monetary ecosystem of social games in future posts, we thought we’d start here: How can game design and game mechanics create demand for virtual goods, essentially leading to player purchases?

Why Virtual Goods Matter

Virtual goods are digital items with contextual meaning. They are non-physical objects like avatars, bling or coins that are purchased for use in online games or communities. These objects are nothing more than icons or pixels, so why do we spend real cash on obtaining them? As we’ve explained before, games and play are basic survival adaptation and so are the way we perceive virtual goods.

What the end user perceives as a virtual good is always part of a user experience–the gameplay–and it is usually delivered by the game design. From a game design (and business) point of view, it’s beneficial to understand this.

Virtual goods hold meaning to the player, because they enable players to perform meaningful tasks within a game, like influencing game statistics or allowing for self-expression. They becomemetaphors for packaging up behaviours that people are already engaging in, offering real value.

Implications for Game Design

If it’s not about the virtual goods themselves, but it’s about the underlying human emotion or desire that is displayed by them that really matters (as some would argue it does) then we can see its significance for game design. Game designers can essentially create an environment that incorporates engaging ways to display, obtain and share these virtual goods.

Researcher Vili Lehdonvirta suggests a few ways game designers can achieve this level of engagement. He explains that game designers can try to mimic conditions that are similar to environments that existed in our hunter-gatherer days, so to drive players to make virtual goods purchases. (We’ll see in future posts why this is important to understanding micro-transactions.) He suggests placing items in a game that provide functional attributes that players can relate to, like adding an element of performance advantage or new functionality. as he explains, other than just having desirable attributes, functional commodities also have a strong emotional and social meaning.

As an example, inNeed for Speed Nitro on Facebook, performance upgrades for cars generally have to be earned through gameplay instead of cash purchases, but cash purchases (sale of virtual goods) can help to reach these gameplay goals faster. What other features influence users’ purchase decisions?

He suggests designing goods that can be customized or personalized, as this adds an element of social hierarchy for the player. Scarcity is another way game designers can create demand. Humans are hardwired to compete for scarce resources, so by making digital goods artificially scarce, designers are raising their perceived value.

As you can see, using game mechanics that make virtual goods seem more valuable and meaningful, we can incentivize players to action. We should note that we’ve hardly scratched the surface of this complex topic.

There are many elements to building successful monetary ecosystems and how each one relates to gameplay. However, we felt that for game designers (or businesses) understanding how game design can create demand for virtual goods was an interesting implication to consider. What are your thoughts? Leave me a comment or email me at michael [at] ayogo [dot] com.