With all the talk about sinks, faucets, levers, and mechanics in social games these days someone listening to the conversation may think that people are talking about fixing up their new bathroom rather than how to create monetization and engagement in a new social games. Social games exist for your enjoyment, but they also exist for another reason…to make money. Facebook Credits and other in-game virtual currencies may only be used in the online world, but they are purchased with hard currency and are the main source of revenue for free to play social games.

Monetization in social games has come a long way but we are beginning to see even more ways in which game developers are increasing their revenue generation opportunities including adding challenges and tournaments, integrating advertising, and incorporating in-game sale of real products.

Sources, Sinks and Economies

Let’s first look at the makings of a social game, and define what “sources” and “sinks” are as related to virtual currency and in-game economies. A source is an action, when completed that provides players with additional means in a social game. The player completes a specified action and they are awarded more virtual currency, energy, or resources to advance faster in a game. Some common sources that relate directly to monetization include direct payments, filling out offers, taking surveys, watching a short video ad, or even shopping online. Companies including Trial Pay, TapJoy, G Wallet, and Sometrics all have built significant business in offering game developers new ways to monetize players and increase game developer revenue. These companies have transformed the industry, and provide a source for new virtual currency to be awarded or earned by the player. In order to balance the in-game economies and control inflation there must also be an equal or greater opportunity for the player to sink or spend their new currency.

If every player in the game were flush with virtual cash then why would they ever need to fill out offers, take a survey, or buy more? They wouldn’t and game developers would miss out on opportunities to monetize their user base. This is where game developers get creative, and design ways to get players to use the currency they have bought or earned. Traditionally sinks take on the form of either virtual goods, or consumables. Most people by now are familiar with virtual goods, and the many forms that they can take. Virtual goods purchases are not dissimilar from our real life purchases and are driven by functional, behavioral, or decorative reasons. A consumable is something such as player energy, or another resource that is used up over the course of game play. A good example is the energy mechanic in Mafia Wars. Each time you, the player, does a job you lose energy; however, you can get more by waiting it out or spending cash. Game companies carefully calculate how fast these consumables will be used up, and when a player will need more to advance in the game.

Users spend on perceived value

Each time a player makes a purchase of a digital good within a game or buys a consumable the gaming company is sinking or retiring currency, and thus creating a demand for more. The faster a game can sink currency in a relevant and engaging manner, the faster a player will need to source more. They key in all of this is making the user want to spend virtual currency. Users will not spend their in-game virtual currency or Facebook Credits on something where there is not perceived value. This is where the importance of a great storyline, solid game play, and social engagement help get players to spend.

Social game companies are always looking for additional ways to monetize users and keep them engaged with their games longer. One of the newest ways social gaming companies are achieving this is by working with BringIt to add challenges and tournaments to exiting social games. BringIt’s platform puts a mini-game into existing social games and allows users to compete in solo challenges, multiplayer tournaments, and head to head play for in-game virtual currency. Users win or lose virtual currency in this, game within a game, depending on their score. Each of the mini-games are skinned to the look and feel of the host application making it seamless for the end user. One of the most unique things about BringIt’s added functionality is that it adds challenges and tournaments to existing social games, while allowing the user to stay within the game play experience.

Social gaming companies including Crowdstar, RockYou, DES Games, and others have integrated mini-game challenges and tournaments into their games with BringIt’s Platform. These developers have seen increased engagement time, increased velocity of spend, and have seen Average Revenue Per User (ARPU) lift in their games. In order to go beyond traditional monetization techniques social gaming companies are continuing to utilize third party applications. We have seen this before in the space when social gaming companies relied on third parties to provide payment solutions and help monetize users through offers, direct payments, and the like. These third parties providers are an important piece of the social gaming ecosystem, and allow game developers to focus on game mechanics and development.

Two other notable methods for increasing revenue inside of social games include advertising, and the sponsorship of virtual items. Some of the largest social games touch over 1 Million people per day, with Zynga’s FarmVille garnering over 17 Million unique users per day. Being able to touch such a huge audience is attractive to advertisers, and we are starting to see major brands begin to spend in the social gaming space. Companies including McDonalds, 7-11, Coca-Cola and more have paid to have their brand intertwined with the social games people love to play.

Third party apps

WildTangent has created an interesting idea of sponsored virtual goods, where a user watches a short video ad to get a premium virtual good for free. The user doesn’t have to pay to get an item they want, and the advertiser gets a positive association with their product because the player’s need was fulfilled. Advertisers pay the game developer for each virtual item that is given away in this new twist on monetizing through virtual goods. Another innovative company in the space Mertado, recently launched an Embedded Shopping unit that offers a new way for game developers to monetize through e-commerce inside the game. Game users are presented with an offer to earn virtual currency or goods if they purchase the deal of the day inside the game; before they buy, they can view a video about the deal, read product details and complete the transaction, all within the game.

The creation of branded virtual goods, in-game challenges and tournaments, as well as real world physical goods sales are all ways in which social gaming companies are generating revenue beyond the sale of virtual goods. The free to play gaming model has only been popular in the US for about two and a half years. In that time we have not seen a great deal of innovation in terms of monetization. As the social gaming industry continues to grow, more third party innovations will surface to maximize revenue and user enjoyment of social games.

Woodrow Levin is the Founder & CEO of BringIt whose real-time transactional platform is used by leading social gaming companies to increase user engagement and monetization through the integration virtual currency challenges and tournaments.