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Micro Transactions: Does it really work?

Also known as Micro Payments, this model offers gamers to purchase services, premium content and above all virtual goods, through small, almost secondary, payments of virtual currency, ranging from 0.30 cents to $5 USD.

The purchase is done through a virtual currency (see below) and the "goods" are received instantly, hence serving as a catalyst for "instant gratification". Estimates are that sales of virtual goods (via micro transactions) will remain the only dominate business model in the social space.

Nomenclature: Most games include two types of virtual currencies; soft-cash and hard cash. The two are usually named" in a way that will differ it from the connotation of real money(Gold & Silver, Dollars & Coins, or any other terminology). Hard Currency has a wide array of nomenclature, usually dependent of the game genre. Favor Points is one of the most popular names (origination in Zynga's first games). Other names include: Gold, Sand Dollars, Horse Shoes, etc.
  • Soft Cash: also known as soft currency  is a freemium virtual currency that can be gained by playing the game repeatedly (mine for minerals, harvest resources, etc). The more activity a player conducts, the more soft-currency he can gain. This type of currency can be used to purchase a large array of virtual goods. In many cases these are vanity items (see: Virtual Goods) with minor or no effect on gameplay. 

  • Hard-cash:  Also known as hard-cash, premium currency or VIP currency, this monetary system must be purchased in unique-value bundles. Though most games confer a small amount of Hard Currency to every new player, allowing him to experience the “joys” of premium goods, it is usually quickly consumed. Hard Currency enables players to purchase unique or rare goods. Many of these items have a very appealing look, a limited quantity or a powerful game effect.
Dual Currency Items - Some social games offer premium goods with a dual price point. Players can purchas the item for an ultra-high amount of Soft-Cash (requiring the players to invest hours of game time) or for a small amount of hard cash. The strong contrast between the two price points is used to push players to instant purchase of premium currency.

Exchange Factor
Very few games enable players to exchange between soft and hard currencies. Those games that do enable it, use two mechanisms to control the exchange flow:
  • Exchange Rate: the exchange rate, as in real economy, exhibits how much one currency is worth in terms of the other. This is usually a round number (facilitating calculations) in the hundreds or thousands (e.g. – 1 gold = 1000 silver coins)
  • Periodical Limitation: The game introduces a daily, weekly or monthly limitation on exchange factors (e.g. – “you can exchange up to 10,000 silver coins every day”)

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