Improving Canada’s SR&ED Program for Startups

Today, during Ontario’s Civic Holiday, I finally got around to filling out Deloitte Technology Fast 50™ CEO Survey. There was an interesting question that sparked a thread that I’ve been thinking about lately:

“Specifically, do you think the SR&ED tax credit program is pretty good as is, or needs improvement? If it needs big changes, what would be the first change you would make?”

For those of you who don’t know what the SR&ED program is, go learn more because it can save your business tons of cash over time and help you finance your business with non-dilutive government assistance.

For those of you running (or have previously run) early-stage stage startups, here are my thoughts: Currently SR&ED will refund a portion of a startup’s R&D costs based on expenses incurred during the previous year – some of those earliest expenses claimed were incurred 18 months prior to the claim. For startups, this is an eternity. Today, startups can grow and die violently before they get their first SR&ED claim, which could have helped them to pay one more employee, solve one more problem or help one more customer.

The Canadian government should consider modifying the SR&ED program to include a faster-reimbursement timeframe for startups (making less than $1,000,000 in revenue per year). For example, this could mean making claims quarterly and being reimbursed within 60-90 days – this would massively improve startup financing in the short-term. A modification, as requested, would help startups build value and growth potential more quickly and help the overall competitiveness of the Canadian technology sector.

Will anyone help to stand behind an initiative to get the Canadian government to improve the SR&ED program for startups? Join the conversation in the comments below.

Migrating Life to the iPad

As a first-generation iPad skeptic myself. I have been quickly converted to the opposite side within 1.5 days of tinkering, downloading apps and discovering how the iPad can change my life.

Initially, I thought that I should wait for the second-generation iPad, which would likely contain forward and backward facing cameras, a faster processor, more RAM, better resolution, 4G network support (WiMax, LTE), etc… needless to say, I’m not too upset that I made the switch earlier than originally anticipated.

The ultimate use cases include the ability to connect to all my cloud-based documents, spreadsheets and presentations using documents-to-go premium (connects to Google Docs, Dropbox, MobileMe and other services) and to have a form factor that allows me to easily read RSS feeds (using Feeddler) and quickly clip news stories to Twitter, Facebook, email and Evernote. It also doubles as a good mobile blogging client (writing this post from WordPress for iPad).

Speaking of Evernote, I have also recently made the switch to clip and tag various elements of my life through its MacOS, Windows7, Google Chrome (browser extensions), iPhone and iPad apps — awesome!

Some essential news apps include Bloomberg, WSJ, NY Times, AP and Globe2Go (if you subscribe). For weather, get Accuweather Cirrus.

One disappointment was that I couldn’t download and register with Netflix, which I wanted to use for streaming movies and TV shows; Netflix, if you’re listening, please come to Canada soon!

I’ve included screenshots of my first 2 pages of apps for your complete review and you’ll notice that a few legacy apps from the iPhone have still made it to my list including Skype, which allows me to easily call anyone using Skype-out minutes (bonus: connect via Bluetooth handset for a very phone-like experience.

Page 1

Page 2

So, what am I still missing?

TEDxToronto 2010 Coming Soon

This year I got involved with TEDxToronto2010, an independently organized TED event held in the great city of Toronto. If you’ve never seen a TED event, go watch a few talks online. You’ll be inspired.

The theme for Toronto’s 2nd annual TEDx conference is “A Call to Action”. We, the organizers, want to see real change come out of the event. We want speakers to challenge attendees and we want attendees to challenge themselves and each other. A Call to Action is our challenge to everyone who comes across TEDxToronto to be passionate, excited and driven to make positive change happen.

So far, we’ve got an extremely good lineup of inspirational speakers who are doing magnificent things. The line-up (so far) includes:

My role in this event is to help drum-up some sponsorship activity. After all, what company or organization doesn’t want to be affiliated with thought leadership, passionate and driven individuals and folks that change the world?

We are currently seeking sponsors for the following categories:

  • Innovation Sponsor: $10,000+
  • Inspiration Sponsor: $6,000+
  • Conversation Sponsor: $4,000+
  • After-Party Sponsor: $2,000+

Most companies and organizations choose to sponsor TED events because they want to leverage ideas, technologies, design, and education to help create a better future; because they will be investing in the creation of a community who believe in the power of ideas worth spreading; and because they believe in bringing together corporations and individuals who want to be change agents surrounding remarkable thinking and ideas.

Please contact me or leave a comment below with your contact details if you’re interested in sponsoring this year’s TEDxToronto event. I’ll make myself available to answer any questions, concerns or comments that you have and make sure that your organization gets the spotlight it deserves at the conference!

More info @ TEDxToronto 2010 Announcement

Choosing Product Features

Today I came across the question of how to best choose product features throughout the course of development of a product.

Of course, there are several approaches that you can take to figure this out. In fact, I’d love to hear feedback from others below. At the onset of determining your feature set, it helps to have a good understanding of what your users want. However, please keep in-mind that the features your business chooses to develop must also fit the long-term vision for your product. If you stay short-sighted for too long (i.e. fulfill immediate needs of your customers), you may fall into a habit of being reactive as opposed to proactive in developing new and innovative feature sets.

One method that I like to use is taking a holistic view of each feature that would be under consideration for development and figure out its net business value ROI, where [Return = (measured) Business Value] and [Investment = Development Time spent (on a given feature)]:

Step 1. Approximate how long it would take to develop/integrate each feature into your product.

Step 2. Measure the Business Value that each feature would add. Business Value could be things like increase user retention, increase monetization, increase viral or other distribution, increase engagement or any other metric that you find adds value to your business. You may need to approximate a business value here. Choose a scale that works for your metrics and try to stick to it.

Step 3. Work our your ROI = (Business Value / Development Time) for each feature. You will begin to see which features are going to be big payoffs in the long-run.

Most recently, I have been using SCRUM processes to manage products. Do you use SCRUM? If so, what tweaks have you made to the SCRUM process that you’ve found improved teamwork, decreased iteration time and led to better product-wide planning?

The Future of Contextual Mobile Commerce

In the early days of the gold rush to create location aware and contextually relevant mobile applications for smartphones, I was constantly bombarded with business plans that showed revenue models driven from advertising. Although advertising is a plausible way of earning revenue, there is a high level of inherent risk since those businesses are largely at the mercy of market rate CPMs/eCPMs and available ad inventory (unless you have a rockstar in-house ad sales team). Ad inventories are beginning to improve as advertisers are becoming more and more aware of the high interaction and engagement rates of mobile ads. However, for startups looking to differentiate in their niche, monetizing solely through ads is a risky road to travel. That being said, I believe that ads are still relevant  for *lite* versions of apps that supplement a paid model of some form and for monetizing certain consumers that would not otherwise become a paying customer.

Tim O’Reilly wrote a short article last week on the convergence of Advertising and E-commerce and I thought he hit the nail right on the head. He says that “E-commerce is the killer app of the phone world. Anyone whose business is now based on advertising had better be prepared to link payment and fulfillment directly to search, making buying anything in the world into a one-click purchase. Real time payment from the phone is in your future.” I completely agree. Square is a great example of real-time point-of-sale (POS) coming to iPhone.

In the article, O’Reilly arrives at this conclusion by making a few theories about what can be expected from the marketplace based on some recent announcements and common sense:

  • Google, Apple, and Microsoft will announce e-commerce programs akin to AdSense, in which retailers will register with “app stores” to allow physical goods and services to be bought as easily as apps
  • We can expect announcements of partnerships between phone providers and Amazon or Wal-Mart to fulfill mobile e-commerce requests

There are a number of mobile apps that are positioned well to capitalize on some of these trends such as foursquare and other mashups of local and geocoded information. IMHO, there is a more exciting category that is only starting to gain excitement. Companies like Layar, Tonchidot (Sekai Camera), Mobilizy (Wikitude) and TAT (Recognizr) are creating augmented reality browsers and applications that use location data and combine it with image recognition technology to recognize specific people or places in the physical world and allow the application user to interact with them in some capacity. I strongly believe that these are some of the fundamental technologies that will make this category of future applications possible. By linking interaction of location-aware data through to payment and fulfillment functions, one can point a phone at a local pizza restaurant and order a pizza to their home en route. Another example may be pointing a phone at a friend and performing a money transfer with only a few clicks.

What killer apps can you think of that combine hyperlocal, e-commerce and fulfillment?

2010 Mobile Trends via Forrester

I finally had the chance to review the 2010 mobile trends predictions from Thomas Husson, a Senior Analyst at Forrester. The report hit on a fundamental concept: mobile performed exceptionally well during the 2009 economic recession. To reflect on this, the industry has really been bullish from an M&A perspective. As the year came to an end, the M&A market began to pick up with a number of acquisitions including the now-over-hyped Google purchase of AdMob as well as the Apple acquisition of Lala (music streaming service). Thus far, 2010 has seen continued M&A activity, with emphasis on mobile advertising companies including Quattro Wireless being acquired by Apple and Ad Marvel being acquired by Opera. Larger industry players are plucking companies to secure their seat at the table to reap the profits that the mobile industry is beginning to offer maturing companies. There is also a flurry of investment activity surrounding mobile games companies (which I will leave for another post).

The 2010 Mobile Trends report offers these high level statements:

  • More brands will start taking the mobile web into account in their strategies.
  • Innovation in mobile payments will accelerate.
  • Google will shake up the mobile navigation business.
  • Location will start enabling richer mobile experiences.
  • Social Computing and mobile phones will expand their love affair.
  • Live mobile TV will be hyped again.
  • The OS arms race will heat up.
  • Application stores will continue to flourish, but none will replicate Apple’s success in 2010.
  • Some operators will want to reduce their increasing dependency on Apple.

Read the Forrester blog for a deeper dive into these trends.

My $0.02 on the “Live mobile TV” Trend
If you’re a die-hard TV fan, getting live TV to your mobile phone has been around for a while from Slingbox, which allows you to stream shows from your PVR/DVR at home to a BlackBerry or iPhone. In 2010, I believe much more than live mobile TV is going to heat up in the mobile video segment. Since mobile carriers are now extending the capabilities of their networks beyond 3G, such as the multiple WiMax network deployments by Clearwire/Sprint, higher-quality mobile video finally has rails that can support its intense-bandwidth needs. This means more services that will bring consumers music videos, concerts, plays, festivals, live sporting events, tv shows (live and archived), movies (full length and in bite-sized snacks) — and my personal favourite — video-calling. I’m quietly keeping my fingers crossed that the iPhone 4G supports video calls! One last thing, mobile advertising networks will likely be the default solution to monetizing “lite” apps; as mobile video continues to build traction, watch out for hype surrounding mobile video advertising to heat up.

Creating a Better BlackBerry Experience

Over the last 18 months, I have had the unique opportunity to become entrenched in the mobile ecosystem from the viewpoint of business startups, independent developers and as a consumer. I walk around with a BlackBerry Bold and an iPhone and test smartphone apps in all shapes and sizes.

At the BlackBerry Partners Fund, we’ll invest in mobile businesses agnostic to the device that the application is based on; however, we expect that as a business owner you’ve chosen to target the right devices for the right reasons in the right market verticals. With that in mind, I get the opportunity to see the merits of developing applications for one platform versus another in a variety of contexts and business situations. From my experience, I have learned that generally, developers want to reach as many target users (or screens) as possible with the minimum amount of work, cost and time invested – and this makes a ton of sense!

BlackBerry Partners Fund is often perceived as the corporate venture arm of Research In Motion (“RIM”) – but it is not. RIM is an investor in the Fund and it is co-managed by RBC Venture Partners and JLA Ventures. As an employee of RBC, I don’t have access to internal information at RIM and I operate at an arm’s length from the company. However, as a fellow Canadian, I would love nothing more than to see RIM continue its dominance in the global smartphone market.

For RIM to remain one of the leaders in the marketplace, I strongly believe that a few fundamental changes need to happen at the developer level through to the end-user experience.


Figure 1. Mobile application value chain from developer to end-user.

Developer Tools
As I mentioned previously, developers want to find the fastest, cheapest and quickest way (while retaining quality) to develop their applications. Many developers who develop for BlackBerry run into two huge fragmentation issues – the first at the device level and the second at the carrier level. My advice to RIM is to either acquire a company that has figured out how to port between BlackBerry models or develop an in-house multi-device porting tool that can be released as part of the BlackBerry SDK for developers. A tool with these capabilities would be helpful to RIM and to developers; there’s a simple equation: “BlackBerry-wide porting tool = more developers + more applications (net, on more handsets) = more revenues for RIM and developers + happier developers” (Note: No scientific studies exist to prove or disprove this equation). Just to be clear, RIM isn’t the only company with this problem. Device software fragmentation has been a problem for Windows Mobile for years and is now beginning to become an issue for Google Android. Microsoft is now trying to combat this with the Windows Mobile 7 platform by taking a standardized approach with no backward compatibility.

Application Stores
Application stores have become an essential distribution platform for mobile applications since the launch of the Apple App Store and are expected to reach $7 billion in revenue in 2010. One of the core elements to ongoing vitality in the app store ecosystem is the ability to create a seamless customer experience, which includes availability of quality apps and the ability to purchase apps easily and quickly, while on-the-go. RIM has a great start with BlackBerry App World (available via mobile and online), but for RIM to improve upon their current application store, I strongly believe that a number of things need to happen:

(1)    A credit card needs to be added to each user’s profile to allow payment beyond PayPal.

(2)    BlackBerry App World needs to come pre-loaded on all handsets; in situations where carriers keep “walled-gardens”, there should be rev share deals in place to push down App World and split revenues on pre-agreed terms with RIM rather than fragmenting distribution for developers who have a hard enough time distributing across all handset models.

(3)    BlackBerry App World needs to run faster and without as many bugs; it crashes far too often IMHO.

I’d like to further note that easing the end-user’s ability to purchase mobile applications would result in more revenues going back to developers who will in turn create more compelling applications for users (as seen in Figure 1, above). It’s a very nice cycle that would benefit RIM, developers and consumers.

Alternative or Cloud Device Management
I think that Apple maintained such a strong, early and rapid acceleration of mobile application adoption because of their centralized billing platform and iTunes. iTunes was a very smart way of leveraging a desktop application (used frequently) to create a simple management console for the iPhone. I believe that RIM should take on a similar strategy. My recommendation to the company would be to have each BlackBerry user create a profile online, hosted in the “cloud”, and accessible through a variety of interfaces. As a primary interface, I would suggest that RIM creates a plug-in that hooks into Microsoft Outlook (the most commonly used application by business users) that would allow full device management capabilities (updates, application purchase, install, sync, etc…); this would take place of the current BlackBerry Desktop Manager. I would also make alternative means of syncing the ‘Berry available such as a plug-in for Firefox or a completely online, hosted solution. However it is done, the core premise remains: make it simple for the user to update, backup, sync and install new applications. IMHO, the simplest way is to embed or plug-in to an existing application that is already running on the user’s machine for the majority of the day. Just like the proverb “out of sight, out of mind,” I believe the opposite is true here.

Readers, I’d love to know your thoughts. Do you agree with any/all of this post? Did I miss anything fundamentally important to RIM’s success going forward? Would you like your device profile and information stored in the cloud?

Note: These are my personal beliefs and do not reflect the thoughts and opinions of the BlackBerry Partners Fund.

Gartner: Top 10 Consumer Mobile Apps for 2012

Gartner, one of the leading market research firms, has recently identified the top 10 consumer mobile applications for 2012. The research firm listed mobile apps based on their “impact” on consumers and industry players, considering revenue, loyalty, business model, consumer value and estimated market penetration.

“Consumer mobile applications and services are no longer the prerogative of mobile carriers,” said Sandy Shen, research director at Gartner. “The increasing consumer interest in smartphones, the participation of Internet players in the mobile space, and the emergence of application stores and cross-industry services are reducing the dominance of mobile carriers. Each player will influence how the application is delivered and experienced by consumers, who ultimately vote with their attention and spending power.”

Gartner reports that the top 10 consumer mobile applications in 2012 will include:

No. 1: Money Transfer
This service allows people to send money to others using Short Message Service (SMS). Its lower costs, faster speed and convenience compared with traditional transfer services have strong appeal to users in developing markets, and most services signed up several million users within their first year. However, challenges do exist in both regulatory and operational risks. Because of the fast growth of mobile money transfer, regulators in many markets are piling in to investigate the impact on consumer costs, security, fraud and money laundering. On the operational side, market conditions vary, as do the local resources of service providers, so providers need different market strategies when entering a new territory.

Other than SMS, another technologies such as USSD, NFC, or web applications may also play a role in increased mobile money transfer.

No. 2: Location-Based Services
Location-based services (LBS) form part of context-aware services, a service that Gartner expects will be one of the most disruptive in the next few years. Gartner predicts that the LBS user base will grow globally from 96 million in 2009 to more than 526 million in 2012. LBS is ranked No. 2 in Gartner’s top 10 because of its perceived high user value and its influence on user loyalty. Its high user value is the result of its ability to meet a range of needs, ranging from productivity and goal fulfillment to social networking and entertainment.

Some interesting services that already exist include: Foursquare, buzzd, and about 500+ iPhone applications.

No. 3: Mobile Search
The ultimate purpose of mobile search is to drive sales and marketing opportunities on the mobile phone. To achieve this, the industry first needs to improve the user experience of mobile search so that people will come back again. Mobile search is ranked No. 3 because of its high impact on technology innovation and industry revenue. Consumers will stay loyal to some search services, but instead of sticking to one or two search providers on the Internet, Gartner expects loyalty on the mobile phone to be shared between a few search providers that have unique technologies for mobile search.

No. 4: Mobile Browsing
Mobile browsing is a widely available technology present on more than 60 percent of handsets shipped in 2009, a percentage Gartner expects to rise to approximately 80 percent in 2013. Gartner has ranked mobile browsing No. 4 because of its broad appeal to all businesses. Mobile Web systems have the potential to offer a good return on investment. They involve much lower development costs than native code, reuse many existing skills and tools, and can be agile — both delivered and updated quickly. Therefore, the mobile Web will be a key part of most corporate business-to-consumer (B2C) mobile strategies.

No. 5: Mobile Health Monitoring
Mobile health monitoring is the use of IT and mobile telecommunications to monitor patients remotely, and could help governments, care delivery organizations (CDOs) and healthcare payers reduce costs related to chronic diseases and improve the quality of life of their patients. In developing markets, the mobility aspect is key as mobile network coverage is superior to fixed network in the majority of developing countries. Currently, mobile health monitoring is at an early stage of market maturity and implementation, and project rollouts have so far been limited to pilot projects. In the future, the industry will be able to monetize the service by offering mobile healthcare monitoring products, services and solutions to CDOs.

No. 6: Mobile Payment
Mobile payment usually serves three purposes. First, it is a way of making payment when few alternatives are available. Second, it is an extension of online payment for easy access and convenience. Third, it is an additional factor of authentication for enhanced security. Mobile payment made Gartner’s top 10 list because of the number of parties it affects — including mobile carriers, banks, merchants, device vendors, regulators and consumers — and the rising interest from both developing and developed markets. Because of the many choices of technologies and business models, as well as regulatory requirements and local conditions, mobile payment will be a highly fragmented market. There will not be standard practices of deployment, so parties will need to find a working solution on a case-by-case basis.

No. 7: Near Field Communication Services
Near field communication (NFC) allows contactless data transfer between compatible devices by placing them close to each other, within ten centimeters. The technology can be used, for example, for retail purchases, transportation, personal identification and loyalty cards. NFC is ranked No. 7 in Gartner’s top ten because it can increase user loyalty for all service providers, and it will have a big impact on carriers’ business models. However, its biggest challenge is reaching business agreement between mobile carriers and service providers, such as banks and transportation companies. Gartner expects to see large-scale deployments starting from late 2010, when NFC phones are likely to ship in volume, with Asia leading deployments followed by Europe and North America.

No. 8: Mobile Advertising
Mobile advertising in all regions is continuing to grow through the economic downturn, driven by interest from advertisers in this new opportunity and by the increased use of smartphones and the wireless Internet. Total spending on mobile advertising in 2008 was $530.2 million, which Gartner expects to will grow to $7.5 billion in 2012. Mobile advertising makes the top 10 list because it will be an important way to monetize content on the mobile Internet, offering free applications and services to end users. The mobile channel will be used as part of larger advertising campaigns in various media, including TV, radio, print and outdoors.

No. 9: Mobile Instant Messaging
Price and usability problems have historically held back adoption of mobile instant messaging (IM), while commercial barriers and uncertain business models have precluded widespread carrier deployment and promotion. Mobile IM is on Gartner’s top 10 list because of latent user demand and market conditions that are conducive to its future adoption. It has a particular appeal to users in developing markets that may rely on mobile phones as their only connectivity device. Mobile IM presents an opportunity for mobile advertising and social networking, which have been built into some of the more advanced mobile IM clients.

No. 10: Mobile Music
Mobile music so far has been disappointing — except for ring tones and ring-back tones, which have turned into a multibillion-dollar service. On the other hand, it is unfair to dismiss the value of mobile music, as consumers want music on their phones and to carry it around. We see efforts by various players in coming up with innovative models, such as device or service bundles, to address pricing and usability issues. iTunes makes people pay for music, which shows that a superior user experience does make a difference.

Additional information is available in the Gartner report Dataquest Insight: The Top Ten Consumer Mobile Applications for 2012.

Does Eliminate Pro Violate Apple’s Developer Agreement?

As an after thought to my last post on virtual goods, I published a comment discussing Eliminate Pro’s innovative play (or “experiment” says MTV Interactive)  on Apple’s changes to the App Store to allow for in-app billing on certain items. It’s been a successful experiment. As of yesterday, the game has been downloaded 500,000 times so far at a rate of about 25,000 an hour, currently making it the top free app in iTunes (via TechCrunch).

After some successful digging, playing the game and reviewing Apple’s Developer Agreement. Some red flags were raised…

Eliminate Pro, a game developed by ng:moco, is an action-packed first person shooter (FPS) game that progresses very slowly. The game uses this tactic to charge impatient users to play and progress through the game at a faster pace. The game allows users to buy more battery packs or cases (Power Cells) through the In-App billing system. This allows users to recharge faster, compete to earn more “credits” so that they can upgrade their fighter’s armor, weapons and other items (virtual goods). Power cells are the currency of the game.

What I want to know is where Apple is drawing the line in the sand in terms of what is considered a virtual currency and what isn’t. As per Apple’s iPhone Developer Program License Agreement (the “Agreement”), Apple states:

Additional Restrictions

2.1 You may not use the In App Purchase API to enable an end user to set up a pre-paid account to be used for subsequent purchases of content, functionality, or services, or otherwise create balances or credits that end users can redeem or use to make purchases at a later time.

2.2 You may not enable end users to purchase Currency of any kind through the In App Purchase API, including but not limited to any Currency for exchange, gifting, redemption, transfer, trading or use in purchasing or obtaining anything within or outside of Your Application. "Currency" means any form of currency, point, credits, resources, content or other items or units recognized by a group of individuals or entities as representing a particular value and that can be transferred or circulated as a medium of exchange.

Specifically, item 2.2 of ‘Additional Restrictions’ within ‘Attachment 2’ of the Agreement raises some obvious questions about how Eliminate Pro got approved. Eliminate Pro uses Power Cells (the virtual good that they sell) to buy additional energy (a resource) that they can use in a game to earn credits, which are redeemable for weapons, armor and other inventory items.

This seems to be in direct violation to the Agreement. Unless, however, Apple is okay with allowing “indirect” forms of currencies to work (Buy Energy > Spend Energy for Time > Use Time to gain Credits > Use Credits to buy Virtual Goods (weapons, etc…)). Some clarity please?

It would be great if some people (Apple execs, developers, anyone) could weigh-in on this matter. What types of “economies” or “currencies” can be established while still being compliant with Apple’s policies?

Please share your perspective below.

Virtual Goods: Market, Types, User Psychology

Virtual Goods have begun to penetrate social networks like Facebook and mobile applications like Tap Tap Revenge (by Tapulous) and I Am T-Pain (by Smule). They have spread like wildfire, with game developers itching to better understand the economics of virtual goods and the psychology of gamers. This post will explore the rapid market growth, types of virtual goods, user psychology and steps to launching virtual goods in your application or game.

Market Growth

The estimated market size has gone from a nascent space in 2008 to approximately $500 million (Aug. 2009; Source: Viximo) to over $1 billion by end 2009 (Oct. 2009; VentureBeat) only 2 months later. If you are at all surprised by this vast market size, you should know that the Asian virtual goods market is seven times bigger than US (estimated at $7 billion for 2009).

Zynga, one of the leading social games companies, launched a game called Farmville in June 2009, and has already become the most popular game application on Facebook with 62.4 million active users as of October 29, 2009 and will easily break through $150 million in 2009 revenue.

Types of Virtual Goods

Developers are very creative. So far, the types of virtual goods can largely be placed into 2 buckets:

  1. Decorative Goods: Do not affect game statistics / game play (e.g. avatars)
  2. Functional Goods: Affect game statistics / game play (e.g. Farmville tractors — did you know users bought 800,000 of them yesterday)

Since functional goods affect game play activities, game developers should give users the ability to either earn these items/goods through game play or provide a shortcut in acquiring them with a virtual currency. Functional goods can be managed to have low or high value price points; generally, the value of these functional goods can be set by carefully managing and understanding scarcity. Ensure to have some items that are very common (Developers: ensure to “prime the pump” by getting users familiar with using some free and low-cost items), and some that are very rare and expensive.

While A/B testing how much users will pay for items, understand that as the aggregate number of social interactions per user increases within an application, each rare item’s value will proportionately increase for those users. Another consideration while establishing demand for your virtual goods is whether or not you need a secondary market where users can sell, trade or profit from their virtual goods (See more from Bill Grosso’s presentation on Managing a Virtual Economy).

There are many reasons why a user would pay more for certain items. Let’s try to better understand game user psychology.

Psychology of Purchasing Virtual Goods

Users will buy virtual goods for many different reasons. Buying decisions will be based on a number of factors including user motivation, several forms of influence, boredom and competitiveness. If you’re a developer, think carefully about users of your applications: Why would they want to buy a virtual good within your application? What added value would they receive? Which other people would see they bought this good, and could they benefit as well? Below, I outline a number of different reasons why users choose to purchase virtual goods:

  • People are impatient (time = money) and want to advance through game play more quickly
  • People are competitive and want to get ahead (of friends, peers, the world)
  • People want to express themselves in unique ways (akin to the culture of decorating cell phones in Japan)
  • People want to feel good about themselves (donating to charity and publicizing)
  • Gifting allows people to foster and maintain existing relationships with others in an increasingly electronic world
  • Gifting allows people to create new relationships
  • People will return gifts due to the rule of reciprocation (influence), which prompts us to repay what someone has given us
  • Provenance (e.g. did a famous user own this item in the past?)
  • Branding (virtual goods branded by real-world companies)
  • Rarity (scarcity)

5 Key Steps for Launching Virtual Goods

In a presentation by Amy Jo Kim, CEO of Shufflebrain, about why and how virtual goods work, she outlined 5 steps for launching virtual goods.

  1. Create meaningful content
  2. Prime the pump with free goods or currency
  3. Create demand for premium content
  4. Offer fresh content at a range of price points
  5. Make it easy to purchase currency

There are many different companies that offer solutions to help with your virtual currency. If you’re looking for good vendors, try: PayPal, Gambit, boku, Zorg or $uperRewards.

Why are your users buying your goods? How did you generate interest or scarcity in your application? Please share your story and learnings about user psychology and buying decisions in the comments area below.