The Green Sheet Online Edition
June 14, 2010 • Issue 10:06:01
Prepaid's role in monetizing social media
With the game card sector of the prepaid card industry growing exponentially, it is becoming apparent how important prepaid cards are in helping online game and social networking publishers translate virtual services into real-world profits.
Game cards act as a way for game card publishers to monetize digital content and interactive experiences, according to Dr. Joost van Dreunen, Lead Analyst and Managing Director at SuperData Research Inc.
Game cards exist in "that intersection between traditional retail know-how and more modern, technology-based distribution models," he said. For van Dreunen, game cards answer the fundamental question of how online game and social media publishers get consumers to spend money in virtual worlds and on networking sites.
"On the one hand you have the phenomenon of the emergence of virtual item sales," he said. "At the same time you have a growing number of game publishers and entertainment publishers, which are primarily or almost exclusively online. How do you translate real money into virtual currencies? The gift card and the prepaid card business is very simple. ... It really enables and opens up revenue to publishers in a way that they haven't been able to do before. So you see a lot of people adopt it as one of their payment methods."
Accordng to a SuperData report entitled Prepaid Game Card Primer: Monetization and Marketing for Stored-Value Game Cards, 2010 marks a large expansion in the game card market as game publishers like Zynga Game Network Inc. and Meteor Games LLC roll out game cards in retail stores. SuperData estimates the new game card offerings will generate $55 million in 2010.
In May, social networking site Facebook and Zynga entered a five-year partnership. Van Dreunen believes the partnership is part of Facebook's strategy to monetize its content. While Facebook has hundreds of millions of users, it has struggled to generate revenue, he said. Facebook made money through advertising, but that dropped off when the recession hit.
Zynga, on the other hand, has effectively incorporated prepaid cards into its game mechanics, according to van Dreunen. "You can play and play [a Zynga game] and then you hit a ceiling unless you spend a little money," he said. "And they're very, very smooth. And they've figured out the secret sauce when it comes to persuading customers to hand over a little bit of money."
Take a small-dollar purchase of a game card used on a Zynga game to buy a virtual tractor in FarmVille, for example, and multiply it by over 100 million users, and "that's a lot of money," van Dreunen said. Facebook wants a percentage of that revenue, he added. "They want to be the platform that everybody goes to," he said. "And then they take 30 percent of whatever people spend. ... They've been missing out on a lot of the revenue that [Zynga] has been making."
Based on a survey of 3,152 prepaid card shoppers, SuperData found that the majority of game card users (76 percent) are between the ages of 13 and 17. That most gamers are teenagers plays into a primary function of prepaid cards: giving unbanked or underbanked individuals without access to credit or debit cards a tool for purchasing goods and services online.
"For game publishers, this means that by offering a prepaid card, they can gain access to a desirable consumer audience," the report said. Additionally, prepaid cards offer retailers three main benefits, according to the report. Prepaid cards:
1. Create no inventory on balance sheets
2. Come without risk to merchants
3. Maintain their value
First, until a card is activated at the POS, it is not considered inventory from an accounting perspective. "This is radically different than most of a retailer's inventory, which must be acquired and shelved," the report stated.
Additionally, prepaid cards are useless to thieves until they are purchased and activated, which eliminates the risk of theft for merchants. Finally, prepaid cards, unlike other products, retain their value and never have to be marked down by retailers, the report said. Van Dreunen sees the aggregation model for game cards as a growing trend typified by the Ultimate Game Card, a product of PlaySpan Inc. and managed by its subsidiary PayByCash. Money loaded on the card can be redeemed at hundreds of online gaming sites.
With limited retail space, "aggregator cards" are more practical than one card per game, van Dreunen said. Also, marketing myriad games under one trusted brand, such as Ultimate Game Card, allows game card buyers (such as parents) to purchase in-game credit for their children without having to know for what specific games, he noted.
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