Micropayments Finally Finding a Home

Virtually everyone can afford micropayments, but they haven’t caught on until now

Micropayments have been one of the Internet’s most-hyped and least-successful ideas — until now, as virtual world creators and video game companies are beginning to expect, and even depend on, players to buy virtual goods in little chunks.

For 29 cents, for example, she can buy a set of deep gray eyes framed by dark lashes. Sixty cents gets her a white tiger. Or for $1.21, she could have an infant named Baby Candy.

Five dollars a month doesn’t sound like much, but through these microtransactions – payments of little as a quarter for a virtual item – IMVU Inc. reaps roughly $1 million in revenue each month.

Micropayments have been one of the Internet’s most-hyped and least-successful ideas – until now, as virtual world creators and video game companies are beginning to expect, and even depend on, players to buy virtual goods in little chunks.

The idea has already taken hold in Asia, where piracy is widespread, making it harder for companies to profit from the traditional model of selling the games themselves. Now some game companies in the U.S. are taking a stab at micropayments as a serious source of revenue.

Instead of charging for each virtual item separately, companies sell chunks of credits – through PayPal, credit card transactions or physical game cards bought in stores like Target – usually for $5 to $25 at a time. Users then spend the credits in small installments, which often amount to just a few cents.

Corocan, of Aurora, Ill., says the money she spends is worth it, but anything more a few dollars a month “is taking it too far.”

South Korea’s Nexon Corp. has based its entire $266 million business on giving away games for free and charging small amounts of money for little extras that enhance the playing experience, such as virtual clothes for online characters and a $4.40 “slime stick” in the role-playing game “MapleStory.” Min Kim, the company’s vice president of marketing, compares it to the classic model of selling razors cheaply and making money on razor blades.

The company, founded in 1994, is an established success in South Korea, and now is expanding to North American markets, where most video game money is still made in brick-and-mortar stores. This year when Nexon launches “SugarRush,” its first game specifically for a North American audience, players will be able to customize their cartoon-like characters and battle with or against their friends.

Already, Nexon’s $10 and $25 game cards are big sellers in big retailers like Best Buy Co. and 7-Eleven Inc. In Target stores, Nexon says, its game cards are the second best-selling prepaid card after Apple Inc.’s iTunes. Target Corp. spokeswoman Brandy Doyle wouldn’t confirm that but said “I can say that we are very happy.”

Large U.S. game companies such as Electronic Arts Inc. are taking notice. The company’s chief executive, John Riccitiello, told a recent investor conference that micropayments will be crucial for EA’s business as it distributes more games directly to customers online.

As an example, he cited “Spore,” a highly anticipated game launching Sunday in the U.S. after years in the making. The game lets players create an evolving universe, from single-celled organisms all the way to civilizations capable of intergalactic travel. “Spore” does not yet use micropayments, but Riccitiello said he envisions eventually selling separate accouterments for the game like “body parts and planet parts and vehicle parts.”

“The microtransaction potential for this game is huge,” he said.

This year EA also plans to release “Battlefield Heroes,” its first online game whose revenue will come entirely from selling virtual items.

“The game is about creating action heroes, war heroes, almost like making a GI Joe toy,” said Ben Cousins, executive producer of the “Battlefield” franchise. He expects that “dress-up doll” items like a cool helmet, a bullet belt, or boots will be popular purchases, along with convenience items, such as being able to double the amount of points a player gets for killing an enemy.

Online micropayments are nothing new. They emerged in the 1990s but never really caught on, in part because early attempts often had people spend tiny amounts of money – a dime here, a quarter there – instead of buying a bulk of credits up front and using them in bite-sized bits.

Now when people buy virtual credits in larger increments and spend them over time, companies don’t have to worry about the cost of using credit cards or other payment methods for the individual transactions.

There also might have been a psychological barrier for people reluctant to spend money on digital goods they couldn’t hold in their hands.

Many of those conceptions probably changed as Apple’s iTunes Store got people comfortable buying digital tracks for 99 cents, said Craig Sherman, who heads Gaia Online, another online fantasy world. Gaia collects $1 million every month from players who buy virtual goods ranging from puppy ears to lightning bolts to something called a “coal tavern wench’s bustier.”

For now, online gaming companies in the U.S. still mostly rely on subscriptions and, increasingly, ad sales to make money on games. But micropayments are popping up more and more.

To play PlayFirst Inc.’s popular “Diner Dash,” for example, people can either pay $19.95 to buy the game or download an ad-supported version for free. Extra in-game items, such as Japanese lights or marble floors, are also available for pocket change to players wanting to spruce up their eateries.

Nexon’s Kim expects a “microtransaction explosion” in the next two or three years, as kids and teens used to paying for virtual goods get older.

“It’s a new, Web-savvy demographic,” Cousins said. “Micropayments and virtual worlds and social networks are a totally normal, completely unscary thing for them.”

Via Yahoo News