Many economists will tell you that in the past several months the virtual economy has performed better than the real world economy.‭

Each day millions of people venture into virtual worlds such as Second Life or Club Penguin,‭ ‬or play online games such as World of Warcraft and Knight Online.‭ ‬And through microtransactions these people will purchase special empowering items,‭ ‬access passes,‭ ‬or even clothes for their avatars that make their worlds more fun and personal.‭

In a recent study,‭ ‬Virtual World Management updated it’s‭ ‬Youth Worlds Analysis finding that there are now over‭ ‬200‭ ‬youth-oriented virtual worlds live,‭ ‬planned,‭ ‬or in active development.‭ ‬Out‭ ‬of those,‭ ‬59‭ ‬virtual worlds use‭ ‬microtransaction‭ ‬and‭ ‬57‭ ‬are‭ ‬subscription-based,‭ ‬marking both as the most popular types.
‭
DFC Intelligence has also issued some preliminary findings on the top‭ ‬10‭ ‬MMOs from‭ ‬2008,‭ ‬in which pre-paid game cards and microtransaction-based business models were in place at the top seven revenue grossing MMORPGs‭ –‬ a strong indication that lowering the barrier to entry for players is a significant advantage over titles like Warhammer Online and Age of Conan,‭ ‬which are both strictly subscription-based.‭

Furthermore,‭ ‬Sony’s Howard Stringer announced at CES that microtransactions helped their company notch a cool‭ ‬$1m in‭ ‬2009‭ ‬alone from what was practically a limited exercise.‭ ‬Other reports cite games‭ ‬such as‭ ‬Mobwars‭ ‬bring in‭ ‬up to‭ ‬$1M per month.‭

Without question,‭ ‬there is an avalanche of information‭ ‬suggesting‭ ‬microtransactions‭ ‬can be‭ ‬a major source of revenue,‭ ‬and in some cases,‭ ‬a larger stream than subscription or ad-based models.‭

But before adopting this model,‭ ‬there are a few things you’ll want to know about the history of microtransactions,‭ ‬how it has evolved,‭ ‬and how you can take advantage of the opportunities it affords.‭

Historically,‭ ‬online games and virtual worlds have been monetized through subscriptions.‭  ‬But recently,‭ ‬the model has started to change:‭ ‬publishers have seen that an upfront fee is a significant barrier to customer acquisition—potential subscribers have many compelling free,‭ ‬or what we prefer to call pay-as-you-go choices for online games to play or virtual worlds to join,‭ ‬and that barrier is being removed.‭ 

So,‭ ‬game publishers have begun to move to a more flexible pay-as-you-go model,‭ ‬where microtransactions are used to monetize the games.‭

Theoretically,‭ ‬there is no cap to the revenue that can be generated from a user.‭ ‬This is in contrast to the fixed amount of the subscription model.‭ ‬Industry data for games that have switched to microtransactions have shown that the ARPU‭ (‬average revenue per user‭) ‬has risen by moving to microtransactions.‭

Even though microtransactions enable greater monetization within virtual games compared to subscription-based fees,‭ ‬there is still a great deal of difference between microtransactions of yesteryear and today.‭