What happens when we add money, or things that work like money, to a gamified system? Then we're in the realm of virtual economics. And it's possible to get there in a number of different ways. Many gamified systems have rewards, things that the players get and they're often virtual rewards, things like badges. Well, if those rewards are persistent, if they're things that endure throughout participating in the activity, especially if the player goes away and comes back, then they can start to function as virtual goods. If the system is designed in a way that gives them some scarcity value, some of them are harder to get than others. Some of them are less widely available than others. Then those virtual goods can appear to have value to the players, just like a real world physical good does. The second way to bring in virtual economics, is to have point systems that involve points that are tradeable or redeemable. I.e.you can get the points and use them to buy a variety of different things in the gamified system, which themselves are virtual goods then, or you can redeem the points for things in the physical world. For a coupon or even for money in the physical world. In that case, we're starting to deal with a virtual currency. The points now operate like real money. They're a currency. They're a medium of exchange. What is a dollar or a Euro, or a Reminbi? It's not a thing in and of itself. It's just an accounting mechanism that's tradeable for other real world things, that we want, because people in that society, with the backing of governments, are willing to make that exchange. And say, if you give me a certain amount of money, I will recognize it and give you some other kinds of goods. So, the same thing can be true of point systems in gamified systems. If they are exchangeable for other things that people value, then they can operate like a currency. And finally, if the system allows transactions, if participants in the virtual system can trade with each other, directly or through some marketplace, then potentially we're in the realm of a full blown virtual economy. And we've seen this in a variety of massively multiplayer online games. Things like EVE Online as well as some virtual worlds like Second Light that are designed to have functioning virtual economies. And all of these can exist to a greater or lesser extent in gamified systems. So a couple of examples, virtual goods are a widespread phenomenon in many social games today. So games like Farmville. One of the ways that they were so successful as businesses, was they recognized that virtual goods could be unlocked as a way to monetize the game. Doesn't cost anything to play, but in order to achieve certain things easily in the game, or to get certain rare goods in the game, you've got to start to spend real money. So people think of those virtual goods as being really worth something, either because they had to pay for them, or because they had to work very hard to get them. This has been so successful that overall the virtual goods market is estimated at $7 billion worldwide in 2010, growing to 13 billion by 2016. But it's not just games. Gamified systems can have aspects of virtual goods and virtual currencies, and potentially even virtual economies as well. Think in particular about the gamified systems that are derived from loyalty programs. So here is an example that I picked out, almost at random, from NesCafe Australia something called Cup of Rewards. Typical loyalty type program. You get points for going to the site and putting in a code, because you bought your NesCafe products. And you accumulate the points, and then you can exchange them for discounts and for coupons to use on various other sorts of products. That's a virtual currency. It's making those points tradeable and redeemable for real world benefits. And therefore, it works like a virtual good or like a currency in any other case. The issue with a lot of these virtual currencies though, as with many other examples of gamification, and many other examples of loyalty programs, is that they're typically not built today with a focus on fun. With a focus on the design aspects of effective gamification. They assume that just the fact that you can just redeem these points for tangible goods, will be enough to motivate you to come back and participate and buy the desired products. But as we've seen throughout this class, tangible rewards have serious limitations. And to the extent that a virtual currency is just a way to harness a gamified system to tangible extrinsic rewards, it has all the limitations that I've already talked about. But it doesn't have to be that way. These systems can be designed in ways that focus on fun and that systematically, are designed to unlock intrinsic motivation, and that can also feed into the virtual economic aspects of the system. If designed well, these systems can have the attributes of both gamification and economics. So what does it take to design a successful virtual economy? The key skill is balance. I've talked about balance as one of the attributes of game design. It's ensuring the game is not too hard, too easy, too fast, too slow. One side doesn't always win, but balance is also critical in economics, because economics is about, not necessarily money. It's about scarcity. Anytime there is scarcity, when people make choices under those conditions of scarcity, they will tend to exhibit economic behavior. And scarcity is a variable in a gamified system that's defined, at least at some level, by the designer. And in any system where people have the ability to use virtual goods or virtual currencies, it's important to ensure that there's the right level of scarcity. The designer has to constantly balance, to ensure that there's not too much money, which leads to inflation and effectively devalues the currency, or too little, in which case, it's too hard to get. This is a process that can be called using faucets and drains. Faucets are things that put money into the economy. And drains are things that take it out of the economy. I guess if it's a drain then I should probably draw it this way, as you're going down the drain. But there are ways of balancing how much money there is in the economy. They could also be be called and sometimes are, sources and sinks. The design technique is to ensure that the balance is right. If you've got too much money in the system it won't be good or too little. Recall when I talked about the game Monopoly that when you pass go you get $200. That's putting money into the system, when you want to buy houses and hotels which are very valuable things, you have to pay money and that takes money out of the system. And this is something that effective game designers, building games around virtual economies, have learned to do. For example in World of Warcraft, way back at the beginning of the class, I showed you a little snippet of my character, and at the end of that clip, he turned into a dragon and flew away. Well that dragon is something called the Sandstone Drake is something that's pretty hard to get in World of Warcraft, or at least it was when it first came out. But that's also, once you have the ability to make it, really expensive to make. And the reason is that the designers of the game were trying to balance, with this and other things, the level of money in the world. And by creating something that's really desirable, because it's rare and hard to get, and therefore, high level players, ones who typically have a lot of money are going to try to get it. And by making that thing really expensive, they create a way of taking money out of the economy. And therefore ensuring that people don't just get richer and richer, to the point where the system goes out of balance. So building a gamified system is about ensuring that level of balance, wanting people to be incentivized to take money out of the economy in the right times and the right amounts. And also putting enough money into the economy so things don't get too expensive and too hard to purchase. The final point I'll make is that there's some real dangers in building these virtual economies, even though they have lots of potential benefits. We're talking about systems that may involve real money, or real tangible goods as rewards, and those are costly. And so, organizations setting up gamified systems that have these attributes need to make sure that they understand what kinds of obligations they're taking on. Secondly, they tend to be tangible extrinsic rewards. So all the concepts that I talked about earlier about the hedonic treadmill effect, where rewards start to become less and less desirable, and the crowding out effect, where people actually become less motivated for the activity itself, because they think it's so tied up in the reward. All of that's very relevant and an important caution to think about when building systems that have virtual economics in them. You don't want to build a system that falls into the trap of these tangible extrinsic rewards demotivating the enjoyable behavior. In order to ensure that the intrinsic motivation is still there, it's important to think about the scarcity and rarity and surprise value of the virtual goods. If something feels cool, not necessarily because it's valuable in a tangible sense, but because its something that's difficult to achieve, like that dragon in World of Warcraft, or it's really interesting and looks great within the gamified system, that might be something that still feels valuable to the players. Even though or basically independent of the tangible value associated with it. So there's much more that I could say about designing virtual economies. I wanted to put this unit in though just to ensure that you think about the potential of this as one technique to employ in gamified systems or other kinds of game like systems. But always be sure to do it in a way that's cognizant of all of the points that I've made elsewhere in the course.