Repost: Interview with CEO Martin Herdina and Dan Taylor of fatfoogoo

As I mentioned in fatfoogoo inks deal with Digital River, I talked with CEO Martin Herdina and Dan Taylor of fatfoogoo. After trudging through the less than stellar recording (my fault for trusting Skype) of the call, I give you the thoughts of both men, who know something about microtransactions and their prediction of this business model that’s starting to get more notice by the video game industry.

What is fatfoogoo?

fatfoogoo provides developers of core and casual games, virtual worlds, and social networks with modular monetization packages that have been ‘real world’ tested and can help you make the most out of your virtual property.
This includes subscription management, management of virtual currencies and electronic wallets, virtual asset stores and play-2-player trading capabilities. Our secure transaction technologies mean that studios are free to focus on what they’re best at: Making the Game.

You guys are mainly an outsourcing middleman for developers for microtransations, is that the purpose of the company?

That is correct. From a company history perspective, initially we tried to become the eBay for virtual goods for player to player trading in a legitimate form. We started in some grey market environment without direct game integration or publisher relationships. The good thing is we have built some smart technology around that. When we started business development talks with publishers, they got back to us, and said “Hey, we love your technology, that’s the future. We all want to invest into the microtransaction base, but we want to run it ourselves, so if you can license your technology. This is what we want to do.”
This is the feedback we heard back from 9/10 publishers. It changed our position and market strategy. This is how we became the middle man for in-game commerce. It is something we do quite well.

What is the goal of fatfoogoo in regards to microtransactions?

Our goal is simple: We’re here to provide developers with a secure, real world tested, microtransaction platform that can be seamlessly integrated into their existing product, or designed into the title from the get go. We’re here to let game developers do what they do best: develop games.

Is the system mainly for in-game purchases?

We offer solutions with a web store, which I think is good, our core is providing API integration into the game. Some clients like a hybrid solution. So there are base stores in the game, purchases of virtual assets or coin in the game and the same thing replicated outside the game in web browsers which can keep track of transaction history.

What are the anti-fraud measures?

On fraud detection, there are two components. One analyzes patterns which points to potential fraud. An example is someone who just registers and goes straight to high price items. It is somehow comparable to a pattern we already have in place. An ip address in Austrailia, credit card in Europe, and address in US, user behavior; this determines a certain risk rating, depending on the pattern and behavior.

The second acts with the rules engine linking risk points to content questions. A low risk rating and everything is open to the player, a medium risk and there is a charge back possibility, and high risk would require prepaid credit cards only for purchases. If someone acquires 1000 points, they’re locked out of the system. We check transactions. The more transactions we have, the more data we analyze from users and payment partners.

Have you ever seen it happen?
Whenever there is real cash involved, people want to trick you. People who buy straight from the publisher, the most common fraud is a false charge back. For example, he makes a transaction for $10.00, gets the virtual goods, and calls Paypal and says he never got the goods. We have to revert the transaction and then log them in the system and he can only get offered credit cards with no charge back option. There is a lot of risk with fraud in online transactions. About 2-5%.

How is the market for microtransactions in Europe?

The microtransaction market in Europe is very similar to the US market. Gamers in Europe tend to play lightly different type of micro-tx models than in the US and Asia, the most successful franchises and publishers are probably habbo hotel, Tibia, Runescape, BigPoint and GameForge. Gameplay is more important than community and society recognition giving EU-companies like Stardoll a greater market potential in the US than in Europe.

Europe is a bit behind, the mobile games base is far ahead of the US, and microtransactions/free to play is something Europe is picking up. But nothing compared to US or specifically Asia where these models are dominating all types of genres. In Europe, it isn’t that broad yet, but its increasing as well.

Casual market work better with microtransactions?

Hardcore gamers are used to spending a monthly fee and having unlimited play. Casual gamers are the people who play sporadically. Statistics say 35% play games, which could be the installed games on Windows, and that is the target group for casual gaming. The iTunes store is a good example where investments are super low.

Dan Taylor: Imagine a social game on myspace or newgrounds. These types of casual games, their numbers are outstanding. Obviously, those producers want to get an ROI or even make some money for their efforts. Imagine the casual game genre right now if subscriptions were applied, these games would not be around.

Publishers are looking now at the amount of eyeballs and a way to offer customers more value and more enjoyment. It presents both parties with a win/win. If extra content is being released, my opinion is that the producers should be financially rewarded. I might want to dress up my sackboy in a ninja costume; ok, bad example, sackboy isn’t a casual game, but you see where I’m going with this.

I may or not have the ten to fifteen hours to play through a game to either win an item as a prize or get enough currency, but for an end user from a pure enjoyment standpoint, microtransactions lands in the middle of the producers quandary of how to make money and provide more content for end users. Give me more content, I’m happy to pay for it.

Apple changed their pricing strategy recently, is there a perfect price point for microtransactions to have?

Wallets containing virtual currency breaks the psychological barrier for the customer. It can be much lower than having to spend 1 or 2 dollars for an item. The price can go much lower with a microtransaction structure. Like an item for five cents or 10 cents. A typical fee structure will kill the margin, but by having some kind of wallet in place, you can really offer micro-microtransaction, and still give the customer the opportunity to purchase items in a game.

Do you see a difference between DLC and microtranstions?

There are two perspectives.
Technically, they are essentially the same thing. A sword or clothing or expansion pack, essentially it’s a shopkeeping pack. We make sure that fraud is minimized, so technically no difference.
From a marketing perspecitive, there’s a huge difference. Content packs are still more related to the old-fashioned model; you pay once, and then you start playing. In-game content is totally different, the buying process is different typically in the game. When you think of in-game purchases of virtual goods, time has passed where you spent real dollars. It’s a non-disruptive purchase experience. Make sure that currency you earn in-game or with cash is all part of the overall game experience.

Return on Investment with DLC/microtransaction?

There are so many titles that wanted to copy World of Warcraft, but all these games that had a monthly fee reached a critical mass and no longer are in existence. You can’t compete with WoW, the target group is different. Free to play is in the casual gaming space, play just on your lunch break. WoW is something for the hardcore gamer. When you pay $15 per month and you have an unlimited experience. The business risk for free to play is lower.

What do you see in the future for microtransactions globally?

We’ve seen a dramatic spike in both interest and activity of microtransactions over the past year. As more and more titles continue to add this attractive monetization option, obviously more and more consumers become used to/comfortable with microtransactions. One additional driver is the decrease if advertisement revenues resulting from the economic downturn, leading game publishers to micro-transactions based monetization models as alternative free-2-play revenue stream.

Looking forward, microtransactions have historically been centered in the Asian market, but with top level companies like EA and SOE experimenting with the free-to-play/microtransactions model, at this point, I’d say ‘the sky’s the limit’.

Is there expansion of microtransactions beyond the MMORPG genre?

There is. Actually we see the majority of ‘legitimate’ micro-transactions outside of the MMORPG space with great examples in almost every gaming genre
Nexon’s Combat Arms is a great example of a free-to-play first person shooter that have really nailed it with their ‘Black Market’ in-game item store. Social and Casual games also offer huge opportunities for creators to monetize via microtransactions, and lest we forget, virtual worlds. One of our current clients, Rebel Monkey is currently using microtransactions within their virtual world/casual MMO, CampFu. Another interesting, and non-game related use of microtransactions has been proposed as a method to save the newspaper industry.

What is the biggest obstacle for the general acceptance of microtransactions?

1 – Education. Meaning, unfortunately microtransactions have taken the heat as being a “nickel and dime you to death” method of monetization in gaming. But this opinion was formed during a time when only a handful of games were going to the MMO format, and subscriptions were the de facto method. With more and more “casual” players coming aboard, they see the value and convenience of a purchase here or there vs. the “lay your money down at the front door if you want to play” concept.
2 – illegitimate item trading in MMORPGs. Players are used to experience gold-farming driven item sales in games like WoW, badly impacting gameplay and giving wealthy players an unfair advantage.

In contrast, games designed as micro-tx/free-2-play titles have incorporated this in the game-play and game balancing. This ensures a fair gaming environment for paying and non-paying users and guarantees enjoyment for all players.

What is the greatest strength that microtransactions have over typical subscription games?

First and foremost, I believe that gamers should have a choice. Having the option to choose between a subscription based title and a free-to-play/microtransaction based title is better than no choice at all. Obviously, both options have their strengths and weaknesses, but from what we’ve seen, subscription models generally appeal to a “core” gamer – one that joyfully spends hours upon hours working their way through a highly complex virtual world.
Microtransactions on the other hand tend to appeal to those that are a bit more casual about their game play, want to have a good time, but don’t necessarily want to lay down a monthly subscription fee, because they really can’t see the value in a long(er) term investment, if they can’t commit to the play time required to justify the value of their purchase. Again, microtransactions facilitate enjoyment of the game, without the time constraints/restrictions of subscriptions.

With game developers outsourcing development, how will outsourcing microtransaction systems benefit the industry?

Let’s be honest, gamers are impatient people, myself included. As soon as the first screenshot is leaked, almost everyone who’s a fan of the genre, brand, or series is chomping at the bit to get their hands on this new pixel magic. Wouldn’t it be a shame if a title was 90% complete and ready to launch, when the folks developing the microtransaction unit suddenly discover that they’ve missed a step, and in-game item fraud (for example) could be a huge problem?
Now you’ve really got a situation on your hands. Game ready to go, gamers ready to consume, a hold up in the monetization backend. Ouch. Instead of re-inventing the wheel, why not simply come and talk to a microtransactions system expert about what can and can not be done within your title? That’s why fatfoogoo is here.

What is the impact of the Digital River/fatfoogoo partnership?

fatfoogoo and Digital River is a combination of best-of-breed in-game-commerce technology with corporate strength and loads of experience in the e-commerce space.
Sales-wise Digital River is going to allow their existing and prospective corporate clients benefit from fatfoogoo’s technology assets, the fatfoogoo clients can leverage DR’s extensive payment network and also their service and operational experience in maximizing commerce revenues
We are a start-up company focusing on technology, what we have been liking is the various strong US networks, but we can’t always have people camping in front of big name companies.

Dan Taylor: That doesn’t work because I camped in front of EA for over a month, and they just threw me out of the parking lot eventually.

It benefits clients with this partnership, this is like a 1+1=3, no it’s like a 1+1=7 partnership, it’s a win/win situation for everyone.

What should gamers know about fatfoogoo and how it will affect them?

Gamers should know that fatfoogoo has vast expertise and real-life experience in the micro-transaction space. What we do might be boring compared to designing flashy games, but we do these tasks really well.
Gamer should therefore be assured that games being powered by fatfoogoo technology will offer comprehensive in-game stores, a wide range of payment methods, will filter out fraudulent behavior – therefore taking credibility and security concerns away and allowing players to focus on the fun parts of the game.

I thoroughly enjoyed my talk with Martin Herdina and Dan Taylor, with some small technical problems overcome; I learned about more about the business of microtransactions and how they will effect the video game industry in the future.

I would like to thank Martin and Dan for taking time out of their day to have the cross-continental talk. It’ll be interesting to see where else fatfoogoo’s technology will end up.

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