Alistair Fairweather

Virtually broke

2010-02-05 08:30

It was bound to happen. The multi-billion-dollar market for virtual goods has just spawned an even more abstract (and brilliant) idea: virtual debt. Who would need or want such a thing? The answer lies in the somewhat seedy underbelly of the casual gaming industry.

Chances are, if you're one of the 2.6 million South Africans on Facebook ,you've either played a game like Mafia Wars or FarmVille, or at the very least been annoyed by your friends trying to give you a duck or recruit you into their gang.

Players of these games fall into two broad categories: the time-rich masses who will happily spend hours on a game but would never fork out actual money, and the time-poor minority who are rich (or lazy) enough to pay their way to victory.

Not convinced people would pay cash for a herd of virtual cows or a virtual machine gun? Zynga, one of the big players in the casual gaming market, would disagree. They reportedly made over $100m in revenue last year alone.

How is this possible? These games are played by tens of millions of people across the globe, many of whom have both credit cards and a lust for victory (or virtual crops). It's a question of scale - you only need to convince a few percent of players to pay a few dollars a year and you have an entire industry.

Credit scores

But there's always been a cap on that percentage defined by the number of people with both a credit card and the willingness to use it online. Younger players often don't have one yet and many older players aren't comfortable with transacting online.

That's just where virtual debt comes in. Instead of paying up-front, you can sign up to the cutely named Kwedit and get your virtual doo-dats on tick.

All you have to do is promise to pay them back within an agreed amount of time. If you don't, your virtual credit score declines, cutting off your access to further loans.   

So what's to stop players simply signing up multiple accounts and running up a massive virtual debt that they never intend on paying? Simple - each player profile can only have one Kwedit account. Yes, players could start several new profiles, but this would spread their virtual cash thinly and defeat the whole object. Your virtual goods might also be repossessed or your gaming profile frozen.

Besides, they've made paying extremely easy. You can print out a barcoded slip and take it to a local convenience store who will accept payment on Kwedit's behalf. Or you can post them the money in a handy self-addressed envelope. You can even transfer your debt to a willing friend or family member to pay it for you.

And let's not forget that these are virtual goods. They don't cost the gaming companies any real money, at least not amounts measurable per item, so they have very little to lose.

Instant gratification

None of Kwedit's ideas are revolutionary. There are dozens of services that use retailers to allow you to pay online without a credit card, and does essentially the same thing, but requires a credit card.

The genius of their model is in their approach to the market. They aren't offering an easy way to pay, they're offering instant gratification. After all, virtual goods are the ultimate impulse purchase. And when the actual cost of what you're selling approaches zero, debt is essentially free.

If they can make it work for games, why not music or movies or other digital products? They could simply restrict these purchases to people with very high Kwedit ratings, and thus open up a whole new revenue stream.

So Kwedit have neatly solved a problem for consumers and businesses and in so doing insinuated themselves into one of the fastest growing markets on the planet.

Since they only launched yesterday there's no way of telling if their model will actually work, but I'm willing bet you R100 it will. Can you loan me the money?

- Follow Alistair on Twitter: @afairweather

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