Session Title: The Evolution of Habbo Hotel’s Virtual Economy by Sulka Haro (Lead Designer, Sulake)

Overview of Habbo Hotel

  • Age range is 12–17, with $74 million in revenue
  • Offices in 13 countries
  • They maintain 16 instances = 16 separate virtual economies
  • 10 years old this year

Sulka describes the 6 phases of change that the Habbo Hotel’s Virtual Economy has gone through

  1. No currencies
  2. Emergent currencies
  3. Paid currency
  4. Tradable paid currencies
  5. Dual currencies
  6. “Official” secondary market

Phase 1: No Currencies

When the game started, there wasn’t an in-game currency and players would just text-message to buy a chair. This made sense because their audience had high mobile penetration.

They began to encounter problems with social engineering attacks. For example, if you had to buy a chair by texting a message to a number saying “Habbo Chair Sulka” to buy a chair for your username Sulka, people would spam the room saying text “Habbo Chair 100X Sulka for one hundred chairs!” but ultimately the user 100x would get the chairs. They also encountered problems with just having 2 in-game price points, cheap and expensive. The expensive one wasn’t a good fit for most of the cheap virtual goods in the game, and the cheap one wasn’t particularly profitable for them due to the commission rate associated with SMS transactions.

Phase 2: Emergent Currencies

Players had always been able to trade items with one another, and created an emergent currency amongst themselves which was essentially a really cheap chair.

Phase 3: Paid Currency

With their 2001 UK launch, cellphone penetration wasn’t high enough so they created Habbo Credits, their first paid currency, and introduced additional payment mechanisms.

1 Habbo Credit = $0.15

They chose this ratio based onthe $0.79 SMS price. Super cheap items were 1 credit, medium items were 2–3, expensive items were 4–15 credits. The issue with the credit pool is that it makes it hard to predict value.

Increasing credit consumption doesn’t necessarily mean increase in revenue. Haro warns us to look out for an accumulation of goods in the economy, and this is part of the danger of having persistent goods — although there’s a lot of trading it doesn’t map to real life where things break. It’s important to have sinks to pull credits out of the pool.

So to help with persistent revenue, they launched the Habbo subscription club, subscriptions and virtual goods are very different models. In subscriptions, the revenue model is linear, and the virtual goods model is not.

Trading is great content for the game — it’s a way for players to spend more time in the game, and engaging because there’s a lot of item value speculation. Hence since it drives time, trading drives sales. Their highest value traders were also the highest ARPU users. Haro warns that “average” metrics lie — always expect the power law to be in effect.

Phase 4: Tradable Paid Currencies

The most liquid currency is the most desirable currency. It’s important to remember that the smallest currency value defines the smallest value. If one credit is $0.15, then that’s your lowest item value. So keep that in mind when setting a currency price.

Prior to making currency tradable, same number of buyers as sellers, and more traders than buyers.

After the change, more spenders than buyers, more traders than buyers, leading to more buyers.

Then they tackled the item inflation problem. How can we solve the persistent goods problem? No matter what you think, inflation is a problem. Secondary market prices go up, and that alienates new players. Items purchased in the primary market start becoming a bad deal in inflationary situations. And if your item catalog is the primary sink, then inflation is even worse.

It’s hard to measure information though, since the number of players grow and so does the amount of currency. Good rule of thumb is that the average amount of currency per player should be constant. One way to measure this is to set up your own consumer price index — pick a set of items (especially emergent currency items) and track their value in the after market.

One of the worst causes of inflation is to give free currency — this works in the short term for engagement, but doesn’t work out long-term in the economy.

But how do you reward users if you aren’t using paid currency?

Phase 5: Dual Currencies

Habbo introduced a currency called pixels, which you get for performing in-game actions. Pixels are used to buy expendable items, and for discounts. Primarily geared toward engagement. Credits, the paid currency, are used to buy persistent goods and services.

Some people say that having one currency keeps things simple, and dual currencies makes it more difficult. But one currency, one size fits all, that’s bound to be complicated. Two currencies is easier since each is simple and can be optimized independently.

Phase 6: Official Secondary Market

The market was designed to remove friction in trading. Prior to this, people had a very difficult time trading — you’d go from room to room and get booted from rooms for spamming, shouting what you were selling and hoping you’d intersect with a buyer. Often didn’t even get what you wanted in exchange for a trade or purchase.

They created an anonymous marketplace for players. It’s anonymous to keep people from circumventing it. Part of the marketplace shows trade value and historical price values. Users like it because it feels safer (even if it’s no different) but interesting that there’s still a huge amount of arbitrage in the market.

The marketplace has the following rules:

  • 0.2 credits to post, and the posting is value for 48 hours
  • Sale price is the offer price + 1% commission (minimum 1 credit)

Due to the minimum, their actual commission could be as high as 50%.

Final Notes

Make sure you’re in control of your own currency and maks sure you remember the smallest unit of currency = smallest item price.

Payment methods — Habbo has over 100 payment methods, due to huge variations depending on the market. System viability changes from market to market, and credit cards, SMS and prepaid cards are not universally viable globally

Payment method optimization is a true art and part of Sulake’s secret sace

The Big Balancing Act — primary and secondary markets follow different rules. Economics is necessary, not just for price and revenue optimization, but also to keep the world safe