Blogging the AGDC: Coming to America: Nexon's Micro-transaction Revolution

Nexon helped change the way online games make money. Instead of charging subscriptions, the company allowed users to play for free and sink their money into microtransactions for clothes, items, and upgrades. The model worked wonders in Korea, and now Director of Game Operations Min Kim will present his case study of bringing Maple Study to North America, in “Coming to America: Nexon's Micro-transaction Revolution.” The details came fast and furious, but Kim reminded the audience that in February 2007, the company saw $1.6 million in revenue from 600,000 item sales after launching pre-paid cards in Target. This June, MapleStory sold just under 1 million items. Q4 will see the fourth shipment of cards, and by the holidays Nexon will have shipped millions of cards to 31,000 locations with a value in the millions.

Nexon helped change the way online games make money. Instead of charging subscriptions, the company allowed users to play for free and sink their money into microtransactions for clothes, items, and upgrades. The model worked wonders in Korea, and now Director of Game Operations Min Kim will present his case study of bringing Maple Study to North America, in “Coming to America: Nexon's Micro-transaction Revolution.”

First of all, Nexon is very honored to be here. I don’t think a Korean company has been invited to speak in a long time. I’m going to talk about micro-transactions and what’s going on in Korea nad in the States. My view is that the next great games should be made here domestically.

I’m going to start by talking about Nexon. We started in South Korea in 1994 and created the world’s first graphic MMORPH in 1995 and pioneered the item selling business model. In 2005 the revenue was $230MM. We have about 1,600+ employees servicing over 15 games.

Nexon is going everywhere worldwide. We service 10+ countries through our domestic offices or through partnerships. Our HQ is based out of Japan. If you look at our financials, they show incredible growth.

IN the late 90s early 2000s, we created BnB and Qplay and they led the charge. Games like MapleStory and KartRider drove growth. In 2005, 85% of our revenue came from item sales.

Nexon’s casual online games are fun and social, subscription free, easy to play, and monetized by item sales. Micro-transactions are where virtual goods meet real dollars. They’re decorative items or functional items that give a slight advantage. They range from under a dollar to $10+ depending on where you are. And the price is scalable. You’re not tied to a $10 subscription. You can spend as much as you want.

[slide of shop] This is at the core of all the games. There’s a dressing room where you can try on the items. Here’s a shopping cart.

I’m just going to highlight two of our games. MapleStory is the first 2D side-scrollign MMORPG. It’s hit over $6MM month [edit: Not sure about this number. I originally typed 60MM, but Matt Mihaly pointed out that seems incorrect. As I said, Kim was going a mile a minute here] and at 200k concurrent users. It’s one of the most profitable online games in the world. It’s now being tested in Europe. It’s the top children’s IP in Korea.

KartRIde r is the most-played online game in Korea (25%+ of the population plays). It has over 160MM registered users worldwide. It reached 800k concurrent users in China in February.

Was it viable in the US? The graphics aren’t cutting edge. The US is a console market while the PC is a dying market. Online is a niche and micro-transactions are an Asian thing.

This is incorrect. There is a PC market and it’s growing online. With Myspaces and Youtubes, people are starting to live online. Graphics, we’ve found, are less important than play.

Nexon’s second coming? We’ve been here in the past. We entered the market in 2000. We thought we’d made some great games and would bring them over. But broadband was lacking and teens weren’t living online. And we had a low understanding of retail. We’d just put the box out there, and that’s not the way to do it. We went back to Korea.

Our learnings are that timing is key. Geography poses a huge challenge. And retail distribution is key.

Humble beginnings. MapleStory was created in 2003 and we were getting a lot of hits. We decided to conduct 2 experiments. We worked on a translation tool to make it easier to translate from Korean, and we created a Market Locator tool.

We did some language localization, which is the most basic thing you could do, and no marketing, just forum postings. We got a lot of response from North America and Singapore, which we’d bowed out of. So the data said we should get back in.

We found a desired licensee in Singapore, but the database couldn’t be separated. We committed the cardinal sin of resetting the server. There was a lot of debate going on about whether that was the right decision. We then launched MapleGlobal and MapleUS.

The NA players rushed back in to claim their identities. Players were competing to level up and be the top on the server. User figures grew virally. Players were downloading the client for 8+ hours, so we figured if they were that resilient, that was great. Play time was around 40 hours a month, and players proved resilient against long patches.

We didn’t know who our players were and who they could be. WE didn’t know if they would buy virtual items, and we didn’t know we were riding a new wave of poepl living online. People used to say that teens living in their room were antisocial, but now they’re being more social than ever before. This new generation is looking for new ways to interact. We didn’t know that ringtones were conditioning users to purchase virtual goods.

We timed a beta cash shop launch with PayPal in November 2005 to tie with the holiday. We found that players liked customization and uniqueness. Then we opened doors physically in the US>

Challenges: Fraud

Fraud is one of those things you really have to keep an eye on. As we were celebrating revenues in Q1, it was being tainted by fraud. WE didn’t know what acceptable levels were. And the detection is delayed. Revenue is scalable, but so is fraud. Revenue clouds your ability to identify and fight fraud. You see money coming in and you don’t want to tighten your grip. And fraud leads to fines, incrementally and if you hit a certain level they can hit you with a big one. Increased fraud leads to expulsion from credit card processing. Some companies have been dealt 6 digit fines. IF you have over a 1% chargeback rate, you get hit with a fine.

A chargeback is a purchase reversed by the credit card company. You lose the revenue of the purchase and an additional $20 fine. Merchants can fight the chargebacks, but it’s difficult and costs a lot of man power.

We learned you have to stop fraud before it happens and identify future chargebacks. You needa firm user policy and education. And you have to fight existing chragebacks. We had users selling their time for existing fraudsters to level up characters. And that came back to hit us.

We removed the lucrative gifting function. That gave us a 5-10% lift in revenue, but we had to take it out because it was leading to fraud. We set spending limits and educated the user base. We created a fraud time and joined the Platinum Members List in the Merchants Business Council.

Chargebacks have been drstiaclly drecreased and controlled.

Hacking/Abuse
It’s inevitable. If you create a good game and has value, someone else will try to squeeze it. The US is a hacking hotbed. We didn’t have the problem in Korea. The people that play the games here are older and maybe have more time. Hacking we’ve found is like a drug. It’s addictive for the player, and they have a difficult time enjoying the game without the hack tools. So you basically lose that player. A lot of players are turned off by it.

The danger of a hacking presence: turns away new and existing users, increases account theft rate, shortens life span of a user, creates abusive community, and discourages purchasing.

Many players were being used as indentured servents with Trojans and phishing. They would use hack tools and then months down the line the original coder would come in and take all their goods. Dedicated players would lose all the items.

Chinese farmers invaded the game in hunting areas. And legit players succumbed to the pressure of competition because they had no other way to get by. It’s a cat and mouse game you can’t win. You have to build the security into the system.

Hacking Control:
It’s an epidemic we’d been ignoring in Korea. We realized it’s not just a US thing, and we developed detection tools and did mass bans and autobans. You can’t really give your GMs control to go head to head all the time. And we moved the critical values toserver side and implemented third party solutions. Combating hacks and abuse requires trust and cooperation between the service team and the developers.

Who are our players?
We would have targeted teens and tweens. It’s the #1 game in elemtnary school students in South Korea, and the graphics look like a kids game. We targerted hardcore MMORPG players who might not want to pay the subscription fees for a second game and also anime fans.

When PAyPal came out, we realized players had a high appetite for high spending. Many players were spending over $20, so we decided to test a $25 pre-paid card. And that was risky. We only had two spaces on the shelf. But the test proved successful with the $25 cards competing with the $10 card. Our understanding pointed away from the $25 card, but our users went to it.

Who we found.

Our ages are 50% 13-16 nd 30% 18-24. That first group doesn’t have access to credit cards. The gender is about 75% male, but females are growing. The ethnicity in the states are 37% asian, 39% Caucasian, 9% Hispanic, and 7% African-american.

I’m going into some myspace profiles about who are players are. We initially thought they’d be anime fans, but we were greatly surprised when we opened up our myspace community. THiss girl is very into fashion, and she’s very cool, but she loves gaming. We were very surprised.

Heaven Halloween was in a Fox news special about MapleStory. She considers herself a nerd, but if you look at her and all her friends, she’s very cool. She’s straight edge “so I find better things to do with my time than run around drinking, getting high, and having sex.” So I think that’s a positive influence.

This girl is from Texas, but she lists her hometown as a town in MapleStory. “I’m addicted to MapleStory, but you should be to.” She’s meeting friends in MApleStory and fidning them as close as others.

Our MySpace friends list visually shows a whole bunch of different people playing this game.

We got this demographic by not advertising. WE didn’t know how to market. IT was the right timing, teens live and breathe online. The Asian influence seems to be carrying a cool factor, which wasn’t always the case. Then we got into an MTV partnership.

Localization is a must. The domestic team’s responsibility is to check, edit, and recreate language, but also to identify NA trends and adapt the game. They are localizing art with concepts that they think the NA audience would like and then the Korean team Mapleizes it. [slides of examples] There’s also event localization. Events are very important to these games, and that’s what separates us from console games. There’s always something going on. We do costumes foor Halloweens, a black Friday sale for Thanksgiving, and present giving events for the Winter holidays.  Our teams in Korea had no idea about these, so the domestic team had to come up with it.

There was a wedding system for the China service, but we couldn’t use that here. We had the localization draft up two styles. One is a cathedral style and the other is a vegas style wedding. They have wedding tickets and then their friends come and watch them get married. I think we’ve had 50k+ players get married in the game for about $10-20 for a wedding ticket. So it’s been pretty successful.

Target Product Placement. We did a product placement when we launched our prepaid cards. We created a simple quest that mimicked the buying experience with chores to earn money and then an allowance used to purchase the cards from the in-game Target. Around 200k players participated in the two-week quest. This is huge for potential product placement. This translated into $1.6MM in sales and 600k items sold in February 2007.

Prepaid Cards
Why prepaid? It’s a perfect fit for our target demo. We have over 50% of our players without direct access to plastic. It reduced friendly fraud and account theft. Our players really wanted to customize their characters, but we weren’t giving them a way to pay for it. They started rushing to the stores.We also didn’t want to rely on just credit cards. It also added gifting potential.

Challenges:
Retail wasn’t keen on it. They looked at us like we were selling magic beans. MapleStory is a great game globally, but it had no brand awareness here. We really had to push them on the numbers from the States and show them it was an underground, hip thing.

There are also so many retail options here. If you print the cards, it costs money, so you have to pick and choose where to go. You can’t fill all the stores.

Rewards:
Target was initially skeptical with the prepaid cards coming out in the states. A few days into the release we got a call that said the cards were flying off the shelves and we had to do a reorder. We started getting scattered reports that players couldn’t find cards at some stores that didn’t have them.

Q4 will be the 4th shipment. This June we were just shy of 1MM items sold. That translated to $1.6MM in Februrary from 600k item sales. We were the second content card, just behind iTunes.

We’re targeting other retailers and hope to be in a second retailer this year. We launched in 7-11 in Hawaii this year, and it was a repeat experience. We’re moving into the rest of the country. Canada represents about 1/3 of our base. There’s a huge Maple leaf, and they seem to like that. The card is also supported by multiple hit titles, and we’re rolling more out.

By holiday this year, Nexon will have distributed into 31,000 locations with X millions (I can’t say how many) cards valued at over $1M.

Our future plans for MapleStory:
We’re going to continue to expand the content. It’s more like a TV drama for us than a movie. The game’s probably going to live for several years. WE haven’t advertised yet, but we’re going to start advertising on TV this year. That’s exciting for us. But it’s hard to speak to all of our demographics and communicate the brand. If you look at the cute little characters and tell people that college kids are playing this, no one’s going to believe it.

We’re developing a trading card game with Wizards of the Coast so people can interact offline. And people can take items from that and quests from that and bring those online. We’re having an animation produced by Madhouse in Japan. We’re also beginning more product placements. We’re really trying to explain what this product is to the advertisers and show them they can interact with users in ways that they haven’t been able to before.

We’d really like to start doing placements for beverage companies and movies. WE’re looking at creating a theatre in the game where you can go watch a trailer for Harry Potter, double click on the screen, and then be in Hogwarts doing quests. It’s not tacked on, so it’s a richer interaction.  We’d also like to get into clothing and cars, especially with KartRider.

Coke:
In South Korea we created a series of branded inventory items. Players would hunt monsters and try to get the coke items. We created branded NPCs and monsters that players could interact with and try to get coke items and then exchange them.

It was viable in Korea because ¼ the population has accounts in these games. That’s not the case in North America yet.

A lot of people argue that players don’t want to be bombarded by advertisemtns. But they have a choice. They don’t have to go to Coke Land, but a lot of them do.

Nexon America:
We also have an office in Vancouver, and we’re hoping the next great games for the West actually come from the West. We’re identifying publishing opportunities here and abroad. I don’t know if people are making games for this market, but if you are, we’re very curious to look at it and see how Western developers are approaching the business model.
We’re looking at immersive advertising and product placements. The ad dollars in Korea really weren’t that much, but it’s significant here in the US.

We’re growing Audition Online and getting ready for other internal titles. If you hadn’t noticed, the theme for this presentation was KartRider, and KartRider will be coming to the US by the end of the year.

Comments

[Matt Mihaly]

Are you sure you got their numbers right? There is no possible way that Maple Story is doing 720 million per year (60 million a month) on the back of 200k concurrents.

--matt

[Joey Seiler]

Hi Matt,

I edited it in text. I'm not sure what the exact number there was. Kim was racing along at that point. Slides will be posted relatively soon, I think, and I'll confirm it then. The other numbers are, I believe, accurate. Thanks.

[Matt Mihaly]

6 million a month or 60 million a year both sound a lot more realistic. :)

Nice job on the liveblogging btw. Way more coherent a read than most liveblogging I read.

--matt

[Nick]

I know maplestory is a great game but it was sure a lot better when wizet was in charge. Nowadays the gms are just lazy i have to wait for like a year on a reply of a mail i send them i mean a fking year! thats just sick and the gms arent very active in game to. If the gms were more interactive with us ( the maplers) that would give us a better gaming experience.
Nick