Interview: Twofish Announces Virtual Goods Transaction Support System

Twofish, Inc., an economics middleware provider for casual games and virtual worlds, announced today its premier product, Twofish Elements. Twofish Elements is a turnkey "Economic Engine" targeted at game and world publishers and developers, letting them easily integrate retail content management and strong financial transactions for virtual goods. "I'm preaching to the choir, but we're facing the biggest opportunity the gaming industry has ever seen," Lee Crawford, Founder and CEO of Twofish, told VirtualWorldsNews.com. "There’s the explosive rise of massively multiplayer gamers, but we're finding that casual gamers expect a free experience. Everyone is changing their business models, and they’re looking at microtransactions to address that. The problem is they're moving into a whole new world and it requires a new level of sophistication. They're game developers, not bankers. That's the problem we're solving."

Crawford has worked  in the games industry at Yahoo! Games, Shockwave.com, and Segasoft Networks as well as in  transaction processing for Trintech, Inc. For him, the new model fits in with his older experience.

"I don't call it a virtual economy," he explains. "When you have people making these transactions, you have a real economy. It's important to recognize that and adapt accordingly."

In a Sea of Competition

There are the PlaySpans, Paynovas, and Live Gamers of the space, all of which have had success integrating with major publishers and networks, but Crawford argues that Twofish occupies a unique niche. It's more of a PayPal for the game space.

"We can handle any number of currencies, so it's not just U.S. dollars, but any number of virtual currencies or loyalty points that could be bought for microtransactions or used to reward engagement," said Crawford. "We also provide catalog management and maintain a database of all the items in our partners’ catalogs. It gives the publisher the ability to determine scarcity. There aren't any players that I can think of doing that."

Leapfrogging the East

The SE Asian market has been tackling virtual goods for some time, and companies like Nexon have successfully imported the model to the U.S. They've struggled through the lessons of microtransactions on their own. Now Crawford wants to help Western developers, particularly independents, leapfrog the East's success, with both technology and experience.

"The first bucket is the major publishers who are looking to accelerate their time to market and a big part of our value proposition is the analytical piece," explained Crawford. "It's recognizing that the fundamental business is shifting from the product orientation to service. You no longer make money at the point of sale. You, in fact, hope to give the product away as many times as possible. You look at how to maximize the engagement and conversion rates and ARPU. That comes down to how you manage your inventory, how you price, how you balance your stats if you’re selling items that have capabilities in the game. It's really in the analytics space where we really go far beyond the traditional players."

That's particularly true with indie developers, says Crawford, who may have the creativity, but not the funding, expertise, or technology to develop transaction systems on their own. Even so, Crawford says the company is in talks with all the major developers.

Saving Money

With diverse potential customers, Twofish is looking for diverse business models.  On a case-by-case basis, developers can look for revenue partnerships (when dealing with real-world currencies) or licensing fees (for enterprises or purely virtual currencies). Regardless, Crawford sees Twofish in a Google-esque position of giving away analytics to build stronger partnerships that in turn generate more revenue in the long term. 

That's especially important for the transaction model. Chargebacks, reversal of credit card transactions, can be killers for developers. They cost money, lower the quality of the experience, and can ultimately lead to a revocation of credit card tie-ins as a whole.

While Crawford won't pretend to have solved the chargeback model, he does think that Twofish can help. Chargebacks usually don't come back to the company for months at a time, leaving publishers with mounds of transactions to sort through while looking for the fraudulent charge. Twofish tracks those transactions, but Crawford also proposes solutions based on experience.

"The issue is how you reduce fraud," he said. "Chargebacks are an incredibly expensive proposition. We've done a lot of work to help partners deal with that and reduce the scenarios that lead to chargebacks. For instance if someone takes a stolen card and buys a lot of times and sells them to another account at a very low price, there are a few things we can do. We can set policies in the experience. For example, you can't trade person-to-person items until the account is 30 days old or that you can't liquefy an account for a certain point. And then you can loosen those rules according to the age of the account."

From Games to Social Networks and Beyond

The current package of Twofish elements is targeted at MMOs, from the casual to the hardcore, but Crawford is looking to expand towards more casual content as well as the rich mine of virtual goods on social networks. From there, the whole Web is wide open.

"I think this is a long-term model for the Internet," he said. "Ads were the first great model for the Internet. Items are the second. Mass market consumers are growing with their broadband connections. They're comfortable seeking out information and entertainment and now they're comfortable looking for social experiences. The costs for that are growing exponentially and outpacing ad revenue, but consumers have been trained to expect this content for free. That's where items come in."