JUNE 22, 2009 • As micro-transactions for online games grow in North America, developers and publishers are increasingly looking for experienced monetization partners. With more MMOs and other titles generating revenue in smaller and smaller chunks are the extra considerations that come into play with a greater frequency of consumer transactions. In the same way it doesn’t make sense to engineer a new game engine with every new title, neither does it makes sense to develop a separate back-end for micro-transactions.

This growth in selling virtual items is putting Santa Clara, Calif.-based PlaySpan Inc. in an enviable position. Launched back in 2006, the company grew out of Tradeits Inc., and has quickly evolved into a retail game card, in-game commerce and Internet transaction powerhouse. Much of this growth has come from acquisition of partners that enhance PlaySpan’s overall service. After obtaining $6.5 million in venture funding during 2007, PlaySpan acquired online transaction service company PayByCash in July 2008, and social networks micro-payment service SpareChange in April 2009.

Often dubbed innovative in industry roundups, and sometimes “revolutionary” by its chief-executive, Karl Mehta, PlaySpan is well poised to take advantage of the arrival of the free-to-play model in the U.S. DFC spoke with Mehta to better understand PlaySpan’s ongoing business strategy.

DFC: Can you give us a brief rundown of what PlaySpan does? How long have you been in business? What is your business model? What benefits do you provide to customers and consumers?

Karl: PlaySpan provides a one-stop monetization platform to game, media and social network developers and publishers through a micro-transaction, global payment processing and subscription platform. Our platform supports a hybrid method of monetizing both free and paid users through in-game virtual goods sales, as well as premium subscriptions. Our Payment platform provides the largest aggregation of close to 90 payment methods in 180 countries, with complete fraud management and single customer support.

PlaySpan and its subsidiaries currently monetize over 300 of the top online games and over 700 top games on social networks across Facebook, MySpace and Bebo. Our wallet, payment and storefront infrastructure scales to millions of transactions per day and supports PCI and SAS70 compliance and global sales tax management. We also operate a Direct-2-Consumer marketplace on playspan.com as the largest aggregation marketplace of our publisher partners’ virtual goods, games, and currencies.

We started in 2006, and were the first company to build a web services based enterprise-grade platform for developers and publishers to monetize through in-game micro-transactions.

We offer our platform as a SaaS (Software As A Service) and a license model. With simple integration to PlaySpan web services, publishers start monetizing their properties across multiple business models (micro-transactions, subscriptions, downloads) and all payment method types with higher conversion and lower fraud rates.

For consumers, PlaySpan provides a safe and convenient one-stop marketplace for digital goods, currencies, subscriptions, and games with an easy to use experience using our one-click check-out and global payment capabilities.

DFC: What are your thoughts on the micro-transaction market overall? Can you comment on the growth potential by platform – PC, console, Mobile/portable?

Karl: Micro-transactions is an emerging business model that complements subscriptions and download models. The key is to implement micro-transactions in a way that it complements the existing business model without cannibalizing existing revenue streams. We have developed expertise in creating a hybrid model where various pricing models can co-exist and help monetize different segments of users based on their preferences and what we deem to be affordable price points.

We are starting to see rapid adoption and great results of micro-transaction in online PC games. As we build more success on that platform, there is a strong interest coming from consoles as well, since the $59.99 or even $49.99 is an expensive price to swallow for the broader/casual gamer audience and micro-transactions help engage and monetize those users at lower price points.

Mobile game developers are also starting to see how they can use the model within the complex framework of carrier/handset OEM ecosystem. In general, the micro-transaction model is a true equalizer and helps democratize the opportunity and free the availability of content to anyone at anytime without compromising the financial value that has to go back to the developer and publisher of the content.

DFC: Micro-transactions have been strong in Asia. What signs do you have that a micro-transaction market is emerging in North America and Europe? What countries in North America and Europe do you see leading the way for the micro-transaction market? Can you comment on specific product categories that are driving the market for micro-transactions?

Karl: There are plenty of micro-transaction success stories in Asia, but it certainly isn’t limited to one particular geography. We have seen success from Nexon, K2 Network, Neopets, OutSpark, Second Life and IMVU here in the U.S. that are all witnessing fast revenue growth through micro-transactions. Companies like MindArk/ Entropia Universe and Habbo Hotel have also proved it with massive revenues and growth for a long time now in Europe. Anywhere you look, there are now success stories. In terms of specific categories, I believe fantasy and adventure MMOs tend to lead the pack and especially virtual worlds/games that allow user-generated content like IMVU.

DFC: China went from nowhere to becoming a worldwide market leader, much of it using micro-transactions. What do you feel are the growth prospects in other emerging areas like Brazil/South America, Russia/Eastern Europe, India, the Middle East, etc.?

Karl: I believe that emerging markets such as India, Vietnam, and Brazil, will lead the next phase of growth using micro-transactions because of overall affordability and price points are still very low, which makes it very easy for players to get in and start playing. You have to be able to reach out to a large number of people before you can get a critical mass of paying customers, and that is a not always possible with subscription-only games, as many prefer to pay by the drink.

The other interesting thing about emerging markets is that player-to-player (P2P) transaction will be a key to success. If you look at Vietnam, a large number of gamers expect that they can sell their virtual assets and get some value back from their time and money invested. To a lot of gamers there, gaming is not only entertainment, but also an investment of time, money, and more important “skills.”

DFC: How important are prepaid retail cards for driving the overall market? Can you comment on how retail penetration is shaping up in various regions/countries?

Karl: Retail cards are critical to reach a large segment of gamers that are either minors or unbanked and therefore do not have access to an online form of payment. In North America, almost 50% of our transaction volumes for all our publisher partners are coming from our Ultimate Game Card, which is the largest selling multi-publisher card and currently available in wider conversion opportunities – the card is also well-known for its versatility, universality, dense distribution, and a trusted brand recognition among gamers and their parents.

DFC: What is the biggest demographic for 1) playing free to play games with micro-transactions and 2) purchasing prepaid game cards?

Karl: The vast majority of current players playing Free-to-play games and using prepaid cards are youth and younger demographics.

DFC: Can you give us some more specifics about your products? How are Ultimate Wallet and PayByCash linked? Can developers have one without the other? Does Ultimate Wallet support other processors?

Karl: Ultimate Wallet is our white labeled wallet platform for publisher and developers that want to create their own virtual currency across games or for individual games. It is a fully customizable wallet infrastructure with a multitude of features like hard currency, soft currency, cross game promotion, global sales tax management, revenue recognition, storefront and marketplace integration, and fraud management at the wallet level, just to name a few. For publishers looking to build a micro-transaction-based wallet and virtual economy that supports all of these

Our Ultimate Wallet is fully integrated with PayByCash as a real-money funding source, so when a publisher deploys our wallet, they get a full end-to-end system of all payment methods that can buy their virtual currency and also an in-game storefront where users can spend the virtual currency from the wallet. We provide a complete white label B2C storefront, subscriptions, and C2C marketplace with analytics and reporting to manage full 360-degree monetization of games.

DFC: How is Ultimate Wallet monetized? What does the developer have to return to PlaySpan in order to get Ultimate Wallet support?

Karl: Developers use the Ultimate Wallet infrastructure in the back-end as a simple web-service call. Very similar to how you will use PayPal or Amazon Web Services in the back-end. It is very easy to integrate and developers/publishers can have their own branded currency, storefront and payment methods to fund it.

DFC: What is the typical length of PayByCash contracts?

Karl: Contracts vary, but it’s typically three years with an automatic renewal. In the last 10 years of our history, we have not lost a single publisher.

DFC: How many transactions did PayByCash process in 2008? How many of them were linked to Ultimate Wallet?

Karl: We don’t give out actual numbers but in aggregate we processed more than $50 million in transactions last year.

DFC: How many finished games are supporting/including Ultimate Wallet?

Karl: We have a few dozen games supporting our Ultimate Points on PlaySpan Marketplace and several AAA titles launching with our white label platform.

DFC: How many Ultimate Game Cards were sold to consumers in the U.S. during 2008, and how many in other global markets?

Karl: We have not given out specific numbers, but we are the largest selling multipublisher card and sales are growing rapidly.

DFC: How well is the Ultimate Game Card selling on Amazon.com? What percentage of total card sales does Amazon.com account for?

Karl: Amazon.com is relatively a new venue. It is starting to pick up but currently it’s only a very small piece of our gross revenue. We are not marketing that channel and do not have any distribution deal with Amazon, so it is not a focused effort right now.

DFC: At retail locations, given the growth in competing card firms, have you gotten into a situation where channel marketing is needed to guarantee the best placement? Who are your biggest competitors?

Karl: We are a multi-publisher card and, in that category, we don’t have any direct competition, at least in the big box retailer chains that sell our cards. We are in stores like Wal-Mart, Rite-Aid, Blockbuster, 7-Eleven, and we cover more than 27,000 retail locations in North America and several countries worldwide. Since our card is selling very well and supports over 300 games from top AAA publishers, our retailers are prominently displaying our cards and there is a strong demand from retail for more cards.

DFC: Of the transactions processed by PayByCash, what is the number of unique consumers, and what percentage of them are return customers on one or more games?

Karl: We have a high percentage of repeat users. Roughly 50% of our users are repeat users each year, which means we have to acquire only 50% to 60% of new users each year. The loyalty of our existing user base and their recurring payments drives a large transaction volume for our publisher partners. We also see the trend that around 40% of our users buy in more than one game, which confirms the trend that more players are active in more than one game.

DFC: PlaySpan recently acquired Spare Change. What does this add to your capabilities? Can you educate us on the microtransaction market for social networking products? How does it differ from traditional free-to-play products? What do you feel is the market potential for this space?

Karl: SpareChange is the largest independently owned payment network/wallet on social networks. We are currently helping to monetize over 700 of the top games on Facebook, MySpace, and Bebo. Several traditional game companies on the PC and console side are looking to leverage social networks and we saw the opportunity for us to provide them the “bridge” to make their games and game items available on social networks through our payment and marketplace platform.

We are seeing fast growth in players willing to pay on social networks and we are now helping more traditional online and console game developers to understand the dynamics of selling items and subscriptions on these new social community platforms. We help them monetize content through our user base, reach, and SpareChange payment infrastructure, which is the leading platform on social networks.