Playfish’s recent acquisition by Electronic Arts is great news for the company itself (it was purchased for up to $400 million in cash, stock and earnouts), but also for the social gaming industry as a whole. Playfish is the most respected social games company — every developer we talked to brings up their user experience as the benchmark. With this acquisition, one can imagine a whole new set of possibilities for both companies.

It “validates the social gaming business model overall,” said Playfish COO Sebastien de Halleux in a PaidContent interview.

What’s important to remember here is why Playfish — a company just two years old — was worth so much to EA. Playfish set the bar high with games like Pet Society, Restaurant City, Country Story and Who Has the Biggest Brain?.

These titles are noteworthy because of their quality. Their popularity alone can attest to that; instead of the standard array of promotional techniques used by many social gaming companies, Playfish relies primarily on word of mouth. Its games are successful because the company pays attention to the qualitative feedback (both solicited and otherwise) it receives from players. It tracks gamers’ tendencies to see what works and what doesn’t.

Most of all, it cares more about delivering an authentic user experience than it does the bottom line, and people flock to that mentality. (Look no farther any of the large number of companies that fail to make such a clear distinction; chances are, they’re not nearly as successful.)

The reason for this is simple: When it comes to social games, people are buying an experience. Whenever they spend real money on virtual goods for games, it’s to enhance their experience with those games. Playfish prioritizes that experience, and it shows.

Eric Ries hit it on the head when he wrote on his blog that everyone — not just social gamers — buys virtual goods. His real-world examples include $200 designer jeans that sell for four times the amount of a comparable pair without the label. It’s the experience of buying and wearing the jeans — the feeling one gets from the process of owning them — behind the bulk of the purchase price.

Successful companies are able to promote that feeling, especially when it comes to social gaming. As Playfish just proved, giving users an authentic, differentiated experience that they feel good about isn’t just integral to the bottom line — it is the bottom line.

Congratulations to the Playfish team for their success!

Once upon a time, this country ran on an agrarian economy – people grew, raised and mined things, then sold them. That gave way to an industrial economy, in which manufactured goods dominated. Over the last half-century we’ve had a service-based economy, hinging on the personalization of products.

Now, though, we’ve shifted again – or so says Joseph Pine in his book, “The Experience Economy.”

As the title suggests, Pine says that what people want now is experiences – moments that surround them and make them feel good. It’s why people go to Disneyland or Las Vegas for staged experiences, or online for experiences of a different type. People are essentially buying time, plus the feeling that a place or a company can give them during that time.

Take coffee, said Pine during his talk at the TED conference in Los Angeles in early 2009. Beans can be purchased for pennies; slightly more if someone goes through the effort of roasting them for you. Places like the corner diner that brew it can raise the price to a dollar or so per cup.

So how can a place like Starbucks get away with $4 lattes?

It’s because they’re giving you an experience every time you walk in the door. You get the decor and the clientele — whatever it is that makes it a uniquely Starbucks experience.

This is the driving force behind social gaming. Outsiders express disbelief when they hear about people spending real money for virtual goods and services (a gun in Mafia Wars, a tractor in Barn Buddy), but they don’t realize is that it’s not the goods themselves that people covet, it’s the experience that those goods will help them have online. The goods – and the virtual currency with which they buy them – merely enable that experience, that entertainment.

These same outsiders call these games escapism, and maybe they are – but they’re still authentic experiences. Gamers sign up for specific reasons; either their conditions are met or they move on to a different game.

And authenticity, Pine told the TED audience, “is becoming the new consumer sensibility – the buying criteria by which consumers are choosing who they are going to buy from, and what they’re going to buy.”

It only makes sense: The more authentic the experience – in the case of social gaming, the more immersion a game can provide – the more likely that people with stick with it, and subsequently spend money there. This experience is foremost the core element to building your virtual economy.

Social Gold helps you convey an authentic social-gaming experience, by keeping players within your game’s parameters to complete transactions (such as purchasing virtual currency for that online gun or tractor) instead of sending them into a new window, which brings them entirely out of the experience they’re seeking, then forcing them to re-load their game upon returning.

It’s a mechanism for users to plug in real money, bringing in revenue for you. And when it comes to real money, you must ensure that you make the user’s transactional experience as smooth and quick as possible. This is where Social Gold can help – enabling you to bring money in, securely, safely and with ease, all within the game experience.

After all, whether it’s developers or gamers, we’re in this business to help people get the kind of experience they’re looking for.

Hot off the press, here is the presentation I gave at the Virtual Goods Summit today.

Have you signed up for Social Gold in-game payments yet? Now you can let your users pay within your flash game — keeping them engaged!

John is playing Barn Buddy on Facebook, but doesn’t have enough currency to buy the guard dog he so desperately wants. To purchase more virtual coins he has to leave the Flash application for an HTML form or Javascript pop-up, and, while away from the game, gets distracted and doesn’t return.

Jenny is playing Uno when she runs out of coins to buy kudos, gifts and gags for her online friends. In order to refresh her account she also has to refresh the game, losing her hand.

So far, these have been unavoidable consequences of doing real business in the middle of Flash-based games; it’s not uncommon to see up to 15 percent abandonment with each additional page in the transaction flow. This translates into less engagement and fewer payments.

Social Gold is changing that with the launch of the first ever secure in-flash payments solution.

For the first time, users of Flash-based games can now update their accounts without leaving the game for a separate payments page; finishing a purchase drops them exactly where they left off, with no reloading necessary.

Even more pertinent is the fact that in the exploding landscape of social-gaming development, Social Gold for Flash allows players to keep their financial information with a single, trustworthy source, rather than handing it over repeatedly, every time they want to try a new platform. Our patent-pending technology ensures that sensitive data is kept securely away from other in-flash code, so that neither the game itself nor any third-party code or servers has access to the keystrokes or data in any form fields. Even the developers’ credentials are protected against malicious use.

Here’s how it works: After setting up a virtual currency account at Jambool, you can download and link-in a small library (SWC) into your application. To register a transaction, you tell the library to open a “buy currency” interface within the game’s Flash application. Social Gold for Flash then securely collects and verifies the user’s credit card credentials and authorizes the transaction, keeping every detail except for the ultimate approval out of your hands, and you can then update the player’s in-game balance. The entire time in this flow, the user stays engaged within your flash game.

“We obsess over user engagement, and traditional monetization solutions kill engagement,“ said Markus Weichselbaum, CEO of TheBroth and creator of Barn Buddy, which boasts 7 million monthly active users. “Social Gold for Flash works great for us, keeping our users engaged while helping to drive increased revenue.”

Social Gold was the first product to provide in-game payment experience for non-flash applications, and with this release we’ve made it possible for users to do secure in-game transactions in flash games too.

Increase your conversion by providing your users with a truly seamless payments experience! The integration is easy; sign up here.

Social Gold will be at the Virtual Goods Summit in San Francisco this week. Those who attended last year — or those who attended last June’s Social Gaming Summit by the same organizers — know that this is one of the more exciting conferences catering to the virtual goods community.

If you haven’t registered yet, you should — and you can use the “SOCIALGOLD” discount code to get 15% off registration.

Come hear us talk about “How to launch your virtual currency” on the first day of the conference, also known as the Virtual Goods Summit University. Drop by and say hello — and we may even have a surprise gift for you.

We didn’t intend to take such a long break, but you know how it is sometimes when you get great feedback from your user community and get busy working on those suggestions. That is what happened to us. We listened to you and got a bunch of really, really good suggestions and started working on them and hence the long bout of silence from our end.

Watch this space and in the next few hours we will make the first of our announcements for our developer community. We promise you that you will love this cool, new feature — and many more to follow — that will help increase your user engagement.

Stay tuned.

The Valley is small, and the Web 2.0 community can feel even smaller.  Sometimes it’s easy to forget that there are people in the Bay Area who don’t work in technology and, as a result, don’t follow emerging trends as closely as I do.

Trends like virtual currency are a growing – and incredibly lucrative – element of social networks like Facebook and MySpace.  But that doesn’t mean that virtual currency is well understood outside the confines of Silicon Valley.

I was reminded of this fact at a picnic over the holiday weekend, where a close friend asked, “Tell me again exactly what your company does.”

It’s a question that I’ve heard time and time again, since joining Social Gold back in March.  I often respond by asking, “Do you have kids?”

Luckily, this particular friend has a young son who is potty training.  Children that age do not understand the value of money, but they understand incentives.  When my son was that age, my wife and I tracked his potty successes – and accidents – with the help of a chart, where successes were marked with a star.  After he earned enough stars, we rewarded him with a small toy or a treat.  In other words, children understand the value of virtual currency long before they understand the more abstract value of a dollar.

My son, Cooper, is almost 5 now, and we still use stars as currency.  Most recently, my wife created a chart in anticipation of the Memorial Day release of the latest Pixar film, “UP.”  Cooper loves Pixar movies and eagerly earned stars by listening well, using good manners, and not running or climbing in the house.  He understood the star as a tangible instrument of value, where 100 stars earned him one ticket to “UP.”  To Cooper, stars just make more sense than dollars.

So much for virtual currency.  But what about virtual goods?  That’s actually pretty easy to explain:  virtual goods = entertainment.  Just as Cooper redeemed his stars for a ticket to “UP,” people redeem virtual currency for enhanced experiences or advanced play in social games and applications, all in the pursuit of entertainment.  It’s really no different than entering a physical arcade and pouring quarters into your favorite video game.

There are basically 3 types of virtual goods:

Gifts. Giving gifts is an inherently social activity, which lends itself well to social applications on Facebook.  I recently celebrated a birthday and received real gifts and snail-mail cards from the usual suspects – mostly older relatives.  My friends on Facebook, however, posted well wishes on my wall with a host of virtual gifts, ranging from beers to baseballs (side note: I am a huge baseball fan).  And these virtual baseballs add up quickly.  Even the lightly-promoted Facebook Gift Shop drives, depending on your source, between $50-150M in annual revenue for the company.

Decorative Goods. Most often found in applications where your virtual persona, avatar, pet, etc. is the focus, decorative goods allow you to express your own personal tastes much as you would in the physical world.  The possibilities are limited only by your imagination, although hairstyles, clothes, accessories and room decorations are among the most popular decorative goods.  In fact, as the U.S. economy has forced many to forego buying that new pair of designer jeans, the virtual world presents a low-cost alternative for self expression.

Sebastien de Halleux, co-founder and COO of social game company Playfish, provided perhaps the best example I’ve heard at last month’s Social Gaming Summit.  De Halleux reported that, within its wildly-popular Pet Society application, Playfish sold 20 million virtual Christmas trees last holiday season at a value of $2 each.  He went on to explain the users’ rationale for investing in a virtual tree: “Previously, Christmas trees, we’d put in our flats and it’d be something to share,” explained de Halleux.  Now, “we’ve become disconnected, and maybe three or four friends would see the real Christmas tree – on Facebook, all of their friends would see it.”

Functional Goods. As the name suggests, functional goods provide enhanced functionality within an application.  If you’ve ever played poker on either Facebook or MySpace, you’ve likely purchased a functional good:  poker chips.  More often, an application offers a base level of play but allows users to “level up” – to advance more quickly – by purchasing functional goods.  So, in one of the many mafia-related role-playing applications, you can try to advance from street thug to mafia don using only a baseball bat, or you can purchase an arsenal of mercenaries and weapons to accelerate your ascent up the ranks.

Once I explain virtual currency and virtual goods in those terms, whether it’s at a Fourth of July picnic or a cocktail party, I can usually sit back and watch the “aha!” moment as people suddenly understand what we do.  Then, it’s just a matter of warding off the investment/ employment requests.

-Mike

P.S. For the uninitiated, Social Gold is a platform that – among other things – enables developers to sell virtual goods to users within social games and applications.  If you’d like to learn more, feel free to contact me directly at mike [at] jambool [dot] com.

People who’ve followed our progress as a company know this well, but nevertheless, we would like to formally also announce this on our own blog.

For the past several months, we’ve focused completely on building the platform that can power virtual economies online. We released our first payments only product in October 2008, and have made huge progress since then.

Today, we have several great partners who use our platform to build and manage their virtual economies. We process payments directly from credit cards in 100+ countries, and also enable payments from Paypal, Amazon, Google and mobile phones.

Social Gold is a leader in this space despite our short history. We have a great team, and a great line up of products and features coming up for release through this year.

Looking forward to an exciting and fun 2009!

I was away for a couple of weeks and am now back…

One of the things I ran into while in Italy was “Reza Gelati” — here it is…

Today I attended two sessions related to data portability at the Graphing Social Patterns conference. Here are some notes.

First off — I believe that the problem that Data Portability group is trying to address is real, and deserves to be solved for the users. OpenId aims to enable users to not have multiple password protected accounts all over the place. A world where everyone has an identity that can be verified has huge advantages for both companies and users. Users won’t have to share their email address or prove their unique identity to new sites, and will be able to login and try out new websites much more easily. This in turn is a huge advantage for companies who spent a good marketing budget on trying to figure out how to get users to create an account. And if open id works out, I guess the existing password custodians such as Google, Yahoo, Amazon, Facebook etc. will become identity custodians with a varying degree of user identity verification.

The same goes for personal data such as address information, phone numbers, credit card numbers and so on. However, here things start to get a little murkier. There is value for users to be able to not have to enter their addresses or change them at many different sites. However, unlike a verifiable identity, there are several business models that thrive today on being the custodians of users’ personal data.

Things get even murkier when we start talking about user generated content. This is definitely a huge part of a companies “assets” — so expecting them to freely share it out would bring forth a lot of questions. There are of course questions that I see come up in these panels (e.g., which user really owns which content). But there is more to it. As a user, I may want the ability to take the content I created on one website to another website. A fine idea, and one I support, but it would be hard to get it to reality, I think.

Let us pick an example — Amazon.com reviews. This is user generated content, and I myself have often thought about having the ability to get a hold of all the reviews I’ve written and being able to show them as a part of my online footprint. Now, Amazon terms of service say that once I’ve written a review and given it to them, it pretty much belongs to them. They have the rights to it. I don’t. While I may think it is less than ideal, but one must understand Amazon’s perspective too. These reviews are a huge part of what makes Amazon a unique ecommerce site. They are a large factor in the decision making process on their website. And besides their fulfillment infrastructure, this content makes it harder for a competitor to pose a challenge to them in their space.

Now, why would Amazon suddenly want to make this content available for any other website? Or for that matter, why would anyone want to make such content freely portable to other sites? Don’t they immediately lose their competitive edge — the proverbial barrier to entry that they were aiming to build with this in the first place?

There is definitely a tension here between what might be ideal for users and what might be ideal for the businesses involved. And while as a user I may want all data generated by me to be completely portable, I can’t see why as a business I would want to enable that. And again, as a startup just out the gate, I may be keen to have Amazon do this for their users, so if I offer users something enticing, I may have their reviews from Amazon show up on my site as well. It sure makes the life of a startup that much easier. But the economics of it just don’t make it viable for the players who have the content in the first place.

So, are there scenarios for companies to be willing to share their content? And what kind of content? And under what kind of licensing terms?