[Note: This is Part 3 of our 4 part series of the Kontagent Social Gaming Workshop Summary, here is:  Part 1, Part 2]

As the application space on the Facebook platform has evolved, the typical complexity of apps has increased with ever more applications being built around a virtual currency system. Not only does this lead to interesting and engaging game play, but it also provides another avenue for application developers to monetize what they develop.

One of the break-out sessions at the Kontagent Social Gaming Workshop focused on virtual economies with the goal to determine what metrics should be used to effectively monitor the virtual economies.  Measurements and metrics that were discussed include:

• Measure average net worth to monitor inflation – A primary concern with virtual economies is controlling inflation. Why bother to control it? Well, if inflation is rampant, highly-engaged users who have been saving up for a big purchase will probably not be too happy and may head for the nearest virtual exit if their savings have been rendered worthless by inflation.

The first step to controlling inflation is to monitor it, and the group agreed that measuring average net worth of users over time was a reasonably simple, yet adequate, proxy for measuring inflation. This metric gives the application developer an understanding of what goods the average users could afford to purchase.

• Tracking sources and sinks in the economy – How do users get their money and how do they spend it? By measuring this, you can understand what parts of your virtual economy are working well and address the parts that are not performing.

For example, is the primary source in your economy the initial seed money you give all users? This is probably not a good sign. It may indicate that users are not finding the game engaging enough to earn additional currency or perhaps it’s too difficult to earn currency in the game.

• Tracking individual virtual good purchases – By tracking all individual purchases, the developer can identify what goods are in high demand and use that information to adjust prices accordingly, create more goods like the ones in demand, and remove unpopular goods. Perhaps the user base of a particular  application just does not buy goods in large quantities outside a particular price range.

• Dual currencies – Multiple participants pointed to dual currencies as an effective way of monetizing around virtual economies, where one currency (regular) can be earned through game play and the second one (premium) can only be acquired through real-money purchases. Conversions may be allowed from the premium currency to the regular one, but not the reverse. Application developers can then choose to make certain items available only via the premium currency, which encourages users to purchase the premium currency.

• What is the right time increment for measurements? – Most metrics for monitoring virtual currencies should be averaged over a certain time period to avoid reacting too quickly to random fluctuations in the metrics. The consensus was that a week was a sufficient time increment for most metrics. Obviously, if you have a major shift in some key metrics, such as the average number of transactions in your economy dropping by 80% over night, it’s probably safe to say that you have an issue and you shouldn’t wait a week to investigate it.

Virtual currencies are currently an integral part of many applications on Facebook and are likely to continue to be so. Having the right metrics to control sources of currency, appropriately price virtual goods, and keep inflation under control will be important to ensure the continued success of an app with a virtual economy.

We appreciate the input from all the participants at the workshop. If I missed something that was discussed please add a comment!