Over the past couple of years, we’ve written a lot about how the evolution of the video game industry’s business model has given rise to systemic fraud. Unfortunately, it has become the new normal to read about online video games being used as havens for money laundering and other fraudulent activity. The two most common types of fraud being perpetrated include the theft of virtual goods and currencies that are then sold on unauthorized, 3rd-party gray market sites for real world value, and the compromise of player credit cards, which are then used to make unauthorized purchases, many of which are only discovered after the publisher is nailed with chargebacks.
Up till now, game publishers have viewed efforts to fight fraud and abuse purely in terms of costs, typically funding these ongoing activities as a component of their support or operations budget. However, to place complete accountability on operations or support teams to mitigate, stop, and investigate fraudulent activity is a reactive approach that doesn’t address many of the true costs of malicious player activity. Even worse, reactive strategies do little, if anything, to actually stop those problems from occurring again, and again, and again…
As more players are drawn to a game, the more attractive it becomes to professional thieves. As players ourselves, we’ve seen this unfortunate pattern play out time and time again: just as a game starts to get real traction, inevitably fraud and abuse spikes. The actions of cheaters, hackers, and fraudsters cost publishers significant amounts of money, starting from the very first second that the bad guys decide to target a game – in fact, the longer an adversary has to build a robust infrastructure of bot accounts, fences, sellers, etc. the more expensive it will be cost- and time-wise for publishers to root them out, struggle to overcome their financial losses, and restore player goodwill.
But what nobody is talking about is that there’s another, better way to fight back against bad guys, one that, when executed correctly, has the ability to move fraud prevention beyond the traditional paradigm of it being ‘an inevitable cost of doing business’. One that can even turn an operator’s ongoing battles against fraud into a profit center.
Successfully transforming fraud into profit begins by understanding and quantifying all the various costs that a game incurs as a result of unwanted or fraudulent activities, paying careful attention to:
- TOP LINE COSTS – encompass anything that impacts the in-flow of a game’s revenues, including (but not limited to) the loss of virtual currency or item sales to the gray market. Gray market activities are particularly demoralizing because, while the player has chosen to monetize, the game operator sees none of that revenue since they’ve chosen to do so via an unauthorized marketplace. Gray market sales not only reduce legitimate transaction volume, but also frequently lead to changes to the game such as transaction limits, thresholds, or level qualifications intended to limit the operator’s losses. While these methods can, in the short term, reduce things like credit card chargebacks (see Bottom Line Costs below), they do so at the cost of further reducing revenue from good players willing to spend money, and do little, if anything, to actually stem the tide of gray marketeers’ activities.
- BOTTOM LINE COSTS – include chargebacks (and their resulting fees), salary and equipment costs for support members, developer time spent creating and updating rules instead of building cool in-game stuff, time spent creating reports for management and investors, and even fines and penalties.
- INVISIBLE COSTS – include the erosion of customer goodwill and loyalty, damage to the publisher’s brand and reputation, damage to the developer’s name and relationships to current and future investors, and stress and anxiety for the operator’s and the developer’s staff due to ongoing uncertainty for the game’s future.
It’s important to note that these costs are not mutually exclusive to one another. That is, one fraudulent activity can create top-line, bottom-line and invisible costs to the publisher.
Transforming Costs into Profits
Video games publishers with a traditional, reactive security posture will always have a difficult time mitigating the top-line, bottom-line and invisible costs of video game fraud. However, for those publishers that evolve into a proactive security posture – one that focuses on getting ‘bad guys’ out as soon as they appear and keeping them out when they try to return – can actually turn their efforts to fight cheating, fraud, and abuse into profit. Here are eight ways in which video game publishers can increase revenue and reduce costs simply by implementing proactive security:
- Player Retention – Good players will stick around longer (more opportunities for monetization)
- Game Loyalty – Good players will have more fun (complain in forums less; play more often; be more engaged)
- Monetization – When players monetize, they become more likely to buy from approved sources. Prioritizing the worst bad actors for termination disrupts their operations, causing gray market prices to rise and inventories to become more scarce.
- Less staff needed for operations and support
- Development teams can focus on the game, not on fraud (leading to even happier players and employees)
- Less fraud means that chargebacks go down; fees go down; revenue volatility is reduced and it becomes more predictable
- Player acquisition money goes further (the players acquired via advertising, etc. “churn” less)
- Higher player populations equate to better negotiations on the development studio’s next project, on advertising deals, more buzz in the press, overall improvement of the lifelong value of the IP, and less chances of law enforcement hassles, etc.
Panopticon Labs offers the the only proactive video game security for publishers. Our alerting and research tool, Watchtower, uniquely identifies a baseline of normal activity for every online player within a game, then proactively creates automated alerts as soon as suspicious or potentially harmful behavior is observed. By doing so, Watchtower helps video game publishers quickly discover anomalous in-game behavior, such as an abnormal item or monetary transfer or withdrawal, or suspicious or erratic gameplay, with accuracy approaching 99%. The product’s real-time, actionable alerts and in-depth research tools give the operator’s support team the power to make immediate and informed decisions that stop malicious in-game behavior before damages can occur, ultimately serving as the catalyst to transforming fraud into profit.
Take your first step towards implementing proactive fraud prevention and schedule a demo today.