How I wrote about the Habbo 2020 market crash while it was still unfolding

When I released my video on the Habbo 2020 market crash for early access, I mentioned how the video was a retrospective—a telling of the story with the benefit of hindsight. By the time the video was published, I had gone through four separate drafts.

This article is a reproduction of the first report I wrote on the 13th January 2021—a time when the market crash was still unfolding in front of my very own eyes.

Milking the last drops of a dying cash cow

In the month of December 2020 alone, GiantEye spent over £2,700 on a game called Habbo. Just one month later, he says he no longer wants to play the game.

When I asked GiantEye whether he considered himself to be a video game “whale”, he suddenly became quieter and began to choose his words very carefully. After a bit of reflection, he responded, “I would hope I’m one of the top people who spends this much money on Habbo, so yeah [you] can call me a whale ... I understand it’s a lot of money to spend on a game”.

There is no consistent definition of the word “whale” in the context of video games. In academia and in some parts of the video game industry, the term refers to someone who spends over $20 USD per month in a game. Other companies may use different definitions, such as 5th Planet Games which defines whales as those who spend over $100 USD per month.

What is generally agreed upon is that whales spend statistically more on video games than other players. Usually these purchases are done on “free to play” games - games where players can spend money to enhance their gaming experience but are not obligated to do so and can play the game for free. Whales end up significantly co-financing these free to play games, with one estimate calculating that whales generate 50% of the total revenue despite making up only 10% of paying players.

Whales usually dislike being labelled as such because the term carries with it negative connotations. Stories like that of a mother who neglected her own child to sink tens of thousands of dollars on a game capture the public imagination and paint a misleading portrayal of whales with one broad stroke. In reality, a proportion of whales enjoy spending that amount of money and want to convey the sentiment that they wish to support the game developers who made the games they enjoy.

GiantEye is one such player. After answering my question, he quickly pivoted to say that he had a well paying job as a lead software developer. “I spent thousands of my own money [...] because I was enjoying it so much. I love Habbo [and] I just wanted to make it a better place”. When asked whether he had any regrets spending that amount of money, he firmly gave a negative answer. His story is not universal, however, and not all whales can afford what they spend. In those cases, the dislike of the term whale stems from shame and social stigma.

For free to play game developers, having to rely on alternate revenue streams while production costs have skyrocketed dramatically is a tall order. The use of questionable techniques for free to play monetisation has sparked a debate on the ethics of “whale hunting”; a debate which has perfectly captured the zeitgeist of a generation where gaming is becoming ever more mainstream and ubiquitous.

"A real life imitation of Robin Hood"

In October 2020, Habbo, a free to play massively multiplayer game, issued an announcement excitedly announcing a new feature in their upcoming update, “earnings”. The new feature allowed players, for the very first time, to earn coins by just playing the game without paying for them with real life money. The profoundness of such a change can not be understated. Coins previously could only be obtained through purchase which preserved its value. In a game where coins could buy you premium membership, new furniture to decorate your rooms, and new clothing for your avatar, coins were a sacred commodity. One which could buy you fame, friends, and prestige within the game.

But with it came a second new feature - the “vault”. Any coins earnt through gameplay will be stored in this vault. If a player wanted to spend those coins, they would have to withdraw their coins from the vault, where they would be required to pay an 80% tax. Notably, a player could choose to waive the 80% tax by “unlocking” the vault, which they can only do by purchasing “a sufficient amount” of coins from Habbo.

Habbo’s vaults are a textbook example of a free to play monetisation technique known as “reward removal”, which is when a game gives a player a huge reward, makes them feel good about it, and then subsequently threatens to take it away if they do not spend real life money for it. What makes this technique so effective is the fact that the reward itself, the coins, are not the only thing on the line. By the time a player has obtained a substantial amount of coins they would have invested hours, if not days, of gameplay in completing these quests. Many players in such a situation would end up begrudgingly forking over a few pounds to restore the reward they spent time earning.

Dubbed by one YouTuber as “the grandfather of microtransactions”, Habbo has had a 20 year history of running as a free to play game and has therefore had plenty of experience in employing free to play monetisation techniques. But as players move on to other games, and with a user base slowly declining, Habbo has, in the eyes of many players, used more and more desperate techniques to attempt to milk the last drops of a dying cash cow.

For example, in its 15th anniversary, Habbo released the “prize balloon”. For a month, everyday a user logged in, they would get a free prize balloon. When these balloons were popped, they would give out prizes, such as premium membership, coins, furniture, and on occasion, rare items. These balloons would end up being very popular and buoyed on by their success, Habbo released the “rose gold balloon” to celebrate their 20th anniversary. The difference? This time they were not free. You had to pay to get one.

These balloons are a type of lootbox, which “contain randomised items, so players do not know what they will get before opening them [...] These items are usually either cosmetic, i.e. items of clothing for avatars etc, or power-ups to improve playing experience”. Lootboxes are particularly controversial as a monetisation technique because they have been often accused of exposing minors to gambling which could end up normalising it.

Lootboxes utilise similar psychological techniques used in slot machines to entrap gamblers. One of these techniques is called “variable ratio reinforcement schedule”, which is when you reward behaviours at seemingly random intervals.

For example, a player would be rewarded with a rare item on occasion when they pop one of these balloons. Importantly, this does not happen every time and so when a player does not get rewarded, they will be disappointed. Some players, however, will also be determined to try again because they will think that they were this close to winning. And so, akin to a problem gambler trying again on a slot machine, addicted players could purchase hundreds of these lootboxes in order to “chase the high” of winning. In insidious cases (although not on Habbo), game developers have even been found to manipulate the odds of lootboxes using algorithms to maximise the amount of money spent by each individual player.

Academic studies have already shown that there are links, although not necessarily causal, between lootbox spending and problem gambling. A study by Dr David Zendle and Dr Paul Cairns concluded that “[the amount people] spent on lootboxes was a better predictor of their problem gambling than high-profile factors … such as depression and drug abuse”. Such conclusions have led to countries like Belgium and the Netherlands banning lootboxes under their gambling laws. In the UK, the Children’s Commissioner for England; the Digital, Culture, Media, and Sport Select Committee; and the Lords Committee on the Gambling Industry have all recommended that the Gambling Act 2005 (the law which regulates gambling in the UK) be amended to regulate lootboxes as a form of gambling.

Habbo’s most enduring success, however, is with its virtual currencies. Studies have shown that shoppers spend double when they pay for things using their credit card as opposed to physical cash. This is because shoppers are made less aware of how much they are actually spending when using a card. Virtual currencies exploit that same psychological effect. By requiring virtual goods and services on Habbo to be paid with coins as opposed to directly paying them with real life currency, they “layer” the actual prices. As the Australian Council on Children and Media noted, “the effect of virtual money is the dematerialisation of payment where the user often has no clear idea of the actual cost”.

The widespread use of coins in the game means that Habbo can use metaphorical levers to drain virtual currency out of the economy and require the replenishment of coins into the economy with real life purchase. This commonly employed tool (“sinkholes”) is used by massively multiplayer games to stabilise game economies. More importantly, the creation of new sinkholes allow for Habbo to introduce new ways to monetise their game.

One of the most controversial changes was that the vault did not just lock up “earnings” (coins earnt through gameplay). Once you have 500 coins in your account, all of your subsequent coins are moved to the vault where they are subject to the 80% tax. In practice, it is expected that players do not actually pay this tax but instead choose to “unlock” their vault with real life money. And this was Habbo’s explicit intention, who wrote in an article: “The idea behind vaults is that you unlock them – it doesn’t make sense to withdraw credits from a locked vault because the cost of doing so is so high”.

The response to the newly unveiled vault (along with some other new taxes) was one of instantaneous outrage. One player accused Habbo of taking their coins “hostage”. Another described how it was “disturbing” for Habbo to announce such sweeping changes “in the midst of a global pandemic”. Meanwhile Hablin, a Singaporean player, gave a scathing critique of the changes, calling it “a real life imitation of the situation in the legend of Robin Hood where the rulers of the land are imposing high taxes on the nation [...] [I] wish that our own Robin Hood would appear soon”. A boycott of Habbo by over 40 user-created organisations took place in early January 2021 leading to a temporary two-thirds reduction in the number of concurrent players.

Habbo has given several justifications for the introduction of the vault. They argue it was needed to “limit the benefits of suspicious activities involving big credit transfers” and to frustrate “alternative account grinding” (also known as “gold farming”). But many players remain unconvinced. For most, this was a poorly concealed cash grab, using the dangling prospect of “earnings” as a trojan horse to sneak in a multitude of new sinkholes to make players pay even more.

The flight of the whales

One day, GiantEye woke up to a message from Habbo informing him that he had been banned for “scamming”. It transpired that he was erroneously banned and so, after a flurry of emails, his account was quickly reinstated. But on reinstatement, he was greeted by a Habbo employee. She gave a simple ultimatum: shut down the bank or she will shut down his account.

GiantEye ran a project called “HabCity”, a conglomerate of multiple corporations owned by him. Players could play games he created and win prizes he personally financed out of pocket. The centrepiece of the project was the “Bank of Habbo”, a place where users could deposit and withdraw their coins. While deposits were quickly suspended after Habbo staff raised concerns about scamming, he continued to run his games and allow withdrawals - all financed out of pocket.

In the three months HabCity was in operation, GiantEye claims to have given out over 213,000 coins in game prizes (equivalent to over £21,300). The £2,700 he spent on December 2020 was so that the bank could continue operating, giving people prizes for winning his games. But by the end of December, it was all gone - the plug had been pulled. 

Habbo claims that they ordered the shutdown of HabCity because it used external third party tools (which is prohibited under their Terms of Service). But GiantEye, along with many other HabCity users, saw it differently. After the vault and tax changes were announced, many user-run corporations began to come up with contingency plans to deal with the abrupt increase in operating costs. Many of these corporations ended up striking an agreement with GiantEye, whereby transactions (such as paying wages) were done through the bank. If players wished to purchase goods or services from affiliated corporations, they would be able to do so through the bank directly, avoiding the new taxes. It was this, they contend, that got HabCity shut down.

After spending thousands of pounds on the game, GiantEye has called it quits and has stopped playing Habbo. He, like many other wealthy players in the “Coin Club” (Habbo’s equivalent of Forbes’ World’s Billionaires List), has been disillusioned with Habbo’s new changes. And so followed the flight of the whales, where many high spenders just stopped because they did not find Habbo fun anymore. The cash cow is dying and Habbo is milking its last drops.

The ethical quagmire

Ben Cousins was given a simple choice when he was general manager for a free to play game Battlefield Heroes: make the game profitable or his team gets sacked. 

With no options left he bit the bullet and introduced a more powerful weapon in the game that was purchasable with money. By doing this, he committed the faux pas of the free to play industry - he made the game “pay to win”. The term, often used pejoratively, describes a game which confers unfair advantages to people who pay over people who don’t.

But while the forums saw an explosion of outrage and discontent over the changes, Cousins noticed something peculiar. There was a three-fold jump in daily revenue. “There was a mismatch between what was being said on the forums and what was happening in the data”, he remarked. In the end, Cousins managed to save the jobs of his employees.

For many free to play gamers, the techniques employed by game developers to “hunt the whale” can be outright exploitative. They argue that these practices prey on vulnerable gamers with psychological disorders, players who can ill afford to pay, and people with a history of problem gambling. For game developers like Cousins, the ethical quagmire is not one at all - his employees had to eat, one way or the other. As Nicholas Lovell, a defender of the free to play industry, summarised aptly: if a football fan could spend hundreds on a football match, why would it be immoral for a whale to do the same?