Twofish Elements launches for micro-transaction economies on games — and someday, the web?

In the olden days, you went to the store or a catalog and bought a game. Then, you played to your heart’s content, and never paid again.

That model has changed, as a variety of others appeared: Subscription-based online worlds, free ad-based online games, and micro-transaction games where you pay a small amount each time you want to enjoy a new feature of the game. That last category, according to Twofish Elements CEO Lee Crawford, will be the “next great wave of the web.”

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Why? Crawford says he believes users are looking for interactive experiences online that are too costly to be paid for by ads alone, so micro-transactions are the logical next step.

Here’s the idea, at its simplest: You sign up for an online game and play for as long as you want, but certain premium items or features within the game require a small payment. With enough of those payments from a broad enough base of players, a gaming startup can make a tidy sum.

That’s where Twofish Elements comes in, with an offer to help game companies optimize these transactions.

Its software is a plug-and-play platform, and is a sort of combination of web analytics and Paypal for games. Twofish watches what players do and helps create transaction steps to optimize revenue. It handles the micro-payments (even those from players overseas) and protects against the risk of fraud and chargebacks.

The company is talking to “most of the major publishers,” although it won’t yet name who those are.

Whether micro-transactions sweep the web or not, it does seem to make sense to place them directly in the game. The alternative is an external portal like Live Gamer, a startup we recently covered that plans to oversee player-to-player trades for popular online gaming worlds.

Twofish took a round of $5 million back in 2006, from Venrock and Rustic Canyon Partners. It’s currently considering raising another round.