Editorial: Virtual Economies

Hello, and welcome to Friday! Gamers who played as children will fondly remember their early experiences; jumping on turtles, shooting Nazis and trying to connect fireballs with another player on the other side of the screen. Games were often made to last longer as the market was not as saturated as it is today, the next purchase coming as soon as one could convince their parents to part with the cash for another game.

Made by a poorly managed company.
Kingdoms of Amalur

For two decades the sales of games proved to be a profitable business model, however, it is ultimately flawed. No player is likely to buy multiple copies of the same game, which means publishers have had to find increasingly larger audiences to offset rising development costs. Kingdoms of Amalur outperformed EA’s projections by selling over one million copies in its first ninety days, but despite the impressive figures, the studio required three million just to break even.

The late nineties brought about a change in strategy. Iron Realms Entertainment became the first company to sell virtual goods in their games. Today everyone is building virtual economies into their games. When Zynga went public their market value was around $10 billion, not bad when you consider that the majority of their money is made from selling virtual apples.

In the future there will be billions of casual gamers. They will need virtual currency for goods and features within online games, this need for this will drive them to interact with a myriad of options available to earn that currency. This will be especially true in countries where fewer payment options are available. The advertising industry has already recognised an opportunity here.

It is possible to earn hourly or daily rewards for watching videos or installing apps on mobile devices. Any action, however simple or sophisticated, can be tied into virtual currency rewards. It is more meaningful to a casual gamer to repeat a task for a small amount of virtual currency compared to a real equivalent as the virtual one is used for micro-transactions to unlock a new level or weapon.

EVE online is Economics: The Game.
EVE battle

Methods of distributing virtual currency are out there which can scam unwary gamers. Beware any app which offers rewards for completing surveys or signing up to online services. Those unfortunate enough to be caught out often find themselves with unwanted items and fees because they did not pay attention to the fine print.

Regular sales of virtual currency give us exchange rates, much as one would find when purchasing foreign currency to go on holiday with. Through these interactions, online games can have their economies valued in the same ways countries do. EVE Online developer CCP even hired an economist to monitor their game. EVE is one of the few MMO’s where real currency can be used to purchase the virtual. Pilot license extensions are use to add extra game time an account, but they can also be sold on EVE‘s marketplace for ISK, the games virtual currency.

When talking about EVE it is important to know that the developers will do little to prevent players from losing massive amounts of ISK, in fact they encourage those who attempt to destroy their economy. In April of this year the leader of the Goonswarm corporation (the name of EVE‘s guilds) led over fifteen hundred people in an attack on a ‘safe’ area of space. The area is patrolled by A.I. ships to prevent PvP conflicts in the zone, but through the use of cheap, effective crafts, the massive number of players managed to wipe out everyone in the zone. The lead game designer was quoted as saying “the worst thing we could do is to stop it happening… it would be against everything we stand for.”

... as if millions of voices suddenly cried out in terror, and were suddenly silenced.
Website Spelt in Corpses

Gold selling has been a common practice in World of Warcraft for years. Cheap Chinese labor is used to collect as much gold as possible through stripping the world of resources, farming monsters for items or duplicating existing valuable items. This practice started elsewhere though. In 2001 IGE (Internet Gaming Entertainment) was setup by two Everquest players. The company would dominate the market for the next five years, until internal problems and increased competition from China ended their reign.

Any virtual economy, however closed it tries to be, will have currency traders within it. Some will try to earn virtual currency for real world actions, others will want real currency for virtual services. The economy will support it for as long the demand is there, and demand will be in no short supply for the foreseeable future.

Readers, have you ever purchased currency in an online game or app? Ever been misled when obtaining rewards? Let me know in the comments!

One comment

  1. I wonder what an observation of in-game currencies can tell us about a totally unencumbered economic system (hint hint).

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