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14 July 11-17, 2007 Virtual Goods, Hard Cash The Seedy, Startling World of Virtual Economies T By Ron Aiken he call came a couple months back. On the other end of the phone was Kipp Shives, recently departed cook at The Whig and a personal acquaintance, wanting to talk about his acquisition of a virtual shopping mall for around $6,000 located in the online game Project Entropia. As he spoke with excitement about the marketing and income possibilities this presented, I tried to get my head around the idea that Shives had just spent thousands of dollars on property that only exists in a computer game. As I listened, it also sparked a memory of a friend of mine, one of the country’s leading microbiologists, recently telling me that through his obsessive playing of the online game Diablo II, he had roughly $3,000 to $4,000 worth of equipment and items he could sell online at any time. This fired my imagination. Here were two wildly different types of people — a former cook and an internationally respected doctor — spending enormous man-hours in fantasy worlds, effectively checked out from reality, each spending and accumulating significant amounts of real-world wealth. Something was happening here beyond just geeks playing make believe to compensate for depressing social lives. Serious market forces were at work, and I knew I had to learn more. Diving in head first, the world I found was more surprising than I could have imagined, from 300-computer gaming sweatshops in China to a six-figure executive losing his job because of an “addiction” he couldn’t control to a gaming industry struggling to come to grips with the economic monster it has unleashed. Welcome to the frontier world of Massively Multiplayer Online Role Playing Games (MMORPGs), where the law is light years behind the technology and the battle between millions of hackers and hardcore gamers and the companies whose products they exploit for cash is fought by the hour. It is a seedy world peopled by remorseless opportunists, virtual organized crime and outlaw gamers and programmers all eager to cash in on a worldwide economy boasting bigger profits than Hollywood and an estimated economic output, at $29 billion, larger than the GDP of Sri Lanka. The Rise of Virtual Economies MMORPGs, in their current incarnation, have been around in force since the early 1990s, with such titles as Ultima Online and EverQuest creating a robust market for those looking to take the complexity of Dungeons & Dragons-type games to the Internet. In these games, players control virtual characters, sometimes called avatars or toons, and typically seek to build their characters through acquiring experience, leading to more skills available, and gather treasure, including weapons, armor, spells and magical items. As characters increase in levels, they become more powerful, their gold more plentiful and their weapons more deadly. The lure of moving these games to the Internet is obvious: Rather than three dudes throwing dice and checking charts alone in a basement — not to mention the hassle of physically getting people together to play — you can play by yourself in a world populated by thousands, if not millions. As titles such as EverQuest, Dark Age of Camelot and World of Warcraft grew in popularity worldwide, a demand was created for in-game resources that individuals began to fill on their own by auctioning their highlevel items on sites such as eBay for profit. The reasoning is simple: If Player A doesn’t have as much free time to spend on the game as Player B and yet wants to play with the kinds of high-level items only obtained through extensive “grinding” (the repetitious performing of game tasks to obtain treasure and experience), there exists a real-world demand for those goods. And as happens in all free-market economies, with enough buyers and sellers, agreed-upon values emerge and a thriving market evolves. Economist Edward Castronova, associate professor of telecommunications at Indiana University and the country’s leading authority on virtual economies, has been studying the rise of these economies since 2001. His 2005 book, Synthetic Worlds: The Business and Culture of Online Games, was the first to formally address the peculiar economics of emerging gaming universes. Castronova says understanding how this market works is a lot like playing Monopoly.

Virtual Goods, Hard Cash

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