:: The Park Paradigm ::

Markets for the Digital Generation

Roger Parloff does an extensive review of the phenomenon of the virtual economies of online games in the November 28th, 2005 edition of FORTUNE:

Whether MMOs (massively multi-player online games) are set in Middle Earth, Camelot, or inter-galactic space, they all have capitalist economies.

He leads off introducing us to someone who makes their living dealing in objects from EverQuest:

It’s a good life and would not be a surprising one for a 33-year-old corporate litigator like Paul, except that he quit his law partnership two years ago. Since then he’s been self-employed at an even more lucrative calling: He plays a medieval-themed online videogame called EverQuest. Because so many young people now spend so much of their lives immersed in the simulated 3-D worlds of games like this one, the noncorporeal emoluments they accumulate in these environments–virtual swords, cloaks, gauntlets, in-game currency, etc.–acquire real value to them, and they will pay real U.S. dollars–and euros, yen, won, and yuan–to acquire them. So Paul buys and sells virtual items and currency for a living. “The valuation is always difficult,” he concedes. “When you think about people paying real cash for something you can’t even touch, smell, taste–that’s tough.”

While it would seem that ‘farming’ is a low-margin business , Castronova calculated a figure for WoW (World of Warcraft) of $1.17 / hour - enough perhaps to enlist workers in some developing countries but not enough to entice someone like Paul to give up his day job…so how did he do it?

“It’s a business model I developed when I didn’t know what a business model was,” Paul says in a clear, confident litigator’s voice. When he was 12, he would buy collections of baseball cards and then sell the cards individually for a profit. Today Paul buys EverQuest accounts from players who are retiring from the game, typically over a website called playerauctions.com. He then sells the acquired avatars’ items to players through EverQuest’s in-game bazaar in exchange for “plat”–i.e., “platinum pieces,” the game’s currency. Then he exchanges plat for dollars through Internet Gaming Entertainment, a broker specializing in the secondary market for game currency (see “Yield of Dreams”). He has about 20 EverQuest accounts, he says, and keeps at least seven avatars trading “24/7.” Each can be programmed to sell up to 80 items at prices he sets. So he can market up to 560 items around the clock. The most he’s ever received for a single item, he says, was about 3 million plat, which might fetch between $840 and $1,200, depending on where plat is trading against the dollar when he exchanges it.

Anyone familiar with private equity and LBOs will recognize Paul’s sum-of-the-parts-is-greater-than-the-whole business model.

The rise of these markets - playerauctions.com alone claims to have conducted over 4.3 million auctions amongst its 200,000 registered members (charging 5% commission on sale value and various listing fees, this is already a reasonably sized business) would certainly seem to present an interesting opportunity for ‘real-world’ financial services firms.

An interesting question surrounding property rights however does arise from trade in these in-game goods (from same FORTUNE article):

Legally there was an even more ominous prospect. If the company countenanced RMT (real money trade), it might be acknowledging that players gained ownership rights over things they earned or created using the company’s intellectual property. That could have dire consequences down the road. If, for instance, the company altered, upgraded, or discontinued the game–wiping out the virtual wealth it had encouraged its players to accumulate–might it become liable to those players?

Most companies banned RMT in their click-through licenses and demanded that eBay take down auctions for such items; eBay complied, but private auction sites like IGE sprang up to fill the void. Boyd and James Rosini, an IP partner at Kenyon & Kenyon, say that those companies are operating in a gray area. They might be facilitating infringement of the publisher’s intellectual property rights, for instance, or inducing breach of its licensing agreements. “There are myriad colorable claims that could be brought” by a game company that might want to challenge the practice, says Boyd, who sounds as if he’s waiting by the phone. (IGE’s president, Steve Salyer, disagrees. “I’ve sat with the best legal minds in the U.S. over this issue,” he said at a conference recently, “and I’m certain players and IGE are within their rights to conduct the business they conduct.”)

There are signs that game publishers may choose to absorb this new market rather than fight it. In July, Sony set up its own RMT service, Station Exchange. In the first three months of operation–limited to a small fraction of players in just one game–Station Exchange , hosted $540,000 in RMT, with Sony taking a 10% commission on every transaction.

How long is it until USD/EPP (Everquest Platinum Pieces) is as frequently traded as USD/BGN (Bulgarian Lev), afterall the EverQuest economy is ostensibly bigger!

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