The Virtual Goods Economy

David Wagner, Managing Editor | 2/18/2011 | 22 comments

David Wagner
Hey folks, today’s topic is going to be an experiment. I’m calling it the “Geekend” post. See, I’m a geek. I play video games. I like sci-fi. I like all things in the nerd kingdom. And hey, IT folks are known to be geeks, too. And I know from various posts that at least some of you guys proudly fly the geek banner.

So, every Friday afternoon, I’m going to talk about stuff I love --gadgets, games, movies, and the people who make them -- and I’m not going to worry about the enterprise. Just once a week. One post, for a little bit of fun so we can enter the weekend on a high note.

Today, I want to talk about a fabulous real estate venture. It is a world class resort with 17 out-of-this-world exclusive retailers, a fabulous club called Stahlsteiner’s which boasts a major star following, and expansive grounds with some of the most exotic plant life you’ll ever see. Every Saturday the resort sells out its famous shows, and visitors can even book special hunting expeditions. The amazing thing is that this resort can be had for $330,000. Not bad for a resort, huh? What if I told you this resort was in a space station orbiting the planet Calypso? What would you pay, now?

In case you haven’t figured it out yet, the resort is in a virtual world. It is the Crystal Palace Space Station (pictured below) in the game Entropia Universe. And it sold in 2010 for $330,000 real US dollars, a world record for virtual goods. Would you pay six figures for a piece of digital real estate?

Before you answer, let me tell you that the selling of virtual stuff for real money is a $2 billion a year industry. And Buzz “Erik” Lightyear, the owner of the Crystal Palace Spacestation is sure he is going to make his money back by selling virtual tickets to shows, goods in the virtual shop, and from hunting fees.

And this isn’t an isolated case. From simple Facebook games like Farmville to fantasy massive multiplayer games like World of Warcraft, virtual markets (sometimes sanctioned and sometimes illegal in the game universe) are popping up to help people buy the stuff they want most in the game without having to go get it the hard way. And some people are making a profession out of collecting and selling virtual swag. What are people buying? This chart breaks it down.

But what they are really buying mostly is convenience. They want the +10 Slaying Sword of Super Magic but they don’t want to go to the trouble of killing the Great Many-eyed Gorgon of Blinding Death to get it. Or they are buying status. They want the coolest space in Second Life or another virtual world but they don’t want to build it themselves.

The thing is, we can’t sneeze at these virtual economies because they actually show us a lot about the real economy in microcosm. They have inflation, supply and demand, consumers, producers, and everything else. And some games have even collapsed because they got the money wrong. It was either too hard or too easy to get what people wanted in the game. We learn a lot from these economies, especially the ones who successfully adapt to problems as they go.

But heck, this is the geekend post. I don’t want to talk about what we learn. I want to talk about whether it seems fair to buy this stuff. Personally, I play games so I can earn the +10 Slaying Sword of Super Magic, not so I can buy it in cash to use it on some measly little wandering giant rat and watch how easy it is to kill something. The achievement is what I’m after. I honestly wonder who the person is that pays real money for fake stuff. Especially fake stuff that can be copied again and again with some simple lines of code. And yet clearly, other people feel differently to the tune of $2 billion per year.

What do you think? Thumbs up or down on the virtual goods economy? Would you spend real money on fake stuff? Have you done it? Anyone ever consider (like me) whether they could make a living selling fake stuff online? Anyone ever succeed at it? It’s OK to tell us. We’re all geeks here.

View Comments: Newest First | Oldest First | Threaded View
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Zentropist   The Virtual Goods Economy   2/24/2011 10:01:16 PM
Re: Problem with the virtual world
Ultimately the point is well made that transactions conducted in our "real world" using fiat currency is based on the premise that the more reputable currencies have an intrinsic value based on the "full faith and backing" of a nation's government.

But given the economic upheavals, and a global system that politically and financially is beginning to look like a polite charade built on decades of fiction, perhaps the fact that some people prefer to immerse themselves in virtual worlds and dedicate time and resources to these alternatives suggests where their calculus of values lies...

CMTucker   The Virtual Goods Economy   2/22/2011 1:53:21 PM
Re: Problem with the virtual world
That is a problem for the designer, truly. If there is no exclusivity, that isn't the fault of the currency. The argument still flies since inherent power is what makes any type of currency valuable. Otherwise it's shiny metal (gold standard or no) and green paper...and it's the same as any type of 'virtual' currency. It's the value that the users ascribe to it.

David Wagner   The Virtual Goods Economy   2/22/2011 12:53:06 PM
Re: Fair?
@Jpoe- Fair enough. And you are right that life isn't fair, and playing fields are seldom level. And of course, I'm not trying to derail the virtual economy.

But one of the interesting things about the virtual world is that we can build it the way we want without pesky reality getting in the way. I think it says something about us as people when we build a virtual world a certain way versus another.

Do I want to build a world with no competition and everyone has what they need and everyone is friendly or do I want to build a world where everyone has to bite and claw for everything that get and they can prey on the weak?

Obviously the first would be dull and the second would be impossibly difficult. But the parts we choose in between the extremes to make a great game that still shares our values shows us something.

If we can't make a virtual level playing field where are we ever going to get it?
JPoe   The Virtual Goods Economy   2/22/2011 12:41:13 PM
Re: Fair?

I see what you mean: you want a sort of level playing field, for lack of a better term/metaphor. And you are right, in that it would be a huge bummer to have spent time/energy building something cool and impressive, only to have that torn to bits by someone with deep pockets (who didn't take the time to build it the traditional way). So, in that regard, I'm on board with you.

On the other hand, I think that we'll all have to just get used to the idea that there never will be a truly level playing field. I'm tempted to turn this into a meandering quasi-political diatribe in which I rage against the system (and that's before I've had even two cups of coffee. Impressive, no?)

But I won't. Instead, I'll suggest that we all want a level playing field-- in life and in our games. But it doesn't exist. The real winners are those who manage to prevail without regard to the conditions or environmental factors that others perceive to be setbacks.

Virtual Goods? Hey, Virtual, Schmirtual. Goods is Goods.
David Wagner   The Virtual Goods Economy   2/22/2011 12:33:59 PM
Re: Am I missing something here?
@Rowan- Just for information, there are many games that limit "gold farming" as you say. However, some do not make it illegal. In fact, some even have exchange rates from virtual gold to real cash.

Personally, I prefer companies who open it up. If there is a market for the stuff, then let people do it. I think this stuff is odd, but I do think if there is market for it people should get to do it.
David Wagner   The Virtual Goods Economy   2/22/2011 12:27:49 PM
Re: Fair?
@Jpoe- I guess when I mean by fair is that it violates my sense of fair play. Maybe that's a silly concept, and obviously not one to necessarily legislate in these games (though many do), but one that matters to me.

If I were to play one of these games I'd like to know that the people I'm playing against, or even cooperating with, have made the same effort as I did to acquire my stuff. It shows they have the gaming skills (rather than the cash) to acquire the status that they have.

It would be like going to a doctor that hung a Harvard Medical School diploma on the wall that he bought online. It doesn't mean I won't get better, but I still prefer the doctor earned it.
David Wagner   The Virtual Goods Economy   2/22/2011 12:13:44 PM
Re: Problem with the virtual world
@CMTucker and @Rowan- I don't think the "money as virtual good" argument truly flies. Yes, money is based on trust rather than the previous gold standard. But unlike a digital item in a game, money is not easily duplicated millions of times at the click of a mouse.

OK, admittedly the Fed has been accused of doing something similar.

But we're talking objects here which literally exist as infinitely copyable. There are limits even in a digital economy on the amount of money in circulation. And that money is still all tied to goods and services that have at least some tiny amount of intrinsic value. If I buy a resort or a sword in real life, I can book rooms or kill intruders with those objects.

Yes, shockingly, I can do those things in the virtual world with those objects but at the whim of the other people in the game (or running the game) that object can be easily duplicated and probably surpassed with some simple coding.

I think the better example is art objects. Paintings have little intrinsic value and what makes a Monet worth $100 million and my daughter's painting worth hanging on my refrigerator is purely subjective. The thing is, if I invented a robot that could analyze the brush strokes of a Monet and duplicate it perfectly, I could not sell those painting for as much as the Monet. they are identical, but only one is original.

I think, to me, this why the virtual goods economy is different (not worse but different) in that only a few rare exceptions can be made for "original work" and the rest are rather expensive copies.
JPoe   The Virtual Goods Economy   2/21/2011 7:00:07 PM
Re: Problem with the virtual world
CMTucker  Nailed it.
JPoe   The Virtual Goods Economy   2/21/2011 6:59:48 PM
I want to talk about whether it seems fair to buy this stuff. 

Fair? Sure, it's fair. I agree with some of the others, who've responded to your post, by talking about the nature of money and stuff. Makes sense.

So, is it fair to sell stuff that doesn't really exist? Yes. It's fair because, at a really basic level, it means that someone is willing to exchange currency for something that they want, even if that thing doesn't exist. At least, that's my take.

CMTucker   The Virtual Goods Economy   2/21/2011 5:53:05 PM
Re: Problem with the virtual world
Money is just as abstract a concept as is paying for virtual goods (with what some would call virtually worthless currencies). Is it really that big of a jump?
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