On Saturday, I spoke briefly about a philosophical realization that comes from how much people get involved in the virtual worlds of Massively Multiplayer Online Games. However, that was Saturday and I was feeling philosophical. Today’s Monday and I’m back to being a businessman. I noticed last week that someone bought a space station in an online game for a whopping $330,000 in ACTUAL MONEY. I figure if there’s that much virtual money out there, there has to be a way to profit on it. So today’s post is on the virtual economies created in these virtual worlds and how to monetize them.
At the root of it, there are two options for how you set up your virtual world:
- Create an “in-world” currency that is based on accomplishments. To be honest, I’ve never played any of these games, but I am told World of Warcraft is one. As players compete missions they win currency which they can spend on items in the game.
How it’s Monetized: The currency itself does not afford the company an opportunity to profit on the game. Game’s that operate on this kind of an economy have to make their profit from monthly fees and the selling of extras. For example, to look a certain way or carry a certain shield you might have to pay an extra $5 or $10.
The “Gotcha”: The extras that people buy and the “premium” subscriptions cannot afford too much of an advantage in in-game play. If the “true” gamers start to suspect this they will migrate away from the game.
Another “Gotcha”: Inflation. As more people play the game and get more stuff, the value will shift. In response the administrators will have to “cheapen” the currency which will upset the users and further the inflation problem. I’m actually not sure how this is controlled in games like World of Warcraft.
- Create an “in-world” currency that functions much as the currency of a foreign country. The currency is pegged to a dollar value and can be freely exchanged. You can use real money to buy virtual currency and virtual currency to buy real money. This solves the inflation problem and creates the opportunity for people to dump a lot of money in to the game.
How It’s Monetized: The initial revenue stream is easy. People buy the virtual currency and lots of it. The problem is, this is more of a loan then it is straight profit. Theoretically, the people who bought the virtual currency may exchange it for real currency again someday. The goal here has to be to get the money retired, get it out of circulation after its been put in. A couple thoughts on making this happen:
- Work like a bank, charge something off the top on the exchange. For example offer a unit of virtual currency for $1.05, but only offer $0.95 for the same unit of virtual currency.
- Require people to exchange the virtual currency in a specified block amount. Say $10. That means if you have $104 worth of virtual currency when you quit the game you’ll get $100 and the game keeps the rest.
- State in your ToS after a certain time of inactivity, the money is reclaimed.
- Sell things and retire the money when they are purchased. What’s sold could be anything. Since the developers get to decide, it’s like God opening up a corporation. He could build more land and sell the land. He could build a device that can fly (even though no other devices can) and sell that. He could sell immortality pills. The options are endless.
- Charge taxes, this is perhaps the most interesting one. It’s important to charge only the customers that will pay and let the others live for free. Second Life for example only charges land owners, most people don’t pay a cent.
The “Gotcha”: Continued revenue for the game company will require that the game and the economy continue to grow. If the game stops growing or users start to quit and ask for their money. There could be a recession in the virtual economy. Assuming the economy is a partial-reserve system, this could cause a run on the virtual economy’s “bank” (the gaming company) and potentially a bankruptcy. It’s amusing to talk about a virtual depression, but it’s possible.
