Tuesday, August 24, 2004

It's Virtually Economic

In one of those odd coincidences that come along every so often, two unrelated stories have just come out about similar subject matter—the intersection of real money and virtual worlds.

Economics was one of my favorite subjects in college—I found it fascinating to learn about all the little factors that somehow worked together to produce the state of valuation of goods and services we call an economy. I've forgotten most of what I learned there, of course, but I still remember enough to appreciate the peculiar situation that was called into being when the first MMORPGs (Massively Multiplayer Online Role-Playing Games) went live. It started slowly, of course—the first time an Ultima Online character was placed onto eBay (and sold for hundreds or thousands of dollars) made headlines all over the place—and it was the crack in the dike that subsequently unleashed a flood of such auctions as astonished players saw just how much real money could be made by selling virtual possessions. For perhaps the first time in the history of economics, a virtual nation had been created, with its own system of economics. When you have two economies in close proximity to each other, they will naturally start to interact—that's an economic principle. And in this case, the other "nation" is only as far away from us as our keyboard and screen.

Naturally, this got a lot of economists interested in the games. Economics professor Edward Castronova wrote a ground-breaking economic analysis of these worlds, which has been downloaded thousands upon thousands of times. For a while, there was even a virtual currency exchange in operation, the Gaming Open Market, to convert money from one MMORPG system to another. (It stopped trading in all game systems but one, however, after being defrauded out of $3,000 in June of this year.)

Gaming companies and most players aren't happy about this new economy, though. Many players feel that it cheapens the time and effort they put into the game for some random schmuck to be able to buy his way into higher levels of power. Gaming companies are concerned about issues of game balance, and about keeping their players satisfied enough to continue playing.

It's interesting to compare this MMORPG situation to the RIAA and MPAA's problems with file-trading. The media industry's problem is that people don't want to pay real money for intellectual property—virtual goods that have no physical existence outside of numbers in a computer and can be traded easily on-line. On the other hand, the MMORPG industry's problem is that people do want to pay real money for virtual goods—intellectual property that has no physical existence outside of numbers in a computer and can be traded easily on-line. I just keep having this mental image of a game exec and a recording industry exec looking at each other and saying in unison, "I wish I had your problem."

Anyway, the first new article that prompted this entry is a wired.com piece on MMORPG sweatshops—the gaming businesses that are set up in third-world countries to pay cheap native labor to harvest virtual currency and sell it for real-world money. This is hardly anything new, of course, despite Wired's attempts to paint it as such—it's just that Wired has only just noticed it. These operations have been in place for a long time, and are even mentioned in the economic paper I link to above. The Wired article calls this "outsourcing," in a slightly lame attempt to draw parallels between MMORPG money-harvesting and the migration of computer jobs overseas. I say slightly lame because like it or not, the parallel is there, if you look at it in terms of the cash-harvesting being a service. On the other hand, if you look at it as a factory for creating virtual goods, it's more akin to Nike's Chinese shoe factories. Still, it's hard to be as judgmental here as with Nike; according to the article, the amounts of money the workers get paid are apparently very good payment rates for those parts of the world—and we're not exactly talking about the most strenuous and demanding physical labor.

The second article comes from BoingBoing, and is totally unrelated to MMORPGs—except in the matter of paying real money for virtual goods. And in this case, you aren't even the one who gets to use the goods. A Hong Kong firm has developed a "virtual girlfriend" game for cellphones. You pay a subscription fee to have this girl show up on your phone's screen—and then you can pay more real money to buy her gifts. If you neglect your virtual girlfriend, she gets upset and doesn't talk to you. In other words, it turns your phone into a Tamagotchi with a coin slot.

Maybe that will play well in Asia, where the Tamagotchi was invented, but I don't know how successful it would be in America. People are willing to pay real money for virtual goods that they can use in a virtual environment. I don't think it necessarily follows that they'd be willing to pay real money for a virtual girlfriend.

Although, when I think about it, I do think that the first MMORPG company that manages to tie its computer-MMORPG in with a cellphone/wireless PDA-based minigame interface might just have something. Let people keep track of their character, perhaps perform simple tasks (such as trading, crafting, communicating with in-game friends via text message, etc.), anything to continue the immersion in the game world even when they can't be back at their desktop computer. But that's getting away from the point.

Today's computer technology allows us to create some pretty amazing things—not the least of which are entire new economies. The question of how those economies should interact with real-world economies is a thorny problem that is still under examination—and, since virtual worlds aren't going away any time soon, it will be with us for some time to come.