Real profit in a virtual world
- Article 6 of 7
- iSight, April 2006
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Massively multiplayer gaming services (MMGS) and other online games are fast becoming a part of many people’s leisure time. World of Warcraft, the most popular, has an estimated 3.5 million players paying nearly $15 per month each just in subscription fees. Other games are garnering lesser but equally impressive interest. While earlier games were content merely to let players fight and talk with each other, the latest generation allows for more varied behaviour, including trade.
Where’s there’s trade, there’s economics and these games are already crating a new branch of academic study called ‘virtual economics’. As well as its own internal laws that differ wildly from real-word economics, virtual economics has many effects that can be measured in the real world. Some players are able to generate enough real-world revenue through their online interactions that they can work exclusively in these virtual worlds. And a whole range of ancillary industries are starting to grow up around online games as well, with many generating significant real-world revenue.
MMGS started life in the 70 and 80s as MUDs (multi-user dungeons). These typically used ‘Dungeons and Dragons’-style role-playing rules to create virtual realities for players. The degree of interaction was limited by both technology and bandwidth, with most MUDs played using text-based terminal emulators that connected to university computing systems. The spread of the Internet from academia and government to consumers during the 90s gave far greater numbers of people access to these games. The advent of unmetered, uncapped affordable consumer broadband allowed the potential audience to increase even further, with the Far East and its more advanced networking infrastructures making it the first region to really embrace online gaming. In particular, the low latency and speed of broadband allowed games to provide an unprecedented degree of interaction with relatively high quality graphics that the improved hardware of personal computers has been able to offer. But it’s the playability and enjoyability of the games that ultimately have been responsible for their increasing success.
There are many different types of online interactive games that generate revenue for their owners. The most obvious are gambling sites such as Pacific Poker. These allow consumers who would never dream of going near a casino the chance to play against a computer or with players around the world. An estimated 2000 sites offer such services and are set to bring in $14.5 billion in revenue in 2006, mostly from US players. Next are role-playing games such as World of Warcraft and EverQuest that are the direct descendants of MUDs. These have generally settled on a subscription model, rather than a pay-as-you-go model for payment. Most usually require the purchase of an accompanying PC or console to provide the necessary software on the client device for the game.
But there are other models. Habbo Hotel from Finnish company Sulake is free and requires no additional software. The players, typically 13-18 years old, interact in an online hotel – rather than a role-playing game, they are merely using virtual versions of themselves to interact, something know as a social synthetic world (SSW). But they are also able to host parties in rooms in the hotel. To buy items for the party requires ‘Habbo coins’, which need to be purchased in the real-world by credit card or SMS message. Each month, 4.4 million unique users visit the Habbo hotel site, generating revenues for Sulake of €15 million in 2005, which places Sulake is eighth on the Deloitte Technology Fast 500 EMEA list of companies by growth rate.
“As many as 43 percent of US computer and videogame players play online games every week. Habbo Hotel's strength lies in its easy access; you only need an internet connection and a browser to play,” says CEO Timo Soininen. “In addition to that Habbo Hotel does not require a fixed, pre-paid monthly fee as most massively multiplayer online games do. This is an important competitive advantage for us in the US market.”
The “add-ons” for MMGS are also a way for companies – either the companies hosting the games or third-parties – to generate revenues. Real-world trade of in-game items, such as swords, gold, potions, or even whole characters, is flourishing in online marketplaces such as eBay. In 2004, Edward Castronova, associate professor of telecommunications at Indiana University Bloomington, calculated the GNP per capita of EverQuest as $2,000, comparable to that of Namibia, and far higher than that of India or China. In fact, by ‘working’ in the game to generate virtual wealth and then selling the results for real money, it is possible to generate about $3.50 per hour. Companies in China pay thousands of people, known as “farmers”, to play MMGS all day, and then profit from selling the in-game goods they generate to other players for real money.
Land and other in-game property has been sold for huge sums: one Project Entropia player paid $26,500 for an island in the game's virtual world in 2004, and has already made his money back by selling hunting and mining rights to other players. Trade in virtual items is now worth more than $100 million each year.
But businesses can make money through other means as well. Linden Lab’s Second Life, another SSW, was designed almost from the beginning to have its own economy. It offers the most examples of profit opportunities from virtual realities. In the game, much as with other games, players can perform informal transactions or set up shops that can sell both goods and services using “Linden Dollars”. But unlike many other games’ currencies, Linden Dollars are convertible to US Dollars (and vice versa) at various “Currency Exchanges” and “ATMs” within the game as well as through third-party web sites. This makes it far easier for individuals and companies to translate game success into real-world profit. In fact, this year is likely to see between $50 million and $100 million of transactions take place using Linden Dollars.
Many of the services in Second Life are game-specific, but not all. Second Life requires no monthly subscription fee for the basic service, but if users want to set up shop they have to pay ‘land-maintenance’ charges to Linden Lab – one of the main sources of income for the privately owned company. In turn, those ‘land owners’ can charge rent to other players who want to use part of their property.
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