Monday, June 28, 2010

Virtual items can be big business!

Why am I posting about real-to-virtual money exchange?  It's not necessarily a new concept by the standards of online multiplayer games.

While all multiplayer online role playing games have virtual economies (more info here), where players generate virtual coinage and spend it on virtual items, not all of them have an exchange for "real" money.  Some subscription-based games forbid players from selling in-game assets for real life money.  Others have what I would call a one way transfer: they sell a set amount of game currency for real world money, at whatever exchange rate they choose.

The game "Entropia Universe" takes this a step further by:
1.   Allowing a 2 way conversion.  This is huge in that it allows players to convert the money they make in-game into real-life cash.  They can set up their own businesses within the game to actually profit within real life.
2.  Keeps the conversion at a fixed rate.  Most other games offer "packages" that offer better discounts for bulk game currency purchases.  1 PED = 10 USD.
3.  Providing platforms (the software/server infrastructure) that allow 3rd-party companies to set up their own "worlds" in the universe.

It's an expandable business model that could be likened to international trade, only players can "import", "export", and "invest" across realities instead of physical barriers.

Entropia players having a party.

So what's the "news" here?

While a fascinating thing to discuss, the idea of alternate game worlds with real cash economies isn't necessarily breaking news.  Relatively recently, though, a new record was set for "highest virtual transaction" (most expensive item purchased in this real cash economy), exceeding the previous one by far.

Check out this article.  

The space station "Crystal Palace" was purchased for $330,000.00 (that's real life money, the station is worth 3.3 million of the game's currency).  This was not a stupid, frivolous purchase from an eccentric millionaire.  It was an investment.  He plans to collect a percentage of all transactions on the station and provide pay-to-use services onboard.

And money CAN be made.  One of Entropia's competitors, Second Life, also provides opportunites to make money, though those happen player-to player, not using the platform as a mediator.  A woman is known to make an annual salary of $150,000.00 as a real estate tycoon in SL, for example.

The Crystal Palace Space Station

How "safe" is this type of system for customers?  At least, to my knowledge, they can't go into debt to the game.  In it's terms, the least you can have is zero PED.  But what if the company that hosts the game goes under?  What happens for someone with a hard-earned fortune of PED who didn't have enough time to convert it to US dollars?  Wouldn't every player trying to make a "draw" at once be just like making a run on a bank?  How much can MindArk cover?

(Perhaps it's more stable than it seems.  After all, the game has a "sink" system that essentially ensures that, on average, people will put more into it than they will ever draw out.  [Casino, anyone?])

A bigger picture...

So what does this mean for the future of the game industry?  For one thing, I think this could mean some good growth opportunity for Shanda, one of the stocks I'm following, if this trend was to catch on.  (Since they are deeply in the Chinese MMORPG market, it's hard to tell though.  China has some strange rules about MMO play, and I'm not sure how much the government would approve of its citizens spending on virtual goods when they could be attaining real ones.)

This trend could also be seen as an opportunity to incorporate ads and product placement into the game realm.  While not unheard of in similar online games (like Second Life), it could get a lot bigger.  There's nothing stopping, say, a car company from putting its newest models into the game for example.

What about government policy?  Could it ever charge a sales tax on these items?  Tariffs if the creator of an item was bought from a foreign player?  (Am I taking this too far?)

And how about the impact a trend like this could have on the WHOLE economy?  
As these "alternate worlds" become even more realistic and enticing, will "real life" consumers divert their ambition for material goods and instead spend on cheaper versions of their dream products in-game?  Everyone knows that the "high" of buying a luxury car or any high-end widget tends to wear off rather quickly, so perhaps it would be better to get one's spending fix for 1/10th of the price ingame...

Or am I overestimating the power of fantasy over reality?  I suppose time will tell...

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