Game Theories – Virtual Economies

A friend of mine, an economist at the Queensland Treasury, pointed out this article which he called “The greatest thing I have ever read. Period.”. Being an economist of course this sort of article understandably really floats his boat.

Game Theories by Clive Thompson

There are some really interesting points in the article and what I particularly enjoyed was the idea of a virtual economy with a virtual currency that has value in the real world. The game I used to play, Magic: the Gathering also has an online version. When the company that produces the game created the online version I was astounded to see that they priced the virtual product at the same rate as the real world product. This meant that a pack of virtual cards cost the same price as a pack of real cards.

The online version of Magic functions much the same as real life Magic, with card tournaments and players trading cards except of course you do it all sitting at your computer and an opponent is available 24/7. From a business point of view I thought this was genius because to produce virtual cards costs the company next to nothing (once the software was developed). In essence as long as their is a demand for the card game they have a license to print money. Not a bad business model.

Ultima Online’s virtual economy created an opportunity for individuals to create a business in the real world, flipping virtual goods for profit like a stock trader.

One of these merchants is Robert Kiblinger, a thirty-three-year-old West Virginian. A commercial chemist by training, he worked for Febreze, the company that invented the popular cleaning agent, for which he still holds a couple of patents. (”I was basically selling perfumed water,” he jokes.) But then he started playing Ultima Online, where he ran into a player who was tired of the game and wanted to sell his entire account. The player owned two houses and towers and oodles of rare items, and only wanted $500, which Kiblinger figured was a steal. He drove to Cincinnati to close the deal. “I met him in a Taco Bell parking lot and I gave him a cheque,” he recalls. The next day, they met inside the game, and the seller handed over the virtual goods. Kiblinger turned around and resold the whole shebang a few days later to another player on eBay for $8,000, producing a tidy profit.

He was hooked. He began buying up items from anyone who was willing to sell, and set up a Web site — UOTreasures — to advertise his inventory. Today the site gets thirty-five thousand visitors a week. Kiblinger employs five hundred people inside the game, paying them a small stipend (in Ultima Gold and cash) to act as virtual couriers, scurrying around inside the game to deliver the goods to the players who’ve paid for them. A few elite customers have bought more than $20,000 of stuff from him. A couple of years ago, business was so good that Kiblinger quit his job as a research associate at Procter & Gamble to work full-time as a virtual vendor, though he won’t tell me his exact income. “It’s in the six figures,” he says. “It’s a decent living.”

Taking this even further…

Now there’s a company rich enough to buy the entire lot. Three years ago, a company called IGE, whose sole function is to buy and sell virtual goods, launched. I met one of the company’s founders, Brock Pierce, at a gaming conference in New York. A fresh-faced, blond twenty-three-year-old who is based in Boca Raton, Florida, he said IGE has “thousands of suppliers” who scout the games all day long to find cut-rate goods. He has a hundred full-time staff members at an office in Hong Kong to handle customer service. On any given day, he says, they handle “several million dollars’” worth of virtual inventory.

And how about trading real life cash for virtual cash — there is a company that let’s you do that too.

An even more intriguing financial institution opened for business a few months ago: the Gaming Open Market. Based in Toronto, it is an on-line service that exists solely for trading the currencies of virtual games — Gold/Silver from Horizons, Linden Dollars from Second Life, Therebucks from There.com. If you’re a player who wants some quick virtual currency for your favourite game, you can buy it there using real-world U.S. cash. Sometimes people who play several different virtual games use the market to transfer money from one world to another, like travellers at an airport exchanging currencies.

And some more…

There.com, for example, is a 3-D world devoted to nothing but chatting and socializing, using avatars that look like seductive, attractive models. You’d probably prefer it to real life, because everything is just so much prettier in There. As in the real world, one of the main activities in There is shopping. The company created a currency, Therebucks, and tied it directly to the value of the American dollar to prevent inflation. Players spend a lot of time customizing their appearance (often for the purposes of flirting), so Nike and Levis have virtual clothes that they sell solely inside the game. Individual players, too, have become designers, creating outfits they sell to other There citizens. “One of the leading clothes designers is making $3,000 to $4,000 a month, which is a full-time job,” says There’s founder, Will Harvey.

It’s nice when you can turn a gaming hobby into a profitable business. I wonder if software developers at these companies are going to start requiring economics degrees on their resumes in order to effectively moderate the virtual world’s they have created. I doubt anyone saw this coming 15 years ago.