PAXsims

Conflict simulation, peacebuilding, and development

Virtual economies and development

Over at GlobalPost today, Jeb Boone has an interesting article on how developing countries have benefited from converting “virtual economies” within massive multiplayer online games into real sources of revenue:

Shouting in strange, digital languages at baleful, hyper-intelligent dragons is fun. So is clawing for a tactical edge in real-time, chess-like strategic melees. But it doesn’t make you money.

It is the one thing that has always eluded the underpaid nerds around the world, who suffer stoically at tedious jobs while dreaming of their computers at home — how to make a living on their obsession with gaming.

In parts of Asia, though, creative businessmen have begun to figure it out. In China and Vietnam, for instance, companies known as “gold farms” to Western gamers are employing real-life laborers in ever-growing numbers. They sit at computers and mine for digital gold in popular multiplayer online role-playing games like World of Warcraft (or WoW to those in the know), which the companies then sell to, mainly, Western players.

These transactions are done over Paypal and once a player has handed over the real money, someone approaches the character in-game and hands over the fake gold.

While paying actual dollars for digital currency may seem absurd, many serious gamers find paying for gold to be much less costly than spending the substantial number of hours it requires to accumulate the digital currency in the way the game’s developers intended, like, say, by vanquishing an endless parade of foes.

For countries like Vietnam, these digital economies are yielding substantial real-world rewards. According to a World Bank report released in April, selling digital goods for real dollars is proving so lucrative in some developing countries that it could pay for much-needed infrastructure projects.

The third-party gaming services industry, as it is known, accounts for $3 billion in revenue worldwide, most of which remained inside the countries where the services were rendered. To put that in perspective, coffee production in the entire developing world accounts for about $70 billion in revenues, but only $5.5 billion of that remained in the domestic economies…

Moreover, he notes, some gaming companies have decided to stop fighting “gold farming” and instead provide an in-game mechanism for it:

So now, instead of trying to police millions of gamers, the Blizzard Corporation is trying a new strategy, one that would embrace the digital free market and help it make some extra cash in return.

For their blockbuster 2012 release of the third installment of the wildly popular Diablo series, Blizzard will include a venue for selling in-game weapons and gear for real money, a move that could significantly expand the market for digital gold farmers in the developing world, and even in the West. The gaming community is abuzz with fantasies of moving out of their cubicles to sell digital demon-slaying equipment full-time from wherever they please.

In exchange, Blizzard will take a “nominal” commission for the sale of these items.

The World Bank report mentioned above examines the “third-party gaming services” in some detail, as part of an broader examination of converting virtual economies into development potential. It concludes:

Third-party gaming services may seem like a good target for interventions, given that it is a large and successful industry. Gaming service production could be introduced to least-developed countries. Ways to expand the market to social games, mobile games, and other platforms could be explored as a means to further increase its economic development impact. However, the problem with services for overcoming artificial scarcities is that it can be very difficult to say when their net social value is positive and when it is negative. Whilst providing value for their customers, in some cases they are causing negative externalities to other players and publishers. This is reflected in the industry’s legal status. Sanctioned markets for game assets are limited.

At the same time, one clearly positive thing about the gaming services industry is that it has activated thousands of young people from very modest backgrounds to create employment for themselves as digital entrepreneurs. Some of them have subse- quently branched out to other fields of ecommerce. A more typical career path for these youth would likely have been much less entrepreneurial and ambitious. If the circumstances and motivations that lead to this remarkable mobilization were under- stood better, it could prove a powerful tool in efforts to bring about similar activation elsewhere. Informants suggest that reasons for why Chinese youth—as opposed to, for example, Indian youth— rose to become gaming services entrepreneurs should be sought in the strong online gaming subculture in China. Indeed, cultural factors and subcultures in particular have been implicated in studies on high-tech entrepreneurship before (Florida 2002). The instrumental role of cultural products such as games in forming this culture is a worthwhile research question.

Among many other places, you’ll find more information on this topic at the Virtual Economy Research Network, and also in a special issue of the Journal of Virtual Worlds on economies, virtual goods, and service delivery in virtual worlds.

4 responses to “Virtual economies and development

  1. brtrain 15/12/2011 at 5:54 pm

    I find this whole aspect of the global economy fascinating – trading real money for virtual goods and vice versa… and American kids are even outsourcing their entertainment labour!

  2. Marie 23/02/2012 at 2:13 pm

    I was wondering what is the utility for the Western countries to buy “digital gold”? Am I right to say that it is simply a way for Western people to people to be entertained and at the same time, it is a way for the developing countries to grow their economy?

  3. Rex Brynen 23/02/2012 at 2:21 pm

    Marie: “Digital gold” is simply a (virtual) product that gamers use in-game to “purchase” (virtual) equipment, power-ups, abilities, land, etc within the game environment . You’ll find a typical vendor here: http://www.power-level.net/

    Think of it like any other consumer product or service—except that it doesn’t physically exist.

  4. Marie 23/02/2012 at 2:55 pm

    Thank you, I understand now!

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