Developers Should Open Virtual Goods Markets

Gamestop-sign We recently wrote that developers were fighting a failing battle by trying to restrict secondary virtual goods markets through tools such as account banning and eliminating in-game trade.

Now an article published by the CIOL Network seems to agree: Fighting the market in in-game goods will not only ruin the experience for honest players, it won't work.

Pixels and Policy takes a look at what CIOL recommends, and whether or not their recommendation could soon come true.

Advocating a New Model for Virtual Goods Sales

The CIOL Network article makes a few interesting points. Among the best:

We believe we're at the tipping point of the
industry, which parallels the used game market in its infancy.
Unfortunately, publishers ignored the used game market potential and
GameStop created a billion dollar business from it.

No one doubts the potential market created by a flood of gamers chasing after scarce virtual goods. But it isn't necessary that the only dealers of these goods be third-party agencies that skirt legal gray areas and dance around potential account bans from game developers.

What CIOL argues is both commonsense and revolutionary – get developers into the business of selling their own items and currency, and suddenly the black market in gold and loot disappears. Consider it the virtual equivalent of drug legalization, fighting gold with gold. 

The market in virtual currency and items is booming, as The Guardian reported on October 14th, but companies that ban trade in their game items are missing out on a shower of profitability.

Developers acknowledge they are unlikely to catch most instances of goods-buying, since the transactions appear only as trades within the game world. 

As a reader noted yesterday, games like Runescape clamped down on in-world trade between avatars, but this merely drove away players and shifted the secondary market from items to entire characters, pre-leveled and pre-equipped with a selection of the best items. Can developers continue to fight this battle?

Monitoring Trade

Developers operating their own "loot shops" would also crack down on fraud and game manipulation. Some of the tactics used by gold farms skirt the Terms of Service and EULA's of many games, and players are at risk of having their ill-gotten goods picked away by developers at a moment's notice.

Operating an official shop could run gold farms out of business, but there are serious risks. Since it takes no effort for developers to create gold (whereas it must first be earned by secondary sellers before it is sold), developers could set the real-world price of gold artificially low to force secondary markets into a losing position.

While allowing a centrally-set gold price would take care of secondary dealers, it would also flood the in-world economy with cheap gold.

This isn't fair to players who earn their gold, as these gamers find the value of their stockpiles drastically reduced by the influx of new gold and subsequently rising prices. This is why sharding is key to the success of developer-run loot stores. As we mentioned yesterday, some shards ought to be open to purchasing gold while others are not. This way every player knows what to expect.

As a plan it is still rudimentary, but these are steps in the right direction for developers and gamers alike. What do you think? Will developers like Blizzard eventually open sanctioned item stores? Will black markets in game loot remain an issue as open-economy worlds like Second Life proliferate?

14 thoughts on “Developers Should Open Virtual Goods Markets”

  1. That’s like saying, “People love McDonald’s, but it’s too fatty. Let’s force McDonalds to change all of their ingredients and cooking methods because some people eat too much McDonald’s”. No, I don’t buy this faux-populist “emergent behavior should always be legal” argument. For that matter, 99% of the public would take stuff for free from stores if it was legal. Does that mean we should legalize theft?

  2. Wait. I thought I was done, but I’m not.
    MMOGs are a great equalizer. They’re one place that people can go and class doesn’t matter. Injecting real money as a measure of power in a game ultimately just brings real world classes into games. Thanks, I play video games to escape that b.s.

  3. Hiro,
    Money is coming to games and other virtual environments and I don’t really think it can be stopped!
    Egalitarian and welfare worlds will also exist just like they do in the real world (probably virtual welfare and food stamps too). Please just don’t overlay your utopian, socialist b.s. concepts on the entire MMORPG universe.
    –Jon
    http://themonetaryfuture.blogspot.com

  4. Jon:
    Wait, let me get this straight. Next time you play Checkers at your house, invite me over so I can provide your opponent with extra kings at $1 a piece. When you whine about cheating, I’ll tell you that “cheating” is just some utopian, socialist b.s.
    You know what Jon? You’re a jerk. Eat me.

  5. Hiro,
    Max had an intelligent post here regarding market-based methods of managing the real money trade for virtual goods. The MMOGs are the one place that we can go where governmental, state-coerced policies have not infiltrated yet, which is why he poses market-based solutions/ideas.
    You could have intelligently contributed to that discussion (and this blog) instead of dragging the discussion down with comments that everything you disagree with is some form of b.s. For instance, without using checkers or developer-sanctioned game rigging, please explain to the readers of this blog why you would oppose a free-market solution to the RMT dilemma.

  6. Jon:
    Firstly, Max and I communicate on a regular basis. One of the reasons I read Max regularly and comment is because I can be candid and he’s very receptive. You, as a newbie to this blog, or at least my comments on this blog, didn’t see that. I don’t blame you for that, but it’s important you realize that my contributions with Max are always in the spirit of debate. Further, I believe my examples are fine analogies for the matter at hand, and there is no reason why your dismissal of my comments for not be intellectual have any basis; my responses were thought out and my examples were clear.
    Thirdly, I didn’t call everything Max said b.s.; don’t put words in my mouth. Re-read what I said – the “b.s.” I was referring to was people coming into games and buying themselves an advantage. Max mentioned nothing about this; I was pissed at some of the potential consequences of the suggestion of opening RMT to MMOGs, not at Max.
    Your question at the end is loaded. I don’t believe there is a “RMT Dilemma” at all. I think the dilemma is simply pro-gold-farmers and third-party-marketers looking to make bucks off of ruining games for the millions of people who enjoy playing a game by stated rules. There is no needed solution, because -and it may shock you because you prematurely labeled my ideas as socialist – the solution is to let the market work it out.
    There are games that allow RMT. In fact, some of them are on Facebook, and you can read a variety of articles written about them analyzing them and showing them as mostly scams. I have tried a few MMOGs and online games with ubiquitous RMT – and they suck. At some point, you realize you hit a glass ceiling and cannot advance without investing real money into the game.
    Why aren’t there more RMT-allowing games? Because they don’t compete as well with the RMT-banning games. It’s ironic, also, that your suggestion of forcing legislation on game-designers to require RMT is socialist. And you labeled my ideas that.
    But I digress.
    I like, also, how you made no distinguishing on your blog between virtual worlds and MMOGs. MMOGs are not Virtual Worlds. Virtual worlds are platforms. MMOGs are games. Virtual worlds and MMOGs have similarities – look and feel, mostly. But they are vastly different spaces. That’s why a lot of gamers who go to places like Second Life arrive and ask silly questions like, “How do I level up?” or “What’s here to fight?”
    But clearly you lack any tangible first-hand experience with virtual worlds. And it frustrates the heck out of me because I deal with thousands of executives like you who are of the same mindset. They are the execs who made failure Virtual World marketing campaigns because they had no idea how Virtual Worlds actually worked.
    Jon’s solution is no better. Just because we don’t see the transactions doesn’t make it better. Players would still hit glass ceilings. It’s obvious to those who invest time in the game. Players are generally very, very astute at figuring out the nuances of games, and can spot “ebayed characters” and such very easily.
    Here’s my various solutions:
    1. Press China on their attitude toward trade. Their ability to dodge fair trade and have comparably shoddy labor laws lead to conditions where people see gold farming as desirable and a decent wage. It wouldn’t hurt to press China on enforcing laws, rather than them just demanding to enforce their laws.
    2. Developers need to come up with novel ways to catch and dismantle RMT operations. Personally, I don’t care if one person slips through the cracks, and either sells their character or some gold. The problem is when there’s a business set up just to farm gold or power-level characters. These behaviors can be mitigated in a variety of ways. I’ll have to blog about this on my blog, because I’d like the page views. 🙂
    3. Governments need to stop telling game designers what rules can and can’t be applied to games. Would it be right if the US government made a law outlawing “Free Parking” on the Monopoly boards? It’s the same as legislating that MMOGs HAVE TO allow RMT as part of their game.
    4. Folks like you who clearly spend too much time in the back-patting hype-driven echo chamber need to shut up and let the successful game designers – like folks in Blizzard or Bioware, etc, be the ones speaking to Congress about their own industry. Why in the hell do you even feel the right to butt into someone else’s industry and tell them how they should design their products, when their products are selling exceptionally well?

  7. I tried to refrain but I just have to answer Hiro’s diatribe above. In the 16 years that I have been on the Internet, I have never had anyone say “Eat me” during a commenting discussion (see above…that was a first). I must have really touched a nerve or something!?!
    Getting back to the debate however, I’ll address each one of your four points above.
    1. Pressing China on trade – this would be the antithesis of the free market because the black market is the free market. The goldfarming trade has provided opportunities for the poor in China where none existed before. The Chinese government doesn’t exist to enforce laws for you to play MMOGs.
    2. Yes, developers are the solution and there is notable progress in this area.
    3. No one is suggesting that governments should legislate that MMOGs HAVE TO allow RMT as part of their game, so this is really off track. RMT is a creature of the free market and governments have no right legislating game environments. Just as governments have no right legislating that people cannot pay for things with anonymous, untraceable cash or gold bars. Inversely, the government coercion would come from legislating the banning of RMT (because ultimately that is an EULA enforcement issue).
    4. Lastly, NO ONE should be speaking to Congress about more laws for virtual worlds and MMOGs. That is the total incorrect path to be going down (seeking shelter from the nanny-state because some one took your marbles, come on?). Hiro, you and the rest of the RMT-banning crowd need to stick with the ever-diminishing games that suit your preferences or adapt to the reality of cash-in, cash-out, vibrant two-way free-market capitalistic money exchange. Black markets cannot be stamped out and the more that people try, they morph into something different and they survive and prosper! That’s exactly what the black market is and I, for one, am thrilled that the black market is alive and well in virtual worlds. Black markets exist for one simple reason and that is that people demand things!
    Also, I would answer your last sentence by asking you why the hell do you feel the right to address monetary economics, foreign exchange issues, virtual currencies, and value exchange without the experience to understand the market dynamics that give rise to goldfarming in the first place?

  8. Jon,
    It’s clear you’re a straight up Laissez Faire economist. I’m not going to enter a debate about why I disagree. Your predictions about why developers “need” to allow RMT is without any tangible fact – you merely conjecture and reference others who conjecture.
    The fact is that there are millions of gamers who, like myself, feel RMT is cheating, and will vote with their wallets to not play games that allow them. If you can’t see this fact, we have little else to discuss on this matter.
    As to your “16 years on the Internet”, I’m surprised that in all that time you haven’t learned that reposting articles 100% full-text without explicit permission violates copyright law. Your blog is, from what I see, 95% of this behavior. This is not even little bloggers, too – you’ve copied from the UK Guardian, the New York Times, etc. It’s shameful to see people republish others’ work and use it for a business purpose. This is not Fair Use. Citing the author still is not Fair Use.
    When I contacted Ben Duranske about one that you reposted a few days ago, he replied to me that he had not received permission, that he had reached out to you and said posting a small portion of the article was okay. Your response? To delete the article with no retraction. A proper journalistic source admits their errors; your silent deletion of it gives the appearance of deception.
    So please don’t address me as if you had any clue of what proper Internet etiquette is.

  9. Oh, and given how much the banking system crashed and burned in the last 10 years, I don’t think there are many economists left that are more qualified than folks like me to speak about issues. Don’t ivory tower b.s. me that I can’t speak about economics because I’m not an economist. You speak about goldfarming without any apparent first-hand knowledge, so I’d say, even if you’re a genius economist, we’re even on the subject.

  10. Dear Ron,
    I have recently switched to Creative Commons Attribution 3.0 (http://creativecommons.org/licenses/by/3.0/us/) for my personal, original content (please feel free to reprint whatever of my articles that you’d like to on your blog). Thank you for being an interested reader of “The Monetary Future”. Where the posted articles are not written by me directly or are not covered by CC 3.0 (i.e. the Mises Institute), I either know the authors personally and/or I have received permission to reprint. Being a small non-profit, educational site, the larger news organizations are not concerned with the attributed news feed; however, if any of them objected to a particular piece, we would remove it and provide a summary link instead. When it comes to the smaller ‘newsletter’ type organizations, we are very careful to seek permission so as not to impact their ability to earn revenue and if appropriate, we provide a link to their subscription page.
    It is rarely an issue to receive permission to reprint a relevant article with attribution. In the case of Mr. Duranske, the reference was removed at his request and then replaced with an Amazon book link in order to promote his excellent book, which was the original intent anyway. He has since granted permission to reprint that entire piece once he understood the context. I don’t think it’s fair of me to have non-germane comments on Max’s blog, so if you seek further clarification, please contact me directly at matonis@yahoo.com and I will answer you promptly. Thank you.
    –jm

  11. Jon,
    Appreciate addressing the Creative Commons issue. I respect that you stepped up to my criticism. If I was too harsh with my earlier comments, I apologize.

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