Why Do People Pay Real Cash for Virtual Items?

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Here's a question many researchers have stumbled over at one point or another in their careers as pioneering virtual world analysts: Why do people pay real money for virtual items?

Pixels and Policy takes a look.

Digital Growth, Real Revenue

The virtual economy is certainly more than an aberration, and with Second Life bringing in nearly $500 million a year in virtual sales alone, the virtual economy may even be doing better than the real economy!

A new report published in the Virtual Economy Research Network argues that Second Life and other virtual worlds have such healthy real-to-virtual economies because of one main factor: social pressure.

Now, researcher Jennifer Martin isn't talking about real-world social pressure, but a quieter, more pervasive form of social pushing.

Second Life encourages us to buy products. Stores of every type run rampant throughout the world, and avatars with outrageous or especially beautiful clothing and accessories quickly grab the attention of other players. Second Life dumps you out at a landing zone wearing jeans and a t-shirt, while all around you are characters in various stages of elaborate dress.

Almost immediately, Martin argues, you begin to feel the pressure of "fitting in."

Conspicuous Consumption

In Second Life, appearance matters. How your avatar appears to others will be the sole point of judgment until they speak to you for any length of time. Over the past few years, as standards and social mores in Second Life have evolved, clothing has come to symbolize everything from an avatar's profession to her sexuality.

As Martin says in her research:

In a virtual world with approximately one million unique residents
logging in monthly, individuality becomes an important reason for
purchasing virtual goods with which to define the avatar.

Dr. Edward Castronova of Indiana University showed in his book "Synthetic Worlds" that individuality is a personal goal of many virtual worlds users. Second Life simply directs the user to pay a premium that decides just how much the avatar stands out.

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Over time, this market directive has become a social directive, with certain islands requiring certain attire, and some avatar groups shying away from association with other avatar groups.

But the deeper meaning is there: To fit into Group X, the user must spend real currency to purchase the skins and outfits that differentiate Group X from Group Y.

Martin agrees:

Beyond individual appearance, consumption can also be associated with
group membership and belonging.

Through their visibility, items of
virtual clothing, accessories, and full avatar skins serve as marks of
membership within particular groups.

In an effort to expand our image of who we are through virtual worlds, the same consumerism and cliquishness have followed us into the Metaverse.

Perhaps this says more about who we are than the elaborately-dressed Victorian avatar we manipulate through the virtual space.

We spend real money on virtual clothing because, in the end, we can best understand ourselves in terms of what we purchase. Whether this is a positive or a negative continuation of reality depends on the perspective of the user.

3 thoughts on “Why Do People Pay Real Cash for Virtual Items?”

  1. Yet, once you have an avatar look prepared, you can save it for later and bring back what you wore before with just drag and drop.
    Changing this visual identity is done quickly and easily. One blends easily to match the crowd at each new location.

  2. Max, I think I agree with your final conclusion, but the two “experts” you bring up raise faulty premises. I don’t think the conclusion of self-exploration follows “peer pressure”.
    A simpler answer is that people like to customize, and that virtual items are cheap.
    Why do people customize their phones with ringtones?
    Why do people buy stickers to slap on their laptop?
    Why do people buy clothing in real life that’s anything other than comfortable and durable?
    These all point to what you say – that we explore who we are, and hence, we express who we are.
    But this is not what the two folks you quote are saying:
    1. “Second Life encourages us to buy products.” – social pressure theory, via Jennifer Martin.
    People bought products before there were expansive shopping complexes in Second Life. Jennifer probably because she wasn’t around in 2004 or earlier Second Life. At the same time, there probably is a pressure to buy that’s evolved, but it’s a secondary drive, not a primary one, else the virtual marketplace would have never gotten started at all. I suppose I could also debunk this in another fashion – that same pressure would apply to purchases in real life, so why is Second Life singled out as a culprit?
    2. Dr. Edward Castronova’s argument is essentially the same. But there’s a problem – there’s tons of freebies out there. Also, I can’t recall the last time I’ve read that Castronova stepped into any virtual world except WoW, and consider the grand flop of the virtual economy experiment of Arden, I don’t give him much credence.
    I’ll grant that there are groups in Second Life that you want to dress the part – however – these are a far minority. Most groups in Second Life are widely inclusive. Sure, your image of the goth-vampire-sorceress is an example of a niche community that you may dress the part, but is goth-vampire-sorceress role-playing a huge community in Second Life? No.
    Your conclusion is something entirely different: “We spend real money on virtual clothing because, in the end, we can best understand ourselves in terms of what we purchase.” It’s about self-expression, not peer pressure. And I’d agree. By and large, we buy stuff so we can express ourselves, in both physical and virtual environments.
    Now, funny this should come up. Last night I participated in a panel talking with a class from ASU about virtual governance in Second Life. There are a range of topics that could have been discussed, such as community self-governance, copyright, property rights, privacy, individual rights and harassment, age interaction, and so on and so on. However, the class was stuck on virtual commerce. They wanted to know why people would ever buy virtual goods, and why wouldn’t Second Life creators just give things for free?
    But isn’t that the case with almost any outsider to Second Life? The first major magazine cover story on Second Life was with Anshe Chung on Business Week. “Virtual World, Real Money” has become a media trope when covering virtual worlds. The topic comes up over and over and over and the same things are said over and over and over.
    So my question and challenge to you, Max:
    “Why are people so fascinated by this topic?” and moreso: “What does peoples’ fascination with the topic of virtual currency mean about the state of understanding of virtual worlds, and how do we as an industry move that forward?”

  3. Those are
    really good questions, Hiro, and you bring up an interesting point by
    questioning the premises of the sources I cited. Pixels and Policy has
    looked at the role of consumerism and peer pressure in virtual worlds
    before, and poked a few holes in Martins research a bit in the process.
    There is definitely a fascination with virtual commerce and asking why
    people would purchase a virtual good or service, but Im beginning to
    see its a question that breaks down sharply as we move forward in
    generations. The generation in high school now sees no problem paying
    real currency for a virtual shirt in Second Life if it improves their
    fun quotient, but generations not raised where real-to-virtual
    transactions are prevalent cant get over the invisibility of what
    theyre being asked to buy. Younger players relate to the avatar as, in
    most cases, an extension of self.
    You know, we may just do a story on that.

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