It's A Virtual World After All

by R.E.Curtice

In our last issue we wrote about Virtual Worlds. By now most computer savvy users know about Virtual Worlds. These are simulated environments on the computer where you can interact with other avatars, which is the form people choose to represent themselves. It has the appearance of an almost real world with many of the same real world rules, but not quite. But what about the economic impact of Virtual Worlds? And we are talking about real-world dollars and cents! What happens when someone wants something in his or her world but doesn't want to wait for the requisites to be done? They use real world money to buy what they want. Our recent interview with Jon NEVERDIE Jacobs presented his economic ventures in a Virtual World.

At the Game Developers Conference in San Francisco we got to talk a broker for those worlds, Andrew Schneider, President of Live Gamer. Live Gamer is the world's first combined e-commerce and advertising platform. From its industry-leading micro-transaction engine and global payment gateways to the most innovative engagement advertising platform and targeted ad network, Live Gamer powers the world's top entertainment companies and helps leading brands effectively acquire new customers. An energetic young man, he had a lot to say:

Live Gamer is new venture for you, correct?
Yes. Live Gamer offers a publisher-supported exchange for virtual items. We offer a player-to-player marketplace, where players of a particular game or Virtual World can buy and sell the rights to virtual property. Live Gamer only works with publishers who have a relationship with us. Thus we only enable marketplaces for games that are sanctioned by the publisher. There is a transaction fee that we take off the final selling price of every item and we split revenue with the game publisher. We create a very powerful revenue stream for them, but it is the player who ends up taking the bulk of the revenue.

Can you give us an overview of the market at large?
Sure. It's really a fascinating story. It's estimated that there is 1.8 billion USD worldwide in gross transactions a year for virtual items, which is happening mostly on the gray and black markets. It is unsanctioned by the IP holders, the Virtual Worlds operators, the game publishers. But it isn't a new phenomenon. It has been going on for about ten years now. The first instances we know of someone selling a virtual item for real money, about three thousand dollars, happened in 1999 in a game called Ultima Online (which is still online, Ed.). The same thing happened in another Virtual World, Everquest, and in Lineage, which was massively popular then. It also began to happen where players would play the game, acquire items, "level up" characters, and sell then for real money.

In the early 2000s, 2001 for instance, companies began to see that this phenomenon was occurring very much organically and decided to make it a big business. They set up basically cartels that would distribute virtual items and currency to Westerners from players in China and elsewhere. They would basically form Gold Farms, which is the term used in the industry. So literally, campuses were being built in China with very long hours for the workers, bad conditions, for people who were just playing massively multiple player online games. The sole purpose was to get gold in the game and items to sell to Western players. It became a huge business. Companies like IGE, ItemBay in the West, ItemMania in Korea started making a lot of money. (These are RMTs - real money trading - companies.) The demand just grew and grew until it was a 2 billion dollar market worldwide.

Of course the publishers didn't like this at all. It broke their end user licensing agreements with players, and drove up support costs. Players who participated in the illicit markets often were faced with credit card theft, and identity theft. They would pay for items that were never delivered. It became a real big problem for people. And of course there was the spam telling people to go to the black market sites - it all just got out of hand. The game community didn't realize there was an enormous demand out there. The people who were engaging in this secondary market were moderate to hard-core gamers. There were some sort of legitimate reasons, like persons who had more money than time and wished to get other parts of the game.

So about a year ago, Mitch Davis, who is the other co-founder of Live Gamer, and I set out to solve these problems in the industry. We decided to form a company that would create a legitimate secondary market for virtual items that would work with publishers to create a safe environment, a secure environment for gamers to do real money transactions. We would be able to help publishers save on support costs because transactions would be moderated, transactions guaranteed, and create a new revenue stream for the companies and create a better experience for gamers who want to participate in the secondary markets. That sort of brings us to today where now the gamer has the support of publishers on three different continents that we are working with to integrate a legitimate publisher sanction secure marketplace.

How are virtual properties delivered to the new buyer?
In the old way of doing it you would go to a black market site and you would purchase a sword, for instance, with your credit card. Then you'd get a message back saying that it would take two days to deliver the item and they would message you to meet them in some back alley of the virtual world. You would go and a guy would show up and literally hand you the sword as if there were a drug deal. It was very manual and open to all kinds of fraud. They might not deliver the item or it might be a wrong item. Then probably the gamer would call up the game publisher and say, "Hey there's a problem here. This drastically increased the cost of support for the publisher. The publisher would tell the player that he had broken the end license agreement and you're not allowed to do so we're going to flag your account or ban it.

In our model, since we work in cooperation with the publisher, is very different. We have an opportunity to integrate the marketplace to make sure that it is a seamless commerce transaction. The item is delivered instantaneously and authenticated by the game publisher himself.

Incidentally what are the tax issues involved with all this money changing hands?
It is a gray issue, and there have been rumblings on taxation. It is no different than selling a physical item - if you make money you pay taxes. The onus is on the end user and the person is responsible whether he sells something on eBay or in the vitural world. A lot of discussion in academia has been around if there is intrinsic value to the item and the item changes hands but stays virtual is there a taxation issue? It's very unclear and there has been a lot of debate about it. ||