Making Real Money in Virtual Games: The Strange Economics of MMORPGs

Online gamers have sold weapons, clothes, and spells (all pixelated) for years using "black market" third-party sites. The gaming industry wants a cut of that virtual economy. So would the IRS.

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Reuters

In one month, Diablo III, a hugely popular role-playing game made by Blizzard Entertainment, will become the first major online game to launch with PayPal integration. It will encourage players to sell digital possessions for actual dollars within the game. The lines between virtual and real economies are about to get even blurrier.

Diablo III is not the first game with players selling digital bits for dollars. Players in other games, including Diablo III's predecessor, have sold virtual possessions, characters, user accounts, and in-game currency for over a decade. But until recently, all such transactions were explicitly against a game's Terms of Service. As such, players needed to use third-party sites to make these rule-breaking transactions.

These black markets enjoy a big following. The leading such site, d2jsp.org, was originally built around Diablo III's predecessor. It expanded to cover virtually every popular massively multiplayer online role playing game (MMORPG) available today. According to comScore Analytics, d2jsp garnered 94,000 unique visitors and over 60 million page views last month in the US alone. Given that online gaming is indifferent to international boundaries, the actual amount of traffic to the site is undoubtedly much higher.

GAME THEORY

How can there be real economies in virtual games? When players satisfy certain requirements such as solving a puzzle, completing an in-game task, or defeating an opponent, an in-game item with variable properties is sometimes generated. Most such properties make the player character more powerful. For example, allowing the player to do more damage to opponents, survive longer in combat, or slightly nudge the odds in favor of finding better items.

The number of possible properties is enormous, and the magnitude of each property also varies, having an enormous impact on an item's sell value. An item making a character twice as powerful sells for orders of magnitude more than one making a character 1.99 times as powerful. A single percent's difference can equate to hundreds of dollars. Thus, an item that possesses both the right combination of properties and in sufficient quantity is exceedingly rare, and commands a price reflecting this rarity. At its most extreme, big-ticket items can fetch prices in the thousands of dollars. Most items, however, do not reach this degree of rarity and instead are sold for small sums or not sold at all.

But all these black markets don't make the gaming companies any richer. That's why Blizzard Entertainment is looking for a way to get in on the action. With next month's PayPal-integrated launch, gamers can sell their digital possessions -- such as a weapon or pair of boots for your avatar -- in the game's own online auction house. The first few listings per month on the auction house will be free. After that, high-volume traders will pay a fixed fee to sell their digital wares. As a result, those who stand to make the most money will also pay the highest cumulative transaction fees.

Presented by

Adam Felder is the associate director of digital analytics at Atlantic Media.

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