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MMO Economics in the Real World

Posted by on June 19, 2015.

We’ve recently examined the nature of economics inside MMO games (Economics in Online Gaming) and how they fluctuate, develop and change naturally, just as the real world economy does. Given that there are so many parallels, and their popularity, why isn’t there a bigger link to real world? What could these games offer if they were seriously explored, and what problems might they bring?

According to this video, World of Warcraft has already been the subject of serious study by institutions such as J.P. Morgan Chase and The Economist. Worlds of orcs, pegasi and magicians might not seem to have any relevance to reality, but money still operates on much the same basis; a human who needs a haircut must pay the barber in exactly the same way as an elf who needs arrows must pay the fletcher.

Inflation and other economic issues are a problem in MMOs just as they are in life, but players often have far more enthusiasm for their favourite fantasy world than the real world. Large groups of people are willing to invest large amounts time, thought and energy into making their MMO a better experience, and debates and discussions on how to improve the economy in Guild Wars 2, World of Warcraft, Eve Online et al are pursued daily. Effectively, this is a form of academic crowdsourcing, and having so many minds devoted to solving a problem common to both our world and the fantasy world can only be beneficial.

The potential of these games is not limited to academic benefits, though. Innovative and dedicated individuals can find opportunities to make significant income from online gaming, and a few people base their careers on it. Second Life is probably the most well-known instance of this; a fairly free- form game which allows the in-game currency (Lindens) to be freely exchanged for real money, and in which players may earn Lindens for pretty much anything other players are willing to pay them for. With the right skillset, players can earn a stable living from this system – earning enough for food and rent…and even enough to keep up with mortgage repayments.

Such opportunities are not widespread in more traditional MMOs, but they’re not unheard of. With many people now seeking alternative or unorthodox sources of income, it’s not out of the question for MMO developers to start creating games with profitability for players in mind. If done correctly, it would certainly attract a long-term player base, and help to cement the longevity of a game. In many games there are already systems in place for virtual entrepreneurs, but with the status quo for online gaming being that in-game currency cannot be exchanged for real money, the opportunities are just that – Virtual.

But what about the games with less traditional MMO gameplay? Competitive shooters are a huge industry too, and many people invest a large amount of time into that genre. The resurrection of arcade-style fighting games and the corresponding rise in ‘pro’ major-league gaming has led to tournaments like EVO, which reward the most skilled players with a significant cash prize. Could this e-sports model transition to more web-based gaming? While such ideas have not been widely explored, there have been experiments with systems that directly reward player skill; one of these is Kwari.

Kwari required players to pay real money in order to continue playing the game, but victories were rewarded with more than in-game bonuses and higher statistics. Successful hits were worth a small prize, and the top players were awarded a jackpot taken from the payments of less successful players. According to the game’s own statistics, the top player took more than $60,000 from their victories, while the two runners up had over $30,000 apiece.

Part of the reason that such games are not widely known might be the largely negative critical reception. They are certainly very expensive games to be bad at, and in some ways resemble a pyramid scheme. Only a scant few players have a chance to actually gain money from playing, and the less capable players are effectively bankrolling all the payouts. In the end, the business model didn’t seem to work for the developers either, as they closed down in the summer of 2008. FPS games are notoriously vulnerable to cheating as well, and hacks are sometimes impossible to detect.

In fact, there’s already an entire industry devoted to cheating in online games, in the form of small applets or ‘hacks’ that can be downloaded from various cheat websites. These small applications offer unfair advantages over other players, and range from such extreme, blatant cheats as automatically wiping out an enemy team to subtle, difficult to detect assistance with aiming and making accurate shots.

Most of these cheat applications are offered for a price, usually on a subscription basis. Just one of the websites offering these services takes in verifiable revenue of $300,000 per month, and claims that the actual figure is more like $1,250,000. Despite the questionable nature of these services, a healthy industry like that, trading legally, should be more of an asset than a liability. Perhaps so, but most of the cheat websites are owned by companies based in Russia or China, despite operating primarily for a Western market, so questions of tax and liability are messy.

Not all cheats are enabled from an external source, either; sometimes all it takes to cheat a game’s system is a programming oversight and some unscrupulous players. Although it’s not strictly an MMO title, Diablo 3’s Real Money Auction House operated in much the same way as an MMO player market does. While gameplay interaction between players is much less significant in Diablo 3, the Auction House would allow players to trade across games, selling and buying rare, powerful items. The difference in this case was that real money was used, allowing some hardcore players to make significant earnings from their gameplay and from playing the market.

But nothing is ever 100% secure, and no code is perfect. Just as seems to happen so often in online player-markets, Diablo’s Auction House was hit by a duplication glitch, the merciless exploitation of which soon rendered in-game gold completely worthless, along with any investments made by the players. Eventually, this led to the complete closure of the Auction House, and in this case, it was fortunate that Diablo 3’s internal economy did not have strong links to the real world, as it was, almost overnight, obliterated.

Back in 2008, Second Life experienced a severe banking crash caused by unregulated and unscrupulous player-made banks. In a series of events that must have perturbed not only the game’s players, but also proponents of economic libertarianism, players’ deposits effectively vanished, and Linden Labs was forced to intervene in spite of their usual laissez-faire ethos. The exact total of money lost is not known, but a similar situation with a single bank the previous year had lost around $750,000, so a large-scale banking disaster like this may well have lost SL players even more.

As with pretty much everything else in Second Life, the banks were founded, owned and operated by normal users. A large handful of these in-game banks were forced to close down after failing to fulfill promises of paying huge interest rates on depositors’ funds. In fairness, not all of the banks reneged on these promises, but some of them sunk the funds into virtual real-estate within Second life, or even in-game gambling. Not only unable to pay the advertised interest rate, but unable even to give depositors their money back, the banks soon folded, leaving many Second Lifers with nothing to show for their investment.

Since Second Life’s Lindens can be bought with real money and sold back for real money too, the deposits made to these virtual banks were effectively storing real capital. Capital which, after the crash, completely disappeared for many players. This prompted the developers of Second Life to introduce more regulation for their game, and banking services can no longer be offered by just any regular joe.

MMO economics have many things to offer the real world, both academic and tangible, but their full potential is nowhere near being tapped. As a living economic simulation, they make a valuable case study for economists, but any observations have to be taken with a pinch of salt. There are too many small but fundamental differences between these barely-regulated, libertarian online worlds and the real one, and any solution to inflation found in World of Warcraft might be completely useless for the Federal Reserve. How long will it be until we see a game designed from the ground up to mirror our real-world economics as closely as possible?

As for the tangible offerings from MMOs, they have been explored even less. It’s one of the oldest economic truisms that circulating money is good, while stagnant money is bad. If online gaming were to be designed around allowing more real cash to be earned from gameplay, and more rewards from spending real money offered, how much more activity might we start to see?

Currently, however, there are just too many unsolved problems and vulnerabilities in MMO gaming, and the connection to the real world will probably remain fairly vague and loose for some time. The inevitable perception of games like World of Warcraft and Second Life as ‘not real’ encourages exploitative behaviour, whether or not the in-game cash has real value. Competitive gameplay has some glaring problems of its own to fix before it can become relevant to the real world, and players are in many ways their own worst enemy.

That said, the growth of these industries shows no signs of slowing down, and sooner or later online and real-world integration will be inevitable. Developers and companies that are best prepared for this will be at a huge advantage, able to ride the wave of whatever new economic systems are to come.

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Submitted in: Expert Views, Josh Townsend |