Virtual Worlds, Real Profits

eBay has reportedly discontinued all sales of virtual items from online games, according to numerous accounts from traders. This would obviously be a significant event for the virtual economy, as eBay has historically been one of the major methods for traders to sell assets and game accounts.

UPDATE: eBay has now confirmed that it is no longer selling virtual goods. See Slashdot and our follow-up post for more. Additional commentary from Valleywag, Joystiq, Revenews and VTOR.

In his 2005 book Synthetic Worlds, Edward Castronova estimated that eBay hosts about $30 million a year in virtual goods trading. No official announcement or rationale has emerged, but eBay’s decision certainly reflects the challenges real-money trading presents for corporations. Was eBay influenced by conversations with Sony, Blizzard or other operators of MMORPG games? No one’s saying yet. Some accounts suggest that a high level of fraud in these sales has been a major headache for eBay. Market maker Markee Dragon provided one of the early reports. Here’s an excerpt:

As of 2 weeks ago eBay made an internal decision to no longer allow the sales of video game intangible goods. Stuff for World of Warcraft and Sony games has been getting removed from eBay for a long time. but now eBay has decided to make it a blanket policy. No sales of virtual goods for video games will be allowed. There is no official statement made by eBay on this. But when we called our inside sources they confirmed that this policy went into place about 2 weeks ago. since that time they have been Veroing posters of virtual goods. They estimate that they will have all of the virtual goods removed within the next several weeks.

Obviously, this would be a huge development for the virtual economy. The Broken Toys blog has a screenshot of a chat with an eBay rep that appears to confirm that these sales have been discontinued, but also found some auctions that appear to still be offering game gold. Here’s some commentary from BrokenToys:

eBay’s proactively removing RMT auctions is huge in and of itself. However, there’s another side to this: note the MMO being referenced in the CS chat. Note that UO (Ultima Online) is one of the few MMOs that permit RMT, so eBay removing UO RMT auctions would be… pretty huge. Previously, eBay’s official policy is that they would pull an auction at the original copyright holder’s request. Of course, this then mandated a race between an MMO’s CS department and the thousands of RMT dealers to see who could keep an auction up the longest.

If there has been a policy change at eBay, it would likely be good news for IGE, the market maker described recently in Wired as “the Wal-Mart of virtual goods,” as well as many of the other real money trading marketplaces listed at our Virtual Economies directory.

Blizzard sold 2.4 million copies of the Burning Crusade expansion pack for World of Warcraft in North America and the EU in the first 24 hours alone, making it the fastest-selling PC game ever. At $40 a pop, that equates to $100 million in sales in one day, which is exceeded only by Microsoft’s $125 million first-day total for Halo 2, its powerhouse Xbox title.

Of the 8 million subscribers to WoW, there are 3.5 million players in China, 2 million in North America and 1.5 million in Europe. That means only 3.5 million current subscribers live in areas where the Burning Crusade went on sale. This suggests that up to 65 percent of WoW subscribers in those areas bought the expansion pack on the first day. By the end of the first day of availability on both continents, a total of more than 1.7 million players had already logged in and upgraded World of Warcraft to play The Burning Crusade. Even if we assume that some of the buyers were new players, that’s an incredible buy rate on a $40 product.

“The Burning Crusade has already exceeded even our most ambitious expectations,” said Mike Morhaime, president and cofounder of Blizzard Entertainment. “We’re pleased that so many players are eager to see all of the new content that the expansion has to offer, and we look forward to seeing everyone online as additional players continue to upgrade in the days ahead.”

GamaSutra has a question-and-answer session with Jon Radoff of GuildCafe, a new social network for MMO Gamers. Radoff, an industry veteran who co-designed the 1992 MMORPG Legends of Future Past, says his new venture represents an important evolutionary step forward in online gaming. Here’s an excerpt on Radoff’s view of the current industry climate:

“I think that the computer game industry and the MMORPG industry in particular are in need of more than gameplay and content innovation. Right now, the MMORPG market is nearly winner-takes-all, with only a couple of companies at the top dominating the market for active subscriptions. The idea of the GuildCafe.com website was borne out of the realization that expanding the MMOG market would require innovation in terms of business strategies.

For more, read the article or check out GuildCafe, which offers free clan and guild hosting services.

The Bush administration insists that Internet gambling violates U.S. law, to the point where last July federal agents arrested BetonSports.com CEO David Carruthers when he was changing flights at Dallas/Fort Worth Airport. If it’s illegal for U.S. residents to gamble online, what’s the legal status of an online casino in Second Life? The Second Life Herald has the story of how SL resident Magnus Rothlisberger recently lost 346,180 Linden dollars playing virtual blackjack and roulette – a sum which at current in-game exchange rates is valued at roughly $1,153 real U.S. dollars.

Valleywag quickly jumped on the issue of whether this might leave Second Life open to scrutiny from the feds:

Reality check: there’s only one reason to prefer the crude Benchmark-backed 3D environment over a purpose-built online casino. The Department of Justice, which tracks down online gambling in the US, and Paypal, through which many Second Life users fund their accounts, simply haven’t grokked yet what’s going on. If the online casino was ever busy, it would be shut down in a moment.

Terra Nova recently predicted a major Second Life backlash this year. Looks like Valleywag will continue to lead the charge.

Blizzard announced this week that its blockbuster MMORPG virtual world World of Warcraftnow has more than 8 million subscribers around the world. That total includes 3.5 million players in China, 2 million in North America and 1.5 million in Europe. That’s a ton of players, and clearly represents a huge revenue stream for Blizzard.

How much is WoW making? It’s hard to say for sure, as many of those subscribers pay less than the $14.95 monthly fee paid by most U.S. players. Blizzard’s press release say that subscribers include “individuals who have paid a subscription fee or have an active prepaid card to play World of Warcraft, as well as those who have purchased the game and are within their free month of access. Internet Game Room players who have accessed the game over the last thirty days are also counted as subscribers.” Game rooms (also known as “game bangs”) are huge in South Korea.

WoW is reported to have North American revenue of about $200 million. Income from Warcraft’s massive base of China gamers is much lower, as noted by Wagner James Au at GigaOm: “Chinese pay to play by the hour, and what they pay isn’t much: the yuan equivalent of $.04/hour. And while they play a lot, this also means total revenue from China is just 15% of WoW’s Western market. ($30 million versus $200 million, in 2006’s second quarter.)” WoW is available in seven different languages and is played in North America, Europe, mainland China, Korea, Australia, New Zealand, Singapore, and the regions of Taiwan, Hong Kong, and Macau.

For additional coverage, see WoW Insider, Joystiq, Blue’s News and Clickable Culture.

In the wake of Linden Labs’ widely-blogged decision to open source the code for the Second Life client (desktop) software, Steve O’Hear at ZDNet looks at a more intriguing possibility: opening the code for the Second Life server grid and allowing virtual worlds to interoperate. The concept isn’t novel, as there have been Terra Nova discussions on the subject dating back to the 2004 Game Developer’s Conference, including the possibility of portable profiles and the exchange of meta-data (Peter Molyneux of Black & White fame put this forward). Ted Castronova discussed these possibilities at length in his excellent book, Synthetic Worlds.

What might this mean for virtual economies? The notion of an interconnected marketplace for virtual currency and assets has been part of the discussion for years. The Gaming Open Market created a marketplace where players in one virtual world could exchange their currency for the coinage of another world. The GOM later closed when Linden Labs opened its own official currency exchange for Second Life. Maybe they’ll open source some client code. But history suggests that Linden Labs isn’t likely to open source its currency market, having been there once already.

Prompted by Clay Shirky’s recent coverage at ValleyWag and Many to Many, many bloggers and virtual economists have been re-examining growth in Second Life, which has received more mainstream press attention than any online world except World of Warcraft. This is due to its innovative approach and focus on real-money trading (RMT) of virtual assets users create in the world, but also boosted by claims of rapid growth and the first “virtual millionaire” (the SL real estate maven Anshe Chung).

To expand the metrics for evaluating Second Life and its importance, Tristan Louis set out to measure economic activity in the game, and has some intriguing findings, notably that power users are spending about $50 to $60 a week in the game. As Wagner James Au notes at GigaGamez , this suggests that Second Life is “people light but cash heavy.” Tristan’s post prompted a back-and-forth with Clay in the comments, which is worth reading.

What’s clear is that they tout it or trash it, journalists will continue to cover Second Life, and it will continue to be an intriguing petri dish for the virtual economy.

Does Net neutrality matter to users of MMORPG online games, and the companies and markets built around them? Ramprate believes it does, and outlines its thinking in an article titled Every Time You Vote Against Net Neutrality, Your ISP Kills A Night Elf. The article’s premise – that ISPs who get no direct revenue from online gaming would handle MMO and FPS (game server) traffic in a fashion that would degrade latency – is being discussed on Slashdot.

As we noted over at Data Center Knowledge, while there’s a certain logic to some of the scenarios presented by Ramprate regarding phone companies and ISPs, bear in mind that the largest online games are actually hosted by a phone company. AT&T hosts World of Warcraft and Sony Online Entertainment’s major games. At this year’s E3, AT&T announced the expansion of its online gaming operation. Given the hosting fees coming in from Blizzard and Sony, it’s reasonable to conclude that AT&T/SBC has a vested interest in their success. Does the nation’s largest phone company have leverage in dealing with ISPs who might be tempted to mess with their customers’ MMO traffic? I suspect they do. I’d be interested in comments/feedback on the Ramprate scenario and whether AT&T’s hosting role supports or undermines it.

If Net Neutrality did squeeze online gaming, it might create an opportunity for someone like GameRail, a high speed network that directly connects online game players to the servers that host popular FPS titles. GameRail peers directly with ISPs, universities and game server providers (GSPs). The question is whether game server hosts see usefulness in that type of middleman. The answer to that question might change in some of the scenarios imagined by Ramprate.