SOE, Live Gamer Deal: Smedley, Schneider Interviewed

The sale of virtual items for real cash – or the secondary market – is perhaps the toughest problem to solve for MMO developers. On one hand, it’s extremely lucrative, but it is also angers players who complain of gold farmers – bots that exist only to extract money from the game for resale – and how the entire industry is contrary to the spirit and, in many cases, the design of these games. Historically, it has been the domain of third party companies and participants violate their user agreements. This opens the door to fraud and untenable customer service nightmares for operators.

In 2005 Sony Online Entertainment announced The Station Exchange as their tentative solution. It internalized and formalized the exchange of items, which meant that players could buy and sell items without giving their financial information to third parties. It was also segregated onto two specific EverQuest II servers, meaning those who disapproved could simply ignore it.

For a time, SOE’s move seemed to create a belief in the industry that this was the way of the future. Yet, over two years later, SOE’s initiative remains limited to two EQII servers, and few other MMOs have gone the same route. The Station Exchange, by SOE’s own admission, helped, but by no means solved the problem of third-party RMT companies in EQII. And while there is little doubt that SOE has made money off the project, it has also created a new round of headaches and challenges.

“We’re getting to the point now where we needed to take very aggressive action on the fraud screening end,” said SOE CEO John Smedley. “When I say fraud, I am talking about people defrauding us; that never hits the customers.”

The crux of the problem for SOE is “charge backs.” This is when someone calls his credit card company and complains that a charge on his credit card is fraudulent. According to Smedley, the credit card companies immediately reverse the charge and when it is through the internet, there is absolutely no recourse for SOE to contest the claim. The charge is gone and SOE is out the money, even though the person may have knowingly purchased the game online or an item through Station Exchange.

What’s more, as these claims accumulate, the company must pay penalties. “We have been fined; just the fines alone are over a million dollars, and a lot of those are from Station Exchange,” said Smedley.

In response to these problems, SOE announced today that they have partnered with Live Gamer, a company that specializes in the integration of secondary market solutions into existing MMOs. The company, founded by veterans of gaming and financial services, operates a single platform, which they hope will extend across multiple games and companies.

SOE believes that Live Gamer will curtail their issues with fraud and customer service, and provide them with more power in the fight against farmers.

“This is one of those trust, but verify sort of things,” explained Smedley of the deal. Initially, the service will be a simple replacement of Station Exchange. Like its predecessor, it will only be available on the two EQII servers, and the agreement is specific exclusively to that game.

Even if the agreement works wonders, Smedley was careful to note that it would never extend to other EQII servers. “We made a promise to the community and its one we intend to keep,” he said. Instead, it appears EverQuest II will once again be the guinea pig for SOE’s flirtations with the secondary market. Should the agreement be a smashing success, it seems easy to imagine it in future SOE products. “We do believe in the secondary market in a customer friendly way.” Smedley declined to go into specifics on future plans.

Live Gamer is a New York based company founded by Andrew Schneider and Mitch Davis. Schneider, who serves as company president, comes from the entertainment industry, including time with Wind-up Records, Sony Pictures Digital and NBC Television. Davis, Live Gamer’s Chairman, is more familiar to the MMO space as the founder of Massive Inc., who brought in-game advertisement into many games.

“We founded the company after seeing what was going on through companies like IGE,” Schneider explained. He quoted estimates that the virtual item market does roughly $2 billion per year in transactions, which clearly indicates a large demand, but that the industry as it exists today is notorious for circumventing user agreements, scams and fraud. “[We] provide a secondary marketplace that is independent and neutral.”

Both companies hope the new service will curtail fraud and make the service easier and more attractive for players. With the switch to Live Gamer, there will be no fee to list items. Instead, sellers will be charged $0.99 for items sold that cost less than $10. For more expensive items, the fee is 10 percent of the gross price. There is no charge to the buyer, save the actual cost of the item, and these charges are included in the list price. Live Gamer allows players to buy with their credit cards or PayPal accounts. The payouts are done through PayPal.

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Aside from more security, Live Gamer offers access both through the in-game EverQuest II client and through the web. At the time, while they would like to extend to other platforms like mobile, they have no particular plans in that area.

Live Gamer will also handle all customer support related to their service.

“This will be a significant market and a growing market worldwide,” said Schneider. “The question is how do you make a safe and significant market for players and how do you bring them back on the grid.”

Both companies touted the platform’s multi-game and multi-developer goals as one of Live Gamer’s biggest strengths.

“We don’t gold farm, we don’t buy from gold farmers,” said Schneider, “in fact when we see that kind of illicit activity, we shut it down.”

That policy is the key for Smedley.

“If you have a service that operates across multiple games, in the end the farmers will have their games turned off and off and off,” said Smedley. At this time, EverQuest II is the only game that Live Gamer has announced, but their website boasts partnerships with Funcom, GoPets, 10Tacle Studios, Acclaim and Ping0, who – in addition to SOE – represent between them well over 20 existing and upcoming MMOs. They also hinted at more announcements to come.

Conceivably, if this service were implemented in even a fraction of those games, a gold farmer who is caught in a Funcom title could find himself banned from EverQuest II and vice versa. For over a decade, MMO developers have fought against the tide of third-party companies in their games, and while there has been some progress – Blizzard recently won a lawsuit against Peons4Hire – there has never been a solution that allows them to cooperate in defense of their own virtual property.

“We’ve been banning quietly for many years now,” said Smedley. “We turned off new account creation for all Chinese accounts.” China is a country notorious for item farmers, and, according to Smedley, it is essentially impossible to fight against companies based there. Blizzard’s victory, he noted, was only possible because the defendant was based in the United States.

SOE and Live Gamer both believe in the future of the virtual item market and hope that through this service, players will be convinced to take the safer and legal route when it comes time to make purchases, which in turn will then undermine the third-party market. This, combined with greater strength to their policing makes Live Gamer an attractive proposition to MMO developers.

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