Not many gamers I know get too hopped up over the subject of MMOG economics. Sure, we complain about high prices at the auction house, we lament the waiting lines for our chosen servers, we disparage real-money trade, we blather on about “inflation.” But when was the last time you checked the Consumer Price Index for your favorite virtual world, or looked to see whether your guild was actually turning a profit these days?

I’m betting never. Not because gamers are too lazy to look, but simply because that kind of data just doesn’t exist.

Boring, you say. There’s a reason economics is called “the dismal science.” How is that gonna help me ding?

In fact, it could help a great deal, because like it or not, virtual economics is about to reach into both your wallet and your games in a big way.

Right now, MMOG gameplay doesn’t feel very involved in virtual economics unless you’re in a place like EVE Online, Ultima Online or a non-game world like Second Life, where the economies float more freely. In the big worlds like World of Warcraft you can go on about your business, buying from NPCs and beating mobs, and never have to worry about it.

In the new worlds, though, that’s changing. Real-money trade (RMT) has become a hot-button issue with many gamers and game designers. The practice of buying and selling virtual-world items (and services) for real money can lead to lots of things that lots of people view as problems: Low-level characters get twinked with powerful equipment they couldn’t possibly have earned yet; gold-farmers suck up all the loot in a region, leaving nothing for innocent adventurers just trying to earn an honest level; characters appear, wordlessly level up under the control of a paid power-gamer, then wander around without a clue once they’re back in the hands of their inexperienced owners; developers have yet another obstacle to design their way around while trying to keep their games fun and engaging.

Game developers have been taking RMT into account for some time, but it’s only just lately that they’ve started to make more overt choices in designing for it. And those choices will not remove the issue of economics from our online lives, but get us more deeply embroiled in it than ever.

Sony Online Entertainment’s Station Exchange service, which helps EverQuest II players on certain servers auction their virtual goods for real money, is only the most visible recent example of a company designing for RMT. The overly shiny MMOG Project Entropia has addressed RMT by doing away with monthly fees and creating an economy that’s explicitly tied to the dollar. Project Entropia‘s PED currency is exchangeable at a fixed rate, and players can buy it from the game company with a credit card (or sell it back to them) without even leaving the game. They can also earn PED from other players’ activities.

Other worlds are trying on similar revenue models. The forthcoming Roma Victor will also have no monthly fee, and will allow similar earnings and purchases (reportedly only up to a certain amount each month). From the sound of things, Roma Victor‘s designers at Red Bedlam are busy making sure you’re going to have to buy some game currency if you want to get much out of the game. But Roma Victor‘s currency, the Sesterces, will have a variable exchange rate against real-world currencies. And while prices of most things in-world will be determined by player-driven supply and demand (not unlike UO and EVE), Red Bedlam, like all game companies, will be free to tweak the economy in an endless number of ways in order to satisfy the gods of gameplay balance.

These kinds of models may sound like an unnecessary complication of things and a way to let game companies micro-manage the economies of their games, but the truth is they’re anything but. If new revenue models like Roma Victor‘s and Project Entropia‘s take hold, it will actually put more economic influence in the hands of players. It also means we’re going to have to start paying a lot more attention to how our virtual worlds are governed.

At the moment, game companies control far more aspects of their world’s economies than usually occurs to us. They certainly have more control over them than do the people who run real-world economies. No one sits in Washington and decides how productive your steel factory is going to be this month. They can influence it to a certain extent, but not very well.

The people who govern virtual worlds, by contrast, can tweak the rate of loot drops and the spawning of mobs and other resources whenever they want. The Department of Energy doesn’t get to decide how much oil it’s possible to take out of the ground. The designers of an MMOG, by contrast, can not only decide that, they can change it on the fly.

They also control much of the market. NPC prices rarely change in most worlds, and if they do, they don’t change much. Any inflation is for the most part limited to the auction house and out-of-game sales. Power gamers and eBay buyers are the minority. Game companies generally won’t reveal whether they take auction prices into account when tweaking loot drops and other factors. Even still, it’s safe to say that in most worlds, these things don’t have a consistent or significant impact on the broader economy (i.e., the parts that are run by NPCs and the environment – in other words, the parts that are run by developers).

A Roma Victor-like economy, though, is going to be much less stable. Besides being free to buy sesterces, RV players will also be able to set up their own in-world businesses, flogging the junk they’ve gathered, looted or crafted to their fellow players, or just buying low and selling high. By weaving players into the fabric of its economy instead of letting them float on top of it in an auction house or on eBay, Roma Victor looks to give gamers a much greater impact on the state of the world. In a place where players will be better equipped to compete economically with NPCs in supplying the items people need, players’ choices are going to influence the course of the world and the gameplay experience to a much greater extent than it does in most MMOGs today.

As players of EVE and UO already know, making producers out of players means you’ve got to keep an eye on the market. I’ve got 660,286 units of Massive Scordite gathering dust in my hangar bay in the Piekura system at the moment because prices have dipped in the last week or so. I figure there’s got to be a ship manufacturer out there who’s going to get a hurry-up order soon enough, and when he does he’ll put a buy on Scord again at the prices I like. I could get about 9 million InterStellar Kredits for it at the moment – but I’d rather get the 11 million I know it’s worth.

For most gamers (that is, those who don’t engage in RMT), the only interaction between their bank accounts and their virtual worlds comes in the form of purchase prices and monthly subscription fees. At the moment, your wallet is just a kind of on-off switch, where MMOGs are concerned. All you can do if you’re broke is cancel one of your games. But if an RV-style pricing model takes hold, your wallet will soon be more intimately involved in your virtual life than ever before.

If you’re paying $14.99 a month in a game like World of Warcraft, of course, you can just as well buy $14.99 worth of sesterces in Roma Victor every 30 days (provided you like the game). But what happens when the game gets rebalanced by a new patch and the leatherworker you’ve been buying from down the virtual lane finds that skins aren’t dropping so readily as they were before? He raises his prices. Now you find yourself spending more game coin on the materials you need to make the armor you’re selling out of your own virtual storefront. You try to raise your own prices, but since the company hasn’t rebalanced leather armor, no one wants your stuff at the higher price. In a WoW economy, your only choice is to work harder for the coin you need to get your materials – the game still costs $14.99 a month no matter what’s going on inside it. In an RV economy, however, you can work harder, or you can just spend a couple of extra bucks each month to cover your increased costs. To get the same gameplay experience out of it, you’re now paying $17 a month.

Assuming the skinning tweak was a gameplay issue and not just an evil attempt by the company to make more money, an interesting thing has happened: The gameplay of a virtual world has had an impact on your real-life bank account. It works in reverse as well: You can cancel your World of Warcraft account if you need the extra fifteen bucks a month, but in a game like Roma Victor, you never have to cancel, you can just stop buying sesterces. If you’re poor in real life, your toon is poor in the virtual world. If you’re rich, your toon is rich. That’s an environment we haven’t really seen before: Even if you never visit eBay, your real-world bank account is affecting your life in the virtual world.

A Roma Victor-style economic model will make your wallet act more like a faucet, regulating the flow of cash back and forth between the real world and the virtual one. The marginal effect will only amount to a trickle, at first. But where do you draw the line? The hypothetical patch above raised your effective monthly fee from $15 to $17. Would you have signed up for a $17-a-month MMOG? An $18 one? $20?

And what if the armor you were making was selling like there was no tomorrow? You might decide to crank the faucet open and see just how much money you can make – and you might be surprised to find it’s quite a bit. But then a patch comes along that doesn’t tweak skin drops, but instead requires more leather for each piece of armor that you make. Now your little virtual business is losing money – real money – like a leaky sieve. And all in the name of gameplay. The patch not only changed your experience of the world, it affected the contents of your wallet.

Now we’re on tricky ground. Game companies can make such tweaks to their worlds because we tell them they can: It’s in the Terms of Service (ToS). But in a world where patches have a financial impact not just on gold farmers but on all players, that document takes on new meaning.

Game companies are careful to note that everything in a virtual world is owned by them, and that none of it has a real-world value. But as games economist Edward Castronova of the University of Indiana has pointed out, the mere fact that companies feel they have to stipulate their ownership implies that there’s something of value at play here. If plat was really worthless, they wouldn’t care. The Roma Victor model of MMOG economics moves game economy one step closer to the real-world economy, by setting up an explicit economic relationship between the two that’s governed by a legally binding document (the ToS).

It seems likely that, sooner or later, someone’s going to point out this relationship to a court. Courts in other countries have already begun to question the contentions of the ToS, and it’s only a matter of time before it happens here. Whether a game currency comes to be seen as a separate product that’s being bought (and owned) or as an investment in a market, the Terms of Service will soon be insufficient as a governing document, and real-world laws will have to get involved.

It’s players who are going to make this happen.

You can see the beginnings of it already, in the protests that take place from time to time in MMOGs. In January 2005 a group of unhappy warriors captured the attention of World of Warcraft‘s Argent Dawn server (as well as a few Blizzard GMs), protesting for fixes they demanded be made in their chosen class’s powers. They didn’t get much for their trouble other than suspended accounts, but they were following in some not so ineffective footsteps.

A similar protest had been planned in EverQuest in November 2003. The warriors were mad as hell (this time over nerfing), and they weren’t going to take it anymore. A protest was announced, and remarkably, the mere mention of it had some effect. A week after the announcement (but before the protest had taken place), an EQ Community Manager announced a major overhaul of combat mechanics. In the end, it wasn’t as major an overhaul as many warriors would have liked, but their voices had been heard. The people, in the form of their avatars, had spoken.

This is how governments are born. Remember the Boston Tea Party? That was an economic protest, and one of the key moments in the run-up to the American Revolution. I doubt the Argent Revolution is going to come along anytime soon and set up its own sovereign nation on Blizzard’s servers, but the laws governing cyberspace have yet to be written.

Residents of non-game virtual worlds like Second Life find themselves even deeper in the fray, due to their explicit ownership of the intellectual property rights to the things of that online world. Whenever Linden Lab tweaks the Second Life economy, in-world protests break out. Given the many profitable businesses that are run in SL, its Terms of Service has become quite a contentious document. Economic changes and inconsistencies of enforcement have a significant impact on some SL residents’ real-world incomes. But like all the rest, SL‘s ToS says the company can do as it likes.

Sooner or later, this is going to have to change. There will always be game worlds where we agree to give up any say in how they’re run in order to get a stable amount of fun out of them. But in non-game virtual worlds and even in some game worlds, players are going to demand more of a voice as those worlds become more deeply entwined with the physical world. Who knows? Maybe one day we’ll find ourselves electing representatives to some kind of players’ parliament that will be responsible for tweaking loot drops or deciding whether warrior crits do too much damage?

This is pretty far-out stuff, but think of that virtual Consumer Price Index for a moment. There’s a reason game companies don’t make that kind of information public. As soon as they do, there’s going to be a group of gamers somewhere saying, “We’re paying you all this money; what are you doing about inflation?” And if it happens in a world that recognizes the value of game currency, the courts could decide that the company had better do something about it after all.

That in itself is a pretty significant (if small) step toward some kind of new legal and/or governmental take on virtual worlds. In the real world, we pay taxes as part of a deal to insure against a “lead designer” coming in and tweaking the economy whenever he wants in order to balance the “gameplay” of our world. Alan Greenspan has a lot of influence over the economy, but that’s only because we the people decided he should. Sooner or later, we the avatars are going to have to decide what kinds of virtual worlds we want to live in.

Those virtual worlds will probably never work quite the same way as our physical world, but they’re certainly headed in the same direction. How far down the road they come to rest remains to be seen. Places like Roma Victor, Project Entropia and Second Life are pushing them to the next step. The step after that will be largely up to you.

Mark Wallace is a journalist and editor residing in Brooklyn, New York, and at Walkering.com. He has written on gaming and other subjects for The New York Times, The New Yorker, Details and many other publications.

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