The amazing virtual economy
Two months ago, Javier Heredia found himself in a different country without any of the local money in his wallet. Not a penny, and he had some big purchases to make.
Heredia arranged to meet a currency broker at a busy city landmark, and they agreed that Heredia would pay $130 for the new money. As they met, sketchy characters with weapons gathered nearby. The broker handed Heredia the cash without problems.
But the smooth transaction didn't happen here on Earth - it took place in the fictional city of Freeport on the make-believe planet of Norrath, inside the Internet video game EverQuest. Heredia wasn't even himself at time; he was Gretk, a 5-foot-tall talking rat.
In fact, the only thing that was real was the money.
Video games are nothing new, but the latest generation of games, so-called MMORPGs, or massively multiplayer online role-playing games, has spawned an interesting new wrinkle in electronic entertainment: the virtual economy.
At auction houses and on eBay, players can use real money from the real world to buy game money, implements and weapons of their game's universe. Brokers take orders for fictional currency, make-believe swords, even entire characters (a Ranger Wood Elf male with "very nice gear" for $269).
The practice, while increasingly common as online games grow in popularity, raises interesting questions about intellectual property rights - shouldn't gamemakers get a percentage since they invented all this stuff? - and whether gamers like Heredia are being true to the rules of play.
Software and computer companies produce a wide variety of MMORPGs with an array of fantasy worlds to explore, from outer space to Tolkeinesque lands. Yet for all their differences these games share a form of meritocracy; through experience (and hours of play) gamers can build characters, called "avatars" among gamers, with ever greater strengths and ever greater goods, permitting an ever more interesting level of play.
Because the level of interaction in the games is so high, and because the social rewards can be so great, it has become attractive for players to pump the hard currency of the real world into these fake universes, all in the name of achieving status and prestige in the virtual society.
"Much like the World Wide Web has taken off into its own little society, these games are becoming their own societies," said Heredia, a 28-year-old information technology worker in Miami. "These games have their own economies."
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Edward Castronova is an economist at Indiana University who specializes in the video game industry. He estimates that revenues for online gaming were $1.9-billion in 2003 and will grow to $9.8-billion by 2009. He also figures that up to $100-million in real-world money is captured annually by dealers in virtual currency and goods, and that number will keep growing.
Much of this economic output is driven by the Asian gaming market, where people are avid residents of virtual worlds.
According to Castronova's survey of players, the average gamer is a man in his 20s, with a full-time job and disposable income. The average time spent within the virtual worlds is 20 hours per week, he said, adding that 20 percent of the EverQuest gamers he surveyed declared, "I live in Norrath but I travel outside of it regularly."
Three years ago, Castronova knew little of this strange, new world. He was a struggling economics professor at California State University at Fullerton. His wife worked in another city, and to kill time at night, Castronova started playing EverQuest.
Castronova and thousands of people worldwide would log on at any given time - according to Sony Online Entertainment, which owns EverQuest, more than 800,000 people subscribe to the company's various games - and interact with one another in real time.
In EverQuest, like other MMORPGs, players create a character, or avatar, that they will play each time they return to the game. This character has special powers, such as strength or agility, based on its race and class. An ogre, for instance, has more raw strength than a half-elf, and a barbarian is better in combat than a Vah Shir (a feline humanoid).
Avatars take on tasks in exchange for experience, game money or items. Castronova found that fighting magical beasts yielded friends, currency and prestige.
But in between killing magical beasts and accompanying lizards on adventures, Castronova noticed that Norrath's economy was booming.
He witnessed virtual bakers making virtual bread. Virtual merchants selling virtual boots and hats, along with weapons and armor. Even virtual homes. Castronova realized Norrath is a consumer society. Everyone wants more game money (platinum is the currency) to gain higher status and, well, amass more stuff.
He did some research, and the results were startling: The average player was generating 319 platinum pieces, about $3.42, for each hour spent "working" in the game. Castronova tallied the wealth all the players created in one year in Norrath: $2,266 per capita.
The exchange rate between Norrath's currency and the U.S. dollar is determined in a highly liquid (if illegal) currency market. According to the daily exchange rate published at http://www.gameusd.com ,its value exceeds that of the Japanese yen and the Italian lira. The creation of dollar-valued items in Norrath occurs at a rate such that Norrath's GNP per capita easily exceeds that of dozens of countries, including India and China.
Castronova discovered that EverQuest is the 77th richest country in the world - or would be if it existed.
Since Castronova's findings were published - on the Internet, of course - he was hired to a tenure position at Indiana University, where he teaches telecommunications.
At 42, Castronova is still an avid gamer, and can be found on any given night inside the World of Warcraft, another MMORPG. His avatar is a "tall, elderly and dignified hermit."
