Economist: Online Games' Virtual Economies Provide Big Money to the Developing World

By Patrick Morgan | April 11, 2011 12:31 pm

What’s the News: Just as the real-world economy is crawling out of a recession, the virtual economy based around online games like World of Warcraft is booming to the tune of $3 billion per year. This money is actually making a measurable economic impact in developing countries, providing up to 100,000 jobs in China and Vietnam. According to Tim Kelly, the Lead ICT Policy Specialist of infoDev, a technology development finance program of the World Bank and IFC, “This could significantly boost local economies and support further development of digital infrastructure in regions such as Africa and southeast Asia.”

What’s the Context:

  • In games like World of Warcraft (massively multiplayer online role-playing games, or MMORPGs), players accomplish goals and gather new gear to become more powerful. Some players in wealthy countries who have limited time to spend slaying dragons and earning gear themselves are willing to pay for virtual items with real cash.
  • There are many ways of earning money in the virtual gaming world, but about 75% of that $3 billion market comes from “gold farming,” wherein wage-earning players collect virtual goods that are later sold. Another major money-earner is “powerleveling,” in a customer hires another person to spend time playing the game with the customer’s characters and making them more powerful.
  • Nearly 25% of all virtual game players spend real money to acquire virtual items, with some forking over thousands of dollars on a single account.
  • These “gold farmers” aren’t just solitary guys in front of a computer; many actually work for large Chinese suppliers: The largest eight virtual-supplying companies have a yearly turnover of $10 million each, and there’s upwards of 60 firms with $1 million revenues.
  • “Hand made” virtual currency only accounts for about 30% of the virtual economy: About 50% of the currency is generated by automated game-playing computers and 20% comes from hackers who steal goods and then sell them.

Not So Fast:

The Future Holds: The researchers expect the Virtual Economy to grow even more in the coming years, as digital infrastructure expands in the developing world and more companies get involved in connecting poorer residents with wealthy Western buyers.

Reference: Lehdonvirta, V. and Mirko Ernkvist. Knowledge Map of the Virtual Economy. World Bank Group.

Image: Knowledge Map of the Virtual Economy

  • Cathy

    Square Enix chased the gold sellers off Final Fantasy XI and cracks down hard on third party tool usage for both of its MMORPGs. The players are grateful that we can go about our business enjoying the game without dealing with shouted or whispered advertisements for gold (gil in the FF universe) or competing with Chinese farmers. There are still a few companies that provide gil for sale, but they are few and their virtual coin is very expensive. Square Enix said they eliminated 90% of RMT activity off XI during 2010.

  • Amos Zeeberg (Discover Web Editor)

    Funny (yet predictable) that the enforcement reduced the supply, which drove up the price. Further evidence of virtual economics following laws of real economics.

  • Matt

    Reminds me of Cory Doctorow’s For the Win.

  • Solitha

    Yippee for them. Like most parasites, they’re leeching off the host and degrading it in the process.

    Those gold-sellers depend on spam advertisement in-game as well as out, and an extensive amount of phishing and cheating of customers. The spam is invasive and damages game immersion. The phishing/cheating is to “hack” accounts to strip for more gold to sell.

    Overall it makes for a bit of a hostile play environment. It’s also depressing to realize that a lot of the money I spend on gaming is being used to combat these things instead of improving the quality of the game.

    This news just makes it more depressing. There’s so much money involved, stamping it out for good will be all but impossible. Meanwhile, legit users have to jump through more and more hoops designed to block the gold-sellers/hackers.

  • varcher

    The whole virtual economy thing is now well oiled. A brand new game (like the recently launched Rift) had on-line “gold sellers” about 2 days after the game started, before the pre-orders advance launch period ended and the game was officially on the shelves.

  • seagullsquest

    Speaking from a players view point the selling of gold has good pts and bad. I dont like the spamming or the hacking and stealing of accounts, but Blizzard could go a long ways in controlling the prices of items in the Auction Houses. People with extra gold go in and buy up all of a certain product at low prices and turn around and sell it a ungodly prices. It makes it so that if you want something you have to pay the ungodly prices or spend hours and hours doing one thing like farming leather. Thats not what ppl bought the game to do. Most ppl when they only have one or two of an item sell it to a vendor. if Blizzard could make it so the vendors collect them and then sell them in stacks of 5 or 10 then ppl wouldnt be forced to pay the ungodly prices. There are ways of taking the unoffical gold sellers out of the the game. 1. control prices. 2. have a way to buy gold sraight from Blizzard. Other games do it. 3. have vendors collect and sell certain items like leather , ore and raw fish and meats.

  • DinoBoy

    Seagullsquest hit the nail on the head. Companies like Blizzard could easily kill the black markets by selling gold themselves. And making professions and farming more profitable. By doing those two things they would level the playing field, so that the black marketeers have no advantage, and they can make more $$$ off their own product. Seems like a win win to me.

  • Mark Van Diggelen

    The virtual economy is both a powerful and fickle one. As Seagullquest and DinoBoy said it is very possible that the developers get in on the action themselves. Loads for them to make from this. Those who buy the virtual goods wouldn’t really care if they buy it from a 3rd party company or directly from the developers. I think it might even make it even more successful. We will just need to wait it out and see what direction greed pushes the respective parties involved…

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