Real cash for virtual goods: racket or way of the future?

As online games develop their own rich economies, publishers must decide how they view the secondary markets.

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A total of $26,500 for a piece of undeveloped land in an unpopulated but potentially prosperous new suburb? What's not to like? Except that the property exists solely on the servers of Project Entropia, a computer game where players exchange real-world money for in-game goods, services, and property.

Almost every major online game has an in-game economy where players exchange in-games goods for in-game currency. Most also have a real-world economy, where in-game currency and goods trade hands for hard cash.

But most such offline trade is part of an underground economy discouraged by game publishers, such as Sony Online Entertainment, which has blocked auctions of items for EverQuest and other popular games, claiming such trade infringes on its intellectual property.

A few online game publishers, however, have decided to embrace the intersection of virtual and real-world economies, providing approved outlets in which players can convert in-game assets into real-world wealth. The result has been an intriguing blend of typical game dynamics and the free market.

"What it does is put a value on the time you spend playing...instead of stealing that value from you or taking you to court and saying that value isn't yours," said Jon Jacobs, US "ambassador" for Project Entropia, published by Sweden's MindArk. "It's kind of like the difference between buying real estate and playing Monopoly."

For players such as Storey, an Australian Entropia veteran known in the game as "Deathifier," that difference provides powerful incentives to stay active in the Entropia universe.

Storey said he'd been playing the game for about two years, which is long enough to identify economic and housing trends. He saw housing demand pointing toward an undeveloped plot now named Treasure Island, so he put in the winning bid when game publisher MindArk auctioned off the land.

Storey said he's making a modest income from the property now, collecting small payments for hunting rights and other fees. But he expects his investment to really pay off once MindArk releases a housing update for the game and his virtual bulldozers start digging out prime home sites fellow players will pay to occupy.

"Taxation has provided a small but steady income...and we have a very cool bar where people like to hang out," he said. "The housing estates are due with the next update, which is probably going to be sometime in February or March. When the houses start rolling out is when the dollars start rolling in."

Project Entropia was the first major online game to convert what publishers have traditionally viewed as a burden into an asset.

EverQuest publisher Sony Online Entertainment has sued sites specializing in the barter of in-game goods and has convinced auction giant eBay to reject auctions of EverQuest items. Yet game trade remains a brisk underground business, giving EverQuest a more vigorous economy than several European nations, according to one economic study.

Jacobs said MindArk saw from such experiences that economic activity was inevitable in multiplayer games with fixed virtual resources. Their challenge was to make it work within the context of massively multiplayer online role-playing games, which are full of typical fantasy elements such as monster slaying and weapon collecting.

"The moment you have a community, one of the by-products...is trade," Jacobs said. "We were the first MMORPG to identify this at the get-go. We decided the economy was the most dynamic aspect of a virtual community, and we built that into the game."

Project Entropia includes an extensive auction system, where players can barter in-game goods and services, and a transaction system to turn dollars into in-game currency or vice versa. MindArk processed $16 million in Project Entropia transactions last month. The system offers a number of benefits. Players who'd rather make money than slay dragons can set up moneymaking ventures such as armor foundries.

"There aren't many people doing it as their job--it's still a relatively young community," Jacobs said. "But a number of people have paid their way through college through the game."

Players who'd rather just have fun can buy their way to success in the game, bypassing the hundreds of hours of often tedious skill building, also known as "skilling," that MMORPGs typically require to advance a player's character. Jacobs said he's hired other players as day laborers to help build his character's skill points to achieve abilities such as teleportation.

"I don't have a lot of time, and skilling just drives me up a wall," he said. "There are other people happy to do it for you for a reasonable fee."

Others hire out fellow players for agrarian work. "One of the common things is you pay people to collect manure from big monsters and spread it on your land to repel smaller monsters," Jacobs said. "You're making your land more valuable by changing the food chain."

While Project Entropia still incorporates a number of fantasy game conventions, Linden Lab's Second Life has gone several steps further by creating a universe that's almost entirely player-defined.

Players pay a small fee to enter the game to buy a piece of virtual real estate, if they wish. From there, it's up to them. They can create and sell items, such as cars and clothing, using standards graphics tools such as Photoshop, set up events and minigames, or develop property and charge admission or rent. Transactions happen in Linden Dollars, the in-game currency, which can be converted into real money at sites such as Gaming Open Market.

Linden Lab founder Phillip Rosedale said the game's open-ended design was his answer to the uniformity of most online games.

"We looked at the scale of what's been done with online experiences, and everything had inevitably been centrally designed," Rosedale said. "That works up to point, say, [to] the scale of a shopping mall, but beyond that it gets kind of tedious. Right from the beginning, we were very focused on the idea that if we were going to build something very big...the only thing that would be interesting was to have an environment where you could walk over the hill and discover something totally new."

Once player creativity became the defining aspect of the game, the question was how to motivate players to create.

"We looked at the history of developing Western countries, and the motivator to get people to create things...has always been that there's a sense of intellectual property," he said. "You own something of value, and you can do something with it. Creativity and intellect wants to be expressed in some form of currency."

Rosedale's approach has paid off, with Second Life amassing a community of 20,000 players in a little more than a year and generating $150,000 to $200,000 in real-world transactions per month.

Players have created a huge variety of economic activities, from running tattoo parlors to hosting Dark Life, a role-playing game within a game.

"Having a fluid economy allows an enormous number of different styles of gameplay," Rosedale said. "We even have philanthropy: people giving away land to people with good ideas."

Chip Matthews, an artist and animator from Germantown, Maryland, had played other online games but was intrigued by Second Life for the chance to use his real-world skills in Photoshop and other graphics tools rather than manufactured skills in monster whacking. He's now one of the game's leading sellers of "skins," which are files that allow players to customize the basic appearances of their characters. He makes up to $2,000 a month selling skins.

"I still think of it more as a hobby than a second career, but it's good to have it be a self-sustaining hobby," Matthews said. "And it's great to be in an environment where people are commenting on my work all the time. That doesn't happen much with my day job."

Matthews said that while he's explored numerous aspects of Second Life, creative and mercantile pursuits have always been his main interest. "I've never really thought of it as a game," he said. "To me, it's kind of a place for creative people to show off to each other. I tend to think of Second Life as a bit more of a craft fair. You go around and see what all the artisans are offering."

Keeping those economic activities running smoothly is partly up to Rosedale, who tweaks variables such as commodity pricing to help provide a balanced environment for old and new players, as well as a stable currency.

"Having a prudent economic policy based on the same principles that made Western countries successful is very important," he said. "That means I sometimes have to make some Alan Greenspan-ish announcements."

Among those benefiting from Rosedale's economic stewardship is Jamie Hale, president of Gaming Open Market, which brokers exchange of in-game currency and real money. The site used to conduct gray-market trades for games such as The Sims Online but now deals in Second Life money exclusively, partly so Hale can sleep better.

"It really is sort of gray market, and we didn't like the risk," he said. "If the publishers ever got annoyed at us, they could wipe out the assets of all our clients and cancel the deals, and we'd be wrecked."

The site recently surpassed $1 million in total Second Life transactions, a level of activity mainstream game publishers will find increasingly hard to ignore, Hale said.

"We want to build the model, prove that it works, and then approach the other game companies," he said. "We offer trade stability, we offer trade security, and they need to realize trade is going to happen, one way or another, as soon as you create a scarcity of goods."

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