Ex-IGE chief: Margins are shrinking

Brock Pierce, CEO of the holding company that used to own IGE, says the margins for virtual goods are shrinking rapidly, due in large part to Chinese competition.

PALO ALTO, Calif.--Brock Pierce, the CEO of Affinity Media, which used to own IGE, one of the world's largest marketer of the virtual goods and currencies of games like World of Warcraft, EverQuest and others, is looking tired.

Earlier this year, Affinity sold IGE, but it still has a hand deep in the market for virtual weapons, currencies and the like.

For years, Brock's companies, which in many ways have created--or at least perfected--the booming secondary market for the virtual worlds of those games, have been seen as all-powerful entities that almost laugh in the face of publishers like Blizzard Entertainment, Sony Online Entertainment and others who decry the notion that anyone would trade their games' virtual assets for real money.

But now, Pierce told CNET News.com at the Virtual Goods Summit here, Affinity is finding it harder and harder to make the big profits it used to. And that's because, he said, virtual assets are increasingly a commodity and, therefore, the margins on sales of WoW gold and other virtual goods are rapidly shrinking.

In fact, he said, as Chinese competitors get more and more sophisticated, they are also willing to accept less and less profit margin. And that means, "they're perfectly happy to accept $20,000 in profit on $2 million of revenue."

That, for all you out there without a calculator, is a 1 percent profit margin. Hardly what would make it easy for an American company bent on giving its executives a comfortable lifestyle to be happy.

And that may be why, after all these years at the helm of IGE and now Affinity, Pierce said he's looking to find someone to take over for him as CEO. But he also said he's having a devil of a time locating the right candidate. No one else, it seems, has the right skills to take Affinity and transition it to the next stage of its development, one in which the Chinese gold farming operations stay in the rear view mirror.

To be sure, the execs at Blizzard and Sony Online are not feeling too sympathetic for Pierce and his fellow secondary market traffickers. But there is a mutual interest for them as they both look at the Chinese competition becoming more and more powerful.

What will it all mean? No one knows. But for Pierce, as he bounces around the world at a fierce pace, cutting deals, overseeing Affinity's operations in many countries and still trying to get home once in a while, it's a very exhausting time. And it seems like he wants out.

 

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