Real-world success with virtual goods

In a report set to be released Wednesday, Sony Online Entertainment has concluded that so-called real-money trades can be good for both gamers and publishers if handled at controlled locations such as Sony's own Station Exchange, a 1-year-old experiment to make transactions of virtual goods for real money a direct part of EverQuest II rather than an illicit activity.

The report could finally put hard data to the growing real-dollar market for virtual goods such as weapons, armor and currency in Ultima Online, World of Warcraft and City of Heroes.

Most game makers ban the sale of their games' assets for real money. As a result, the so-called real-money trade of those goods has mostly been limited to third-party sites like eBay and Internet Gaming Entertainment. Those sites don't share their data, making it difficult to put a hard figure on the size of this secondary market, which some believe could be as big as $1 billion annually.

"We've never had reliable data on this phenomenon at all," said Edward Castronova, a leading expert on the economies of online games and a professor of telecommunications at Indiana University.

Sony Online Entertainment's study is the first big step toward ending the mystery. Equally important, Sony execs said the admittedly limited experiment showed that a game publisher's exchange can make real money at little expense to the company while reducing customer complaints.

During the last year, Station Exchange ran on two of more than 30 EverQuest II servers, allowing players to conduct so-called game asset transactions for real money. Sony Online earned $274,083 from its listing fees and commissions on the 51,680 transactions conducted in the first year. While that's hardly a fortune, it cost Sony Online almost nothing to run the service.

Also among the study's highlights was a finding that bringing real-money trading in-house reduced fraud, so the time Sony Online customer service representatives spent handling virtual-goods transaction disputes dropped from 40 percent to 10 percent of the total time spent on calls.

Sony Online execs believe the experiment's results validate their exchange-friendly take on virtual property.

"I'm a big believer that this whole virtual property thing is a big part of the future of online gaming," said John Smedley, Sony Online's president. "So it's about time to shed some light on the facts, rather than the fiction."

The report also indicated that behavior on the Station Exchange EQ II servers didn't differ materially from that on servers not running the service. That conclusion suggests that players will traffic in the market for virtual goods whether it is sanctioned or not.

"While it is difficult to gather authoritative and accurate data" from third-party real-money trading sites, the report said, "a simple comparison of current prices for basic items shows that sales prices on Station Exchange and third-party auction services are about equal."

To Castronova, the fact that the virtual-goods market appeared to be about the same on and off the Station Exchange servers was a surprise. "This is a little disappointing," said Castronova, who has traditionally opposed such trading because it goes against the rules of most games. "I was hoping that the other servers would have less (of the trading). But that didn't happen at all."

Nonetheless, some game designers believe the study encourages other companies to bring exchanges in-house.

"It is always nice to have hard numbers," said Patricia Pizer, a longtime designer of online games. "I'm very happy, as a designer, to see a company making an effort to get rid of the third-party issue."

While Station Exchange was never meant to be about providing players with a way to earn a living, the report did say that the top Station Exchange seller for the service's first year made a total of $37,435 on 351 transactions, while another seller also topped $37,000.

Still, in the wake of reports that Second Life land baroness Anshe Chung had become perhaps the first virtual world millionaire, $37,000 doesn't seem like much.

That point is amplified by author Julian Dibbell's personal story, which he wrote about in the book, Play Money: Or How I Quit My Day Job and Made Millions Trading Virtual Loot. Dibbell had become a major seller of Ultima Online goods and attempted to prove he could make more money selling those goods than he did as a professional journalist. While he made a substantial amount of money, his book suggested it was a constant and not hugely lucrative struggle.

Castronova said the top Station Exchange sellers' income and Dibbell's experience showed that selling virtual goods doesn't necessarily look like the road to riches, particularly because many virtual goods sellers live in low-wage countries like China.

"I think Julian's story and these data are a very helpful corrective to the hype around, 'You can go into Second Life and make billions of dollars,'" Castronova said. "You're competing with very low-wage workers."

Nonetheless, Dibbell is more optimistic. If you can do this "full time...you'll quickly ramp up to a pretty decent living," he said. "In the end, I was on my way to a $60,000 (annual) salary."

The study reported that, for the most part, sellers were men in their 20s and buyers were men in their 30s. It also said two of the most active ZIP codes in the country were in small Pennsylvania towns, most likely because a few heavy sellers live there.

But Dibbell wanted more information on who the buyers were and where they lived.

"Another myth waiting to be broken down (about real-money trading) is that the people who buy this stuff are well-off dentists," Dibbell said. "My experience as a seller was I had a lot of working-class buyers."

Still, he was glad to see some myths around real-money trading deflated.

"The main one being that it's going to ruin the game if you institutionalize it," Dibbell said. "Well, obviously, that's not reflected in this report."