Journal of Virtual Worlds Research - V2N4: Economies, Goods & Service Delivery in VWs by Jeremiah Spence

Journal of Virtual Worlds Research Volume 2, Number 4 February 2010 “Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds” ISSN: 1941-8477 Table of Contents • An Exploration of Entrepreneurship in Massively Multiplayer Online RolePlaying Games: Second Life® and Entropia Universe® o Stéphane Kieger, France • Topping from the Viewfinder: The Visual Language of Virtual BDSM Photographs in Second Life o Shaowen Bardzell, School of Informatics and Computing, Indiana University, USA • Why Virtual-World Economies Matter o Mandy Salomon, Smart Services CRC, Australia o Serge Soudoplatoff, ESCP-EAP / Hetic, France • Rethinking Virtual Commodification, or The Virtual Kitchen Sink o Lori Landay, Berklee College of Music • On Money and Magic o Edward Castronova, Indiana University • China’s New Gold Farm o Anthony Gilmore, Nameless Films, LLC • Virtual Goods: Good for Business? o Nic Mitham, Kzero • "We Will Always Be One Step Ahead of Them" A Case Study on the Economy of Cheating in MMORPGs

o Stefano De Paoli and Aphra Kerr, Department of Sociology and NIRSA, National University of Ireland Maynooth • Born Virtuals and Avapreneurship: A case study of achieving successful outcomes in Peace Train –a Second Life organization o Robin Teigland, Stockholm School of Economics • Virtual Commerce (V-Commerce) in Second Life: The Roles of Physical Presence and Brand-Self Connection o Seung-A Annie Jin and Justin Bolebruch, Boston College • Understanding "Gold Farming" and Real-Money Trading as the Intersection of Real and Virtual Economies o Richard Heeks, University of Manchester, UK • World of Warcraft: The Viability of Massively Multiplayer Online RolePlaying -- Games as Platforms for Modeling and Evaluating Perfect Competition o Eli Kosminsky, Massachusetts Institute of Technology • Currencies and Capitalisms on the Internet o Minna Ruckenstein, University of Helsinki • Licensing Considerations for OpenSim-Based Virtual Worlds o Shenlei E. Winkler, Fashion Research Institute, USA • Teens and Virtual Goods: The Fun, Useful and Affordable Luxuries that are Driving the Virtual Economy o Maura Welch, WeeWorld

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

An Exploration of Entrepreneurship in Massively Multiplayer Online RolePlaying Games: Second Life® and Entropia Universe® By Stéphane Kieger, France

Abstract Virtual worlds represent a new market with a distinct economy and many individuals are trying to exploit this very new technology in the search of profitable opportunities. The current paper proposes to study entrepreneurship in the Massively Multiplayer Online Role-Playing Games (MMORPG) Second Life® and Entropia Universe® in which monetary trades are possible. A survey was proposed to the community of players of both games, and from a sample of 244 players, nineteen entrepreneurs were contacted for a second survey. The traits of the entrepreneurs were compared to those of the players and entrepreneurship was observed in Second Life® and Entropia Universe®. In fact, all the necessary conditions are present for entrepreneurship: a new technology giving new sources of revenues, an entrepreneur willing to invest money in order to increase his wealth, and a market with an economy well understood. The different entrepreneurs have developed successful ventures in several markets, and they had well defined the strategy they wanted to adopt. They have examined the different markets in which they have entered although they did not use all the tools known in the marketing fields. Further, some steps in the process of creation of the venture may not be important and some may be done relatively swiftly, thus the venture creation in MMORPG may be relatively easy. In conclusion, the venture creation may be relatively undemanding in virtual worlds, and this opens new possibilities for the future. Keywords: entrepreneurship; opportunity recognition; Second Life®; Entropia Universe®; MMORPG. This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

An Exploration of Entrepreneurship in Massively Multiplayer Online RolePlaying Games: Second Life® and Entropia Universe® By Stéphane Kieger, France

“Cyberspace consists of transactions, relationships, and thought itself, arrayed like a standing wave in the web of our communications. Ours is a world that is both everywhere and nowhere, but it is not where bodies live.” Barlow (1996) On May 1st, 2006 the Business week coversheet read “Virtual World, Real Money, a journey into a place in cyberspace where thousands of people have imaginary lives, some even make a good living” (Hof, 2006). At the same time an avatar named Anshe Chung became the first millionaire in dollars in Second Life® (Graef, 2006), a virtual world linking together millions of players crosswise earth without any geographic constraints (Messinger et al., 2009). That was the beginning of an increasing interest for virtual worlds where people could make money, bank money that can fund a real car, a real house, and even a real living. Because virtual worlds seem to be a market where people can make real money, several of them like avatar Anshe Chung have started to exploit this very new technology in the search of profitable opportunities. Can this been related to entrepreneurship, someone who innovates and can hopefully alter in a positive way the economy (Schumpeter, 1950)? The European commission (Commission of the European Communities, 2003) highlighted that entrepreneurship is important as it contributes to job creation, growth and competitiveness, and it unlocks personal potential. Therefore as entrepreneurship is important, what can be entrepreneurship in virtual worlds? The present paper proposes to study entrepreneurship of individuals in the Massively Multiplayer Online Role-Playing Games (MMORPG) Second Life® and Entropia Universe® platforms and to assess if entrepreneurship in those two games exists with the help of Park’s model which links entrepreneurs, knowledge and experience, and technology. Furthermore, for those two MMORPG platforms, the possible key attributes of growth are investigated (Barringer’s model) and the venture creation process evaluated. The first section of the paper presents a short literature review done on the most recent findings on virtual worlds Second Life® and Entropia Universe®, on entrepreneurship, and on the overlap of both domains. Three questions are formulated: 1) Does entrepreneurship exist in MMORPG? 2) What are the key attributes of growth in MMORPG? 3) What are the steps for the venture creation process in MMORPG? Those questions will be the central points of the present paper and two surveys presented in the second section were applied to investigate those points. Finally, a discussion of the main results in the third section will assess if entrepreneurship and MMORPG can found a common ground by giving highlights to the three questions with the help of the findings of the literature review. 4

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Massively Multiplayer Online Role-Playing Game: Second Life® and Entropia Universe® What would be a world like the one described by Barlow (Barlow, 1996): a 3D virtual world where people could interact with objects and others, buy and sell products, and have a community sharing the same values and norms. This world would not be linked to the real world except the servers that contain all the data necessary for maintaining the virtual world vivid. An overview of the precursors of MMORPG and taxonomy of the most recent games are found in “Virtual Worlds – Past, Present, and Future: New Directions in Social Computing” (Messinger et al., 2009). By June 2008 approximately 16M of active subscriptions were counted for the different virtual worlds and the trend is rather exponential (Woodcock, 2009). Further, Gartner® (2007) predicts that 80% of the active Internet users of the developed countries will have an avatar in virtual worlds by end 2011. In that context, a new type of MMORPG emerged in 2003 in the virtual world game market, the so-called free Second Life® and Entropia Universe® games. Second Life® was created in 2000 by Linden Lab® located in San Francisco in the United States of America (Second life®, 2009a), and launched in 2003 for the public (Ondrejka, 2007). The company turnover is rumored to be in the range $70-$100 M (New Media Age, 2007) and even if Second Life® seems free, Linden Lab® takes its revenues from the sale of islands and fees for the more advanced game features. The game gives the ability to players to create their own objects, on which they retain rights (Ondrejka, 2007), and to trade them for money with other players. The players can also buy and sell land on which they can construct buildings for home or business purposes. Second Life® has its own unit-of-trade, the Linden Dollar (L$) which is more or less pegged to the US dollar and can be converted. A majority of the players, 80%, are pure consumers for which only 30% are selling products and services (Market Truths, 2007). It is the players who create and shape the world, and in June 2009 Second life® had 741,945 active players with $50 M of transactions per month (Second life®, 2009b). More information concerning Second life® is found in “The Virtual Brand Footprint: The Marketing Opportunity in Second life®” (Diversified media design and market truths limited, 2007). There is not a day without a press article regarding Second Life® and several companies have already invested in the game to have a presence (Messinger et al., 2009). Indeed, firms will need to adapt to new technologies allowing people to interact with virtual games. Why? Because people will soon replicate their buying practices from real world to virtual worlds (Hemp, 2006). Further, virtual games offer the opportunities for companies to increase customer loyalty, gain operational efficiencies and achieve product success and time-to-market (Booz Allen Hamilton, 2007). Not only firms are investing in Second Life®, individuals are also interested to put their footprint on the ground of this game and are using avatars to develop ventures. Bovington, the CEO of Rivers Run Red, a UK based virtual world developer that works with Linden Lab® published that 37,000 individuals are earning between $100 and $5,000 per month in Second Life® (Robinson, 2007). Entropia Universe® was launched in 2003 by Mindark® located in Gothenburg in Sweden (Mindark®, 2009). The company 2008 net profit was of approximately 880 k€ and takes its revenues from the sale of land and from the different fees which are applied in the game. This game is similar to Second Life®, a downloadable program linking several players with a cash economy based on the local currency PED, which is pegged to the US dollar. The main purpose of the game is to develop the avatar by looking better, stronger, and getting richer thus climbing in the hierarchy. It is also possible to buy land and create objects which are pre-defined by 5

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Mindark®, but there is no ownership for the creator. By end 2006, 575,000 unique registered players were counted and the transactions counted for $11 M per year (Mindark®, 2007). For Entropia Universe®, even if it is less popular in the press than Second Life®, some individuals have bought lands for more than a penny to create a new venture in that virtual world: an Australian player has paid $26,500 for an island in 2004 (The Economist, 2005), and an American film-maker spent $100,000 in 2006 to buy an asteroid which mimics a spaceship (Gapper, 2006). Both Second Life® and Entropia Universe® can be considered successful virtual games in view of the observations made by Mayer-Schönberger and Crowley (2006) who concluded from the review of virtual games that four criteria are necessary for success: persistence (players can return to a shared virtual space after a time of offline), teleology (players can pursuit and complete concrete tasks), malleability (players have the ability to modify the world), and verisimilitude (players are in an immersive experience sufficiently resembling the reality). Song and Lee (2007) found similar criteria by examining what the players are valuing. In terms of business model, MacInnes and Hu (2007) identified four successive stages in the development of new Internet technologies: first the technical stage (stability of the game, fewer bugs, experienced developers), second the environmental stage (control, low piracy, ownership for creators), third the revenue stage (marketing differentiation), and fourth the sustaining stage (all the factors already mentioned). Second Life® and Entropia Universe® are currently in the fourth stage: the games are relatively stable with fewer bugs and several updates per years are made to increase stability and improve the game, the ownership and control problem are resolved, and both games are differentiated from the others with specific values for the customers and they are now seeking for new markets. Concerning MMORPG players some studies have examined the motivation of players for such games. For a sample of approximately 3,000 individuals playing the most popular MMORPG World of Warcraft, Yee (2007) found three categories with ten motivations: achievement (gaining power, understanding how, competing against the others), social (interest in helping and chatting, long-term relationship, being part of a group) and immersion (knowing more than the others, creating an avatar and a story, customizing its avatar appearance, avoiding thinking about real life problems). Beak et al. (2004) and Beak (2005) have examined for a sample of 179 players their preferences on four attributes: the interaction of the human and the computer, the interaction between the humans, the degree of freedom in the game and the mobility. They found that the human-human interaction counted for approximately 50%, followed by the human-computer interaction for 22%. Those findings supports that a high proportion of players are looking for social interactions in MMORPG and it confirms the social category found by Yee. Whang (2003) observed also that the players are considering virtual worlds as a part of their daily life.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Entrepreneurship and Massively Multiplayer Online Role-Playing Game Entrepreneurship is a broad subject which has been studies for more than 200 years with the first evidence of the word entrepreneurship in writings of Richard Cantillon in 1755 (Bull & Willard, 1993). This definition was refined by Bygrave and Hofer (1991) arguing that not only an entrepreneur innovates, but also exploit opportunities that were not seen by others. As a consequence, the opportunity recognition theory has subsequently emerged as a new field largely studied, and Shane and Verkatarama (2000) grouped the concerns of the scholars in the entrepreneurship field in three sets of research: • Why, when, and how opportunities for the creation of goods and services appears, • Why, when, and how some people and not others discover and exploit these opportunities, • Why, when, and how different modes of action are used to exploit entrepreneurial opportunities. In the present paper, the opportunity recognition definition was adopted as the definition of entrepreneurship. The terms “opportunity recognition” and “innovation” refer to the same, and the first and third set of research were examined, targeting specifically individuals and not firms entering the virtual worlds. Drucker (1993) categorized opportunity recognitions in three categories: the creation of new information with the invention of new technologies; the exploitation of market inefficiencies gaps; and the cost reduction or better use of the resources due to political, regulatory, or demographic changes. However, scholars covered only two themes, the search of market gaps by understanding the markets and the customers, and the need for products to evolve with the market (Sarason et al., 2006). Even thought, Park (2005) specifically focused his search in new technologies by choosing high-technology start-up firms, and has done a review of the contemporary literature on opportunity recognition, thus entrepreneurship. Even if the opportunity recognition literature has gaps in the theory, Park proposes a conceptual model of the recognition process in hightechnology firms which is derived from the discovery that knowledge and experience are pivots for the success, Figure 1. In fact, these observations are linking the traits of the entrepreneur, the technology used, and the knowledge of the market/technology and experience, and are contributing together to the opportunity recognition. But it is not clear if knowledge (Silva, 2007) and experience (Bull & Willard, 1995) may help or not to recognize innovations. Nevertheless, this model was used in the present paper to study if entrepreneurship occurs in Second Life® and Entropia Universe®. Major sources of information were found for the study of entrepreneurship in virtual worlds: an article from Papagiannidis et al. (2007) on “Making Real Money in Virtual World: MMORPGs and Emerging Business Opportunities, Challenges and Ethical Implications in Metaverses,” an article from Ondrejka (2007) on “Collapsing Geography: Second Life®, Innovation and the Future of National Power,” an article from Bloomfield (2007) on “Worlds for Study: Invitation - Virtual Worlds for Studying Real-World Business (and Law, and Politics, and Sociology, and....),” an article from Castronova (2002) on “Virtual Economies,” and a book from Castronova (2005) on Synthetic Worlds: The Business and Culture of Online Games.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

INNOVATION

Knowledge and experience

Entrepreneur

Technology

Figure 1 The conceptual model of the opportunity recognition process for new technologies: the contributions and interactions (Park, 2005).

For virtual worlds like Second Life®, Papagiannidis et al. article stresses the business opportunities and challenges. The authors focus on the transactional aspects of the game and explain that doing transactions in a virtual world extend the range and scale of economic activities: there were the real transactions (currency exchange in real life), the electronic transactions (Internet transactions like PayPal®), and now the metaverse transactions (transactions in a virtual world). Another subject of the article concerns the virtual entrepreneurs and the authors conclude that the virtual worlds may create lucrative opportunities for individuals. Ondrejka’s article underlines how Second Life® bypasses the traditional geographic constraints and helps innovation. The author brings four positive effects of Second Life® on those aspects: as a platform it allows distant people to leverage real-world metaphors and habits to improve collaboration, it lowers the costs of learning which is critical for innovation, it changes innovation everywhere in the world, and it changes the alignment of labor markets and the structure of firms. The author concludes that where innovation exists, entrepreneurship will flourish. Moreover since the platform have game features, the entrepreneurs describe their activities no more as work but as fun. Bloomfield’s article stresses that virtual worlds like Second Life® or World of Warcraft® may be interesting platforms for the research of businesses and entrepreneurship because those worlds have real economies, support business reporting, enhance interaction and innovation, and provide a universal platform. Castronova’s article underlines that if virtual worlds do become a large part of the daily life of people then the development of those worlds will have an impact on the macroeconomics of real life Earth. This is only possible if the GDP of those virtual worlds grows as the businesses inside those worlds become profitable. Thus, the performance of the virtual businesses is of importance.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Castronova’s book, which is to be considered as a reference for those who want to understand broad aspects of business and culture in MMORPG, suggests that seven dimensions should be present in a MMORPG where entrepreneurship can flourish: 1) an active economy achieved with gains from trade and presence of consumable goods, 2) a publicized and well located economic activity via easy transportations, distributed resources over the virtual world and open communication, 3) the generation of earnings and investments with production functions, 4) the generation of value with the presence of seller and buyers, 5) the control of the per capita capital stock and value of the currency, 6) a social mobility based on risks and progressive taxations, 7) the recovery from breakdowns. Second Life® and Entropia Universe® offer those dimensions and the reward of virtual worlds for players can be summarized to the unique equation which is also effective in our real world: “Total Compensation = Wage + Fun.” Both, Second Life® and Entropia Universe® proposes monetary trades with specific currencies pegged to the US dollar (Papagiannidis et al., 2007) and the players can buy and sell objects, services, lands, and also have social interaction. Currently, Second Life® and Entropia Universe® have overcome technical, environmental, and revenue problems illustrated by MacInnes and Hu (2007), have the ground of an economy as highlighted by Bloomfield (2007) and Castronova (2002 and 2005) and can be considered as stable platforms where individuals can create a venture. Moreover, Papagiannidis et al. (2007) and Ondrejka (2007) clearly concluded that opportunities seem to exist in those two worlds. Adopting opportunity recognition (Shane & Verkatarama, 2000) as the definition of entrepreneurship in the present paper in accordance with the conceptual model of opportunity recognition process (Park, 2005), the first question concerns entrepreneurship in Second Life® and Entropia Universe®: Question: Does entrepreneurship exist in MMORPG? The performance of ventures can be measure by very different factors, and actions undertaken by the entrepreneurs to improve performance on one dimension may depress performance on other dimensions. Murphy et al. (1996) looked for several dimensions of performance in the entrepreneurial literature and found that the most commonly used dimensions are efficiency, growth, profit and size of the liquidity. All those dimensions are related to financial criteria, for example returns on investment for efficiency. Barringer et al. (2005) conducted a literature review by examining 106 publications addressing firm performances. By comparing 50 rapid-growing firms to 50 slow-growth firms the authors could find the most predominant key attributes of growth grouped in four categories: the entrepreneur’s characteristics, the organization attributes, the business practices, and the human resource management (HRM) practices, Figure 2. Other dimensions of performance were found in the literature for example the success rate or failure rate and several factors may explain those rates in different markets. In fact it is necessary to follow several of the dimensions in order to evaluate correctly the performance of the firms.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Entrepreneur College education Entrepreneurial story Prior industry experience

Organization Commitment to growth Growth-oriented mission Participation in IRS

Business practices Rapid Growth

Add unique value Customer knowledge

HRM practices Training Employee development Financial incentives Stock options

Figure 2 Key attributes that differentiate rapid-growth firms from slow-growth firms (Barringer et al., 2005).

Bloomfield (2007) and Castronova (2002 and 2005) underlined that virtual worlds have an economy. Where an economy exists there are businesses, and when the businesses are performing well the GDPs where those businesses exist will increase and be competitive compared to other GDPs. The second question is related to the performances of those businesses which already exist in Second Life® and Entropia Universe®: the key attributes that can contribute to growth as summarized by the work of Barringer et al. (2005). Thus, a second question is formulated: Question: What are the key attributes of growth in MMORPG? The formation of new ventures would seem straightforward and might certainly follow a unique linear sequence. It is not the case as Davidsson (2005) pointed out by reviewing the literature: on one hand, Vesper (1998) and Delmar and Shane (2003) suggest a specific sequence for establishing a new venture, and on the other hand Carter et al. (1996) and Gruber (2007) suggest a completely different sequence. The venture creation seems not very clear in view of that literature. However, Davidsson (2005) concluded that the sequence is not so relevant as soon as the following steps are present: the formation and screening of the ideas, the protection of the ideas, the planning and business plan, the legal form of the firm, the search for the facilities and the financing and starting of the operations. Terdiman’s book The Entrepreneur’s Guide to Second Life®: Making Money in the Metaverse gives all the necessary tools for creating a new venture in Second Life® in different fields: fashion stores, land businesses, nightclubs, newspapers, and other activities. Unexpectedly, for each field the author explains that starting a venture in Second Life® does not need large amount of funds and the business plan can be summarized in thee steps: creation of products and services, finding the best location in the game and selling.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Terdiman clearly shows that the creation of venture in virtual worlds is relatively simple. There seems to be relatively few steps, even if the sequence of the steps for a new venture seems not clear in view of the literature (Davidsson, 2005). The third question proposes to define the venture creation process for businesses in the virtual world. Question: What are the steps for the venture creation process in MMORPG? Methodology and surveys Different techniques can be used to study entrepreneurship. The main technique consists to submit a survey to entrepreneurs, and the results are then analyzed in the search of averages, deviations, and other well-known statistical results (Gardner & Birley, 2002). This technique is a quantitative analysis, and it has proven to be effective, thus institutionalized and accepted as a standard in the academic research of entrepreneurship. However, the data are self-reported and these may not be reliable. Nevertheless, the present paper has adopted this technique for the study of entrepreneurship in Second Life® and Entropia Universe®. A first survey was available online on the web on 03/01/07 for a period of two months to players of Second Life® and Entropia Universe®. The survey is presented in Appendix A with the text of calls for participation, and it was promoted via the forums of both MMORPG and an advertisement campaign was also made for the Entropia Universe® community in the game. They were no mandatory questions, the participants could eventually submit void responses which were also counted, and they had to go to the end of the survey (save button) in order for the responses to be taken into consideration. This first survey was conducted in order to find potential entrepreneurs and to confirm the traits of the players compared to statistics given by Linden Lab® and by Noble and Ortiz (2007), Table 1. 141 players of Second Life® (SL population) and 103 players of Entropia Universe® (EU population) have filled the survey, and ten players have indicated that they were playing both games. All the filled questionnaires were taken into account and the sum of Second Life® and Entropia Universe® players gives a total population for the first survey of 244 individuals without any restrictions. A central question “Do you consider yourself as an entrepreneur in Second Life® or Entropia Universe®?” without any definition of the word entrepreneur was in the fist survey and when answered “yes” used to contact potential individuals for a second survey presented in Appendix B with the text of calls for participation. They were no mandatory questions, the participants could eventually submit void responses which were also counted, and they had to go to the end of the survey (save button) in order for the responses to be taken into consideration. This second survey was distinctively elaborated for entrepreneurs and submitted online on the web on 06/01/07 for a period of two months. Based on the approach of Gartner (1985) entrepreneurship is a process that can be studied through the interaction of four factors: the individual, the organization, the environment and the process of venture creation. Therefore, the second survey was articulated in eight sections: real life information, gaming experience, entrepreneurs businesses, Second Life® and Entropia Universe® platforms, marketing, finance, business protections and strategy.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

From all the potential entrepreneurs which were contacted to fill the second survey only 21 have replied to an email invitation and participated to the second survey. From the analysis of the results, two filled questionnaires were not taken into consideration due to poor overall value. From the nineteen entrepreneurs left (Entrepreneurs population), four are using the platform of Entropia Universe® and fifteen the platform of Second Life® for their ventures, Table 2 (the names of the ventures are not disclosed for privacy and confidentiality purposes). The nineteen entrepreneurs have developed ventures in different markets. Table 1 Traits of the individuals having participated to the first and second survey SL

SL stats Second Life®

SL survey stats Noble and Ortiz

Entrepreneurs

Gender Male Female Empty responses

54.6% 42.6% 2.8%

57.9% 42.1% -

60.3% 39.7% -

89.3% 5.8% 4.9%

68.4% 31.6% 0.0%

Age group 18 under 19-25 26-35 36-45 45-55 56-65 65 or older Empty responses

0.0% 0.9% 21.3% 40.4% 20.6% 3.6% 0.0% 4.3%

0.9% 26.7% 37.5% 21.9% 12.4% 0.0% 0.0% 0.5%

1.1% 17.5% 30.7% 28.3% 16.7% 5.3% 0.3% 0.0%

13.6% 28.2% 35.0% 13.6% 2.9% 0.0% 1.0% 5.8%

0.0% 21.1% 31.6% 31.6% 15.8% 0.0% 0.0% 0.0%

Marital status Single Married Divorced Empty responses

39.0% 43.3% 14.2% 3.6%

68.0% 23.3% 1.9% 6.8%

47.4% 42.1% 0.0% 10.5%

Region North America South America Asia Europe Africa Oceania Middle East Other

65.2% 0.7% 0.0% 27.0% 0.0% 2.8% 0.7% 3.6%

29.7% 10.5% 0.9% 39.3% 10.6% 9.0%

43.4% 0.0% 0.0% 40.7% 3.7% 12.1%

16.5% 0.0% 4.9% 69.0% 0.0% 3.9% 1.0% 4.9%

63.2% 0.0% 0.0% 26.3% 0.0% 10.5% 0.0% 0.0%

Educational level School (up to 11 years) School (up to 16 years) College (17-19 years) Undergraduate Postgraduate No formal education Empty responses

0.0% 1.4% 32.6% 29.1% 32.6% 1.4% 2.8%

0.0% 9.7% 37.9% 17.5% 30.1% 0.0% 4.9%

5.3% 5.3% 15.8% 42.1% 26.3% 0.0% 5.3%

19.9% 48.6% 31.5% -

Column SL: statistics for SL players from first survey; column SL stats: statistics given by Linden Lab® (Second Life®, 2007); column SL survey stats: statistics given by Noble and Ortiz (2007); Column EU: statistics for EU players from first survey; Column Entrepreneurs: statistics for entrepreneurs from second survey.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Table 1

(continued)

SL stats

SL survey stats

Entrepreneurs

Type of employee Full Time Part Time Contractor Temporary Empty responses

58.2% 12.8% 14.2% 4.3% 10.6%

52.4% 14.6% 6.8% 12.6% 13.6%

94.7% 0.0% 0.0% 0.0% 5.3%

Salary range Less than $30,000 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $59,999 $60,000 to $74,999 $75,000 to $99,999 $100,000 or more Empty responses

20.6% 9.2% 14.9% 7.8% 6.4% 10.6% 14.2% 16.3%

31.3%

8.7% 13.2% 0%

39.8% 13.6% 11.7% 8.7% 4.9% 3.9% 4.9% 12.6%

36.9% 5.3% 15.8% 0.0% 5.3% 5.3% 21.1% 10.5%

1.0% 6.8% 4.9% 9.7% 100.0% 8.7%

15.8% 10.5% 5.3% 84.2% 31.6% 10.5%

Proportion of playing time you devote to MMORPG 10.0% 1.4% 20.0% 6.4% 30.0% 2.8% 40.0% 4.3% 50.0% 7.8% 60.0% 6.4% 70.0% 9.2% 80.0% 19.2% 90.0% 27.0% 100.0% 14.2% Empty responses 1.4% -

2.9% 4.9% 2.9% 5.8% 5.8% 6.8% 10.7% 20.4% 33.0% 6.8% 0.0%

0.0% 5.3% 5.3% 5.3% 10.5% 5.3% 0.0% 15.8% 47.4% 5.3% 0.0%

How often do you play per week Less than 1 hour 1 to 5 hours 6 to 10 hours 11 to 20 hours 21 to 40 hours 41 to 60 hours Over 60 hours Empty responses

1.0% 5.8% 22.3% 21.4% 34.9% 8.7% 5.8% 0.0%

0.0% 0.0% 5.3% 26.3% 36.8% 21.1% 10.5% 0.0%

Which of those MMORPG do you play mostly EverQuest 2.1% World of Warcraft 6.4% Eve Online 2.1% Second Life 100.0% Entropia Universe 7.1% Other 6.4%

0.7% 2.8% 10.6% 28.4% 39.7% 9.9% 6.4% 1.4%

27.8% 14.9%

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Table 2 Characteristics of the ventures started by the nineteen entrepreneurs. Id. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Platform EU EU EU EU SL SL SL SL SL SL SL SL SL SL SL SL SL SL SL

Purpose of the venture Clothing Store Leisure Land management Land management Land management Newspaper Renting management Land management Clothing Store Banking Banking Jewelers Store Clothing Store Clothing Store Banking, Stock Exchange Adult entertainment Accounting services Land management Project Management

Market New New New Existed New New New Existed Existed Existed Existed New Existed Existed New Existed New Existed New

Date of start 01/09/2003 12/12/2004 19/12/2005 01/04/2005 09/08/2005 01/10/2005 11/11/2005 01/06/2006 01/10/2006 01/10/2006 01/01/2007 11/01/2007 12/01/2007 02/02/2007 01/03/2007 01/05/2007 01/07/2007 -

Id. is the venture identification that will be used in other tables.

Results and Discussion

Traits of the players and entrepreneurs Table 1 shows the characteristics of the players from Second Life® and Entropia Universe® having participated to the first survey and the characteristics of the entrepreneurs having participated to the second survey. Those results are compared to the official statistics of Linden Lab®, column SL stats, statistics which are compiled from the players who have registered their personal attributes, and to statistics of a survey which was conducted by Noble and Ortiz (2007), column SL survey stats, who had a large sample of 657 players from Second Life®.

Gender Online games, and especially RPG games, are known to be played mainly by male (Griffiths et al., 2004), and that is seen for the column EU (89.3%). However, for the column SL, women are more present in the game. This result is confirmed by the columns SL stats and SL survey stats. This major difference can be explained by the nature of the game: Second Life® is a game which gives the opportunity to individuals to create and sell product, which is completely different from Entropia Universe® where the major occupation of the players is to kill dangerous creatures in order to loot prizes, even if the possibility to create and sell products is also available. For the entrepreneurs, about one third is represented by women, column Entrepreneurs. 14

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Age group The populations of columns SL stats, SL survey stats and Entrepreneurs are comparable and indicate that the players are in the age group 19 to 45 years old with a maximum of players having between 26 and 35 years old. Those results differ from the column SL of the present paper for which the population is older. An explanation for this difference can be proposed: the search for players was done via the forum of Second Life® which is maybe less visited by younger players who prefer to play rather than post text in forums. For the column EU, the players are younger than in Second Life®, and this is certainly again due to the primary occupation of Entropia Universe® players: killing the creatures. Marital status Entropia Universe® players are single as a majority. Because the Second Life® players are older, there is also a greater part of married individuals. For the entrepreneurs, the sample is homogeneous. Region As for the age groups, a difference is seen between the column SL and the columns SL stats and SL survey stats. Again, because the search was done via the forum of Second Life® which is an American forum, the chance to catch more players from the US is higher. This is also reflected in the column Entrepreneurs, where a majority of the entrepreneurs are from the US. Therefore any conclusions about the provenance of the entrepreneurs should be taken with great care. For the column EU, a majority of European citizens have responded to the first survey, because this game was first marketed in Europe (Mindark, 2007). Both games are not very popular in Asia, because they have only recently entered the Chinese market (Mindark, 2007). Educational level The educational level indicates that the EU and SL populations are very similar, although there are a higher proportion of individuals still in school for column EU. For the entrepreneurs, they have also different backgrounds. Type of Employee As for the educational levels, the type of employee is very similar between columns SL and EU, with the same distinction for the younger population in column EU. For the entrepreneurs, it is interesting to see that they are mainly full time employees (94.7%). Some of the entrepreneurs are full-time employees in real-life companies and spend time in Second Life® and Entropia Universe® for their own virtual business during their leisure time, and other entrepreneurs are completely devoted to their virtual business and have no real-life jobs. Salary range The salary range are not very different from what can be expected from the populations (column EU has 39.8% individuals with less then $30,000 because the population is younger), although the entrepreneurs are at both extremes: 36.9% are earning less than $30,000 and 21.1% more than $100,000. No reason was found that could explain that observation.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Only MMORPG? Both the Second Life® and Entropia Universe® players are playing other MMORPG games, and for more than half they play non-MMORPG games, like arcade, simulation, adventure games. The entrepreneurs show the same pattern. Time spent for MMORPG The proportion of time devoted to MMORPG and the overall playing time is important: a majority of players are devoting between 21 and 40 hours to computer games, and are spending more than 80 % for those games. Entrepreneurs are even giving more of their time to MMORPG: 50% of the entrepreneurs are devoting at least 90% of their computer playing time (it may take into account the time spent to write emails to customers, to create the advertisements, to update a website, and other activities related to a business).

Does entrepreneurship exist in MMORPG?

A new venture begins with opportunity recognition (Shane & Verkatarama, 2000) and three sources of opportunity can be exploited as described by Drucker (1993). The present paper will mainly focus on the creation of ventures with the invention of new technologies like Second Life® and Entropia Universe® MMORPG platforms and assess if entrepreneurship in those two games exists with the help of Park’s model which links the entrepreneurs, their knowledge and experience and the technology. The entrepreneurs The entrepreneurs are the starting point of entrepreneurship and it would be rather difficult to start a new venture without someone initiating it. The Second Life® and Entropia Universe® players were asked if they consider themselves as entrepreneurs, Table 3. For Second Life® the proportion of players considering themselves as entrepreneurs or not is approximately the same, in the range 40-45%. For Entropia Universe® only 16.5% are considering themselves as entrepreneurs and the difference with the Second Life® population can be explained by the lower possibilities offered in Entropia Universe® for entrepreneurship: only predefined objects can be manufactured, limited land ownership and absence of enhanced features (programming language proposed). The profile of the entrepreneurs is not really different from the profile of the players not having started a venture: the distribution of responses of the entrepreneurs is comparable in terms of age, educational level, salary range, involvement and time spent in the game to the distribution of responses of either the players of Second Life® or Entropia Universe®. Further on those traits the five columns (SL, SL stats, SL survey stats, EU and Entrepreneurs) give mainly the same results. Overall it means that entrepreneurs in Second Life® and Entropia Universe® are before launching a venture, players of those games.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Table 3 Do the players of Second Life® and Entropia Universe® consider themselves as entrepreneurs? Yes No Do not know Empty responses

SL 44.6% 42.5% 12.0% 0.7%

EU 16.5% 64.0% 19.4% 0.0%

The results were obtained from the first survey for the SL and EU populations.

But, two major differences are seen for the population of the entrepreneurs: 94.7% are full time and 47.4% devote 90% of their playing time to the game. Two hypotheses can be formulated: the entrepreneurs have a full time job and at the same time have launched a venture in the game, or they are full time in the game for the venture. In both situations the entrepreneurs are spending a lot of time for their ventures. Young (1996) observed that addict players can play around 28 hours for games, and both the player and the entrepreneur are addict, one to the game and the other to his venture. The population of Entropia Universe® players is mainly composed of men, thus the proportion of entrepreneurs being a man for that game is high. For Second Life® the population is more homogeneous, 48.6% are men, and 47.6% are women. That is reflected in the population of the Second Life® entrepreneurs, nine are men and six are women. Again, those results show that the population of the entrepreneurs represents the population of the players. Nevertheless, that population does not necessarily represent the real life population of entrepreneurs starting a new venture as observed by Brandstätter (1997) who found that a greater proportion of men start businesses in real life. Does it mean that in Second Life® women can more easily start ventures, the question is open? One of the main reasons for the entrepreneurs to be involved in MMORPG is that 84.2% of them are having fun, Table 4. Table 4 Players reasons to play Second Life® and Entropia Universe® for fun for curiosity for creativity to meet people to make money other

SL 88.6% 34.7% 67.3% 59.5% 36.1% 7.8%

EU 95.1% 22.3% 22.3% 47.5% 33.9% 6.8%

Entrepreneurs 84.2% 52.6% 73.6% 68.4% 84.2% 10.5%

Results obtained from the first survey for the SL and EU populations, and from the second survey for the Entrepreneurs population.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

The same is true for the pure players, 88.6% and 95.1% for Second Life® and Entropia Universe® respectively. That is a fundamental trait of the entrepreneurs and the players, which indicate that people involved in MMORPG are fulfilling their needs and they will not leave easily the games. It confirms Castronova’s Total Compensation equation for players and the observations made by Ondrejka on the fun aspect. A good reason to be in the game for the entrepreneurs is to make money (84.2%). That contrasts with the players’ population which is for both games in the range 32-37%. It shows that the entrepreneurs know why they are using the platform, and they can be seen no more as individuals playing a game but as individuals having created a venture and trying to gain money from it. The entrepreneurs were asked if they would sell for a lump sum the business they have created. Only 35% would sell the business meaning that the entrepreneurs are emotionally involved to their businesses. However, this number can change with time as several entrepreneurs highlighted during the interview that when the fun part of the venture will disappear they will sell it. The technology Second Life® and Entropia Universe® exhibit all the necessary factors of a virtual games proposed by Mayer-Schönberger and Crowley (2006): persistence, teleology, malleability, and verisimilitude. Both games are now in the sustaining stage looking for further growth in new markets. The new metaverse transactions system (Papagiannidis et al., 2007) available in those games enhances the teleology and verisimilitude factors, which plays a fundamental role for the achievement of the players and the entrepreneurs in their social virtual life and the immersion factor is even more fulfilled. The social aspects of the game are important for 59.5% of the Second Life® players, for 47.5% of the Entropia Universe® players, and for 68.4% of the entrepreneurs, Table 4. It confirms the observations made by Beak (2005), Beak et al. (2004), and Whang (2005) on social interactions. By chance the Second Life® and Entropia Universe® platforms provide certain tools needed for that socialization: chat systems, group formation, places where people can meet and other features. Before launching their ventures, the different entrepreneurs had a previous knowledge of the platform, as players do. The entrepreneurs and the players know exactly how the platform is working and what are the advantages and disadvantages of it. Thus, the past experience factors, which was studied by Bull and Willard (1995) without a clear conclusion if it has an impact or not, seems relevant in terms of knowing the platform but less in terms of experience in venturing. Different distribution channels for their products and services are offered to the entrepreneurs in both games, but the main channel are stores located in the game, Table 5.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Table 5 The distribution channels and the use of an outside secondary channel. Id. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Distribution Store Website Vendors Store, Website Store Store, Website Store, Website Store Store Store Store, Website Direct Store, Website -

Website Yes Yes Yes No Yes Yes Yes Yes No Yes Yes No No No Yes Other Yes No Other

Id. is the venture identification.

The platforms have the advantages of the Internet shops like Amazon® or eBay®: the customers can have an easy access to the products and services and it is open 24h/7d. Another way to promote and to sell product is to use concomitantly a secondary channel like a website: 58% of the entrepreneurs are using that channel. Thus, some of them have a competitive advantage compared to their main competitors having not a website. By comparing the purpose of the business and the distribution channels, it seems that businesses not dealing with land, rental management and bank services are not using a website. Indeed, the use of the website as a secondary channel seems needed where the product or service is an offer like banking services or renting management needing information to be stored on an external server and retrieved back to customers. On the opposite clothes, jewels and shoes are bought only once. The knowledge and experience A majority of the entrepreneurs have started a business in Second Life® essentially because the product or service did not exist or they needed it for their own purpose, Table 6. This observation may explain the 84.2% of entrepreneurs who did a research in the games of existing products or services. For the entrepreneurs of Entropia Universe® a majority of the opportunities are the results of new features added overtime to the platform by Mindark® for which the potential entrepreneurs have gained access by purchasing it.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Table 6 Research and valuation of opportunities Research about consumers Research in data/published reports Research about existing products/services Risk failure analysis

Yes 52.6% 26.3% 84.2% 26.3%

No 36.8% 63.2% 10.5% 63.2%

Other 10.5% 10.5% 5.3% 10.5%

Results obtained from the second survey for the Entrepreneurs population.

Fortunately, 52.6% of the entrepreneurs have also done a research on customer needs. However, less than one third of the entrepreneurs did a risk analysis of their future venture or looked for other sources of information in order to access the potential of the venture. The strategic questions an entrepreneur should ask himself or herself before launching a business are grouped in Table 7. Table 7 Fundamental questions that should be asked before launching a venture Are my goals well defined? Is my strategy well defined? Is there a market for my product? Do I have the necessary resources?

Yes 79.0% 78.9% 94.7% 94.7%

No 5.3% 10.5% 5.3% 0.0%

Other 15.8% 10.5% 0.0% 5.3%

Results obtained from the second survey for the Entrepreneurs population.

More than 75% of the entrepreneurs have clearly defined the goal, the strategy, and 95% the market and the necessary resources for their new ventures. Those who responded ‘no’ or ‘other’ did it for the 5 questions. However, they did not use all the tools known in the marketing field, Table 8. Table 8 The marketing tools used by the entrepreneurs to analyze the different market

Strategic Choice Approach Soft Systems Methodology SWOT Analysis PEST Analysis Porter's Generic Strategies Porter's Five Forces Model Scenario Planning

Yes 10.5% 15.8% 31.6% 21.1% 10.5% 15.8% 21.1%

Familiar with No Heard about 63.2% 26.3% 73.7% 10.5% 52.6% 15.8% 68.4% 10.5% 73.7% 15.8% 68.4% 15.8% 52.6% 26.3%

Used Yes No 10.5% 89.5% 0.0% 100.0% 26.3% 73.7% 10.5% 89.5% 5.3% 94.7% 10.5% 89.5% 15.8% 84.2%

The various analysis methods are explained by Gondal (2004); results obtained from the second survey for the Entrepreneurs population.

The 94.7% of the entrepreneurs have looked if there was a market (Table 7, third question), but only 26.3% have used the SWOT analysis (strength, weaknesses, opportunities, and threat), 15.8% the scenario planning, 10.5% the Porter’s five forces model, 10.5% the 20

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

strategic choice approach and 10.5% the PEST analysis (political, environmental, societal, and technological). It seems that the entrepreneurs are not well aware of the various marketing tools and techniques, but it did not prevent them to launch their ventures. Concerning competition, the entrepreneurs were very concerned to know if the product or service already exists before the launch of the venture, but less interested after! From the analysis of the entrepreneurs, their knowledge and experience and the technology, the model of Park is adapted to MMORPG entrepreneurship, Figure 3. All the circles are filled, and the overlaps have also strong arguments that help to initiate innovation. In view of that adapted model it appears that opportunity recognition and therefore entrepreneurship exists in MMORPG since all the conditions are present: an entrepreneur willing to invest money in order to increase his wealth, a new technology giving new sources of revenues, and a market which is growing and well understood by the entrepreneurs. New ventures are created in the virtual worlds, and the entrepreneurs have a vision for the venture.

INNOVATION

Entrepreneur

Knowledge and experience

Make money Fun

Addict

New markets

Goals Strategy

80% of the customers are shopping

Entrepreneurs population = players population

Past experience

Growing platform

Technology Persistence Teleology Malleability verisimilitude

Sustaining stage

Venture presence

Website Forums Blogs

Figure 3 Entrepreneurship in MMORPG illustrated with Parkâ&#x20AC;&#x2122;s model.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

What are the key attributes of growth in MMORPG? Having said that entrepreneurship exists in MMORPG, it is now interesting to evaluate if the ventures that were created are performing well according to different dimensions of performance (Murphy et al., 1996). It is impossible to establish for the ventures that were studied in the present paper a failure rate and to compare it to the results observed by other studies of real-world ventures. The main reason is that bankrupted ventures did not participate to the survey, even after being contacted. Also, both games are rather new and there is a probability that only very few ventures were created so far. Nevertheless from the nineteen ventures, seven were created in 2007, three in 2006, five in 2005, one in 2004, one in 2003, and two entrepreneurs did not give the information. The distribution seems to follow the known failure rate curve (Abrams, 2004) with very few ventures still in existence after three years. However it is not possible to give a finite conclusion on that observation and only a further study of the nineteen ventures after 2-3 years could really highlight that point. Table 9 shows the growth of the different ventures expressed as the return of the initial investment over the period of existence. Table 9 Return of the initial investment over the period of existence

losses <x2 x2-x5 x6-x15 x15-x50 >x50 not answered

Number of Ventures 1 3 1 3 4 7

(x2 means multiplied by 2); results obtained from the second survey for the Entrepreneurs population.

Surprisingly seven ventures have multiplied by 15 times and more the initial investment and eleven ventures have doubled it. Compared to real life firms for which the payback is usually achieved in 2 to 5 years for the best firms, virtual life ventures are doing better. Two reasons can be proposed for that: the low initial investment enables the entrepreneurs to have a quick payback, and because it is mainly their own funds which are invested during the launch of their ventures (68%), they might be more concerned about not losing it, Table 10. The environment is of importance as illustrated by Shane (1996) and in both games are very turbulent (VAT taxation, anti-gambling, and age verification introduced lately in Second Life速, new bank system and land sales in Entropia Universe速), even though the ventures are doing well. That means that those ventures have the ability to adapt very quickly to the modifications brought to the game by Mindark速 and Linden Lab速. That is in accordance with the findings of Lin (2006) who observed that in a high environmental uncertainty, new ventures tend to go for rapid behaviors with drastic changes. 22

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Table 10 The funding of the businesses at the start and after the launch Bank loans Government help Friends Family Own money Business angels Venture capital Other

At the start 0.0% 0.0% 0.0% 4.5% 68.2% 0.0% 9.1% 18.2%

After launching 3.8% 0.0% 0.0% 0.0% 53.8% 0.0% 15.4% 26.9%

Results obtained from the second survey for the Entrepreneurs population.

The time spent by the entrepreneurs for the venture, between 21 and 40 hours per week, has certainly an impact on the performances, nevertheless the way they are conducting their businesses as fun ventures is even more central. That was a main conclusion of SchmittRodermund (2004) who discovered that the success of ventures depends by 26% on the satisfaction of the entrepreneurs. Different solutions are taken to start and sustain the growth of businesses; it can be achieved by entering first the market, protecting know-how, brand name and other characteristics which are fundamental for cash revenue and survival. From the nineteen entrepreneurs, 52% are claiming that their businesses were new when they have started, Table 11. That gives an advantage of a being a first mover in the markets and not a follower: the customers are buying only from that venture and it is also known in the community as being the first one. In order to protect their businesses some entrepreneurs did also protection with copyrights, trademarks or other common types of intellectual property. This is true in Second Life® for which Linden Lab® clearly specifies in the Terms of Services (TOS) that the objects and programs created by the players are the intellectual property of their creators. That is important since several lawsuits have been filled recently by players who claim intellectual property on objects which were copied and sold by others in Second Life® (Duranske, 2008). Another way to protect the business is to erect barrier of entries. It can be in terms of programming (a special feature in Second Life®), quality and resources. From the nineteen entrepreneurs nine have erected intentionally by different ways those barriers. In Entropia Universe® the advantage the entrepreneurs have is mainly a resource-based advantage implemented by Mindark® itself. Mindark® has sold limited and unique lands to entrepreneurs with an auction system: an island was sold in 2004 (Gapper, 2006), an asteroid in 2005 (The Economist, 2005) and other very small lands thereafter. The barrier of entry in this case is the money the entrepreneurs have bided since the highest financial proposal has been rewarded for exclusive land.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Table 11The protection of the businesses and various barrier of entries Id. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Market New New New Existed New New New Existed Existed Existed Existed New Existed Existed New Existed New Existed New

Protection No Host name Trademark No Several No Copyright No Several Several Several No No Trademark No No No No Several

Barrier of entry Resource Resource Resource Resource Quality No Programming No Programming No No No No No Structure No Programming No No

Id. is the venture identification.

In Second Life® a last reason may explain the good return on initial investment; it is the very limited costs of object creations: only copies of the created objects are sold. Cost-reductions are rather inexistent in that game. In Entropia Universe® it is different since each object is unique and need to be manufactured from raw materials which have a cost. In conclusion, several reasons can explain the good return on initial investment of the venture: the entrepreneur’s behavior toward his or her venture, the low level of finance of the venture, the barriers erected to prevent competitors to enter the market, the absence of stocks for Second Life® and being the first mover in a market. The past experience of the entrepreneurs as players in virtual games may certainly help them to evaluate correctly the possibilities of the platform, and to know what the players are really looking for. So, there is certainly a good fit between the needs of the customers and the offering of the entrepreneurs. That is key for success and continuous growth. Figure 4 shows an adaptation of Barringer’s model of new ventures in MMORPG. The different factors of growth for MMORPG are showed. The only category which is empty is the HRM practices. A majority of the ventures have no employees and those having several employees do presumably not have any HRM practices (observation made from the interviews of the entrepreneurs). Maybe in the future when the ventures will grow in size those with HRM practices will see higher growth than those not having them.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Entrepreneur Past experience in the game Devoted to the venture “Having fun”

Business practices

Organization Commitment to growth Few planning No geographic constraints High buyer concentration Web integration

Rapid Growth

Customer knowledge Barriers of entry Promotion Add unique value Advanced technologies Innovation Product superiority

HRM practices Nothing!

Figure 4 Growth in MMORPG illustrated with Barringer’s model.

What are the steps for the venture creation process in MMORPG? As reported by Davidsson (2005) various steps exist in the venture creation process. Formation and screening of the ideas In Entropia Universe® the idea of the venture is essentially initiated by Mindark® who adds new features in the game. It is difficult to initiate a new idea in that game if the feature does not exist already. In Second Life® there is huge autonomy for idea formation. Usually, the entrepreneurs are either looking for products or services which already exist in real life and adapt them in the game, or they create products and services they were looking for. A majority of the entrepreneurs did that step, although the marketing tools presented in table 8 were not always applied. Protection of the ideas Some barriers of entry are erected, and trademarks and copyrights are filled at the early stage of the ventures. Only six ventures have no protections. It does not seem primordial for the launch of the ventures. Planning and business plan Wijbenga and van Witteloostuijn (2007) and Gruber (2007) argued that planning needed to be done quickly in a turbulent environment. Second Life® and Entropia Universe® are turbulent environment and for the studied ventures very few entrepreneurs have done a business plan, Table 12. However for the few entrepreneurs who did it, the main elements were studied: marketing, finance, copyrights/patents and strategy. Not having done a business plan did not prevent the ventures to underperform. In fact in Second Life® and Entropia Universe®, there seems no real need for planning and business plan and this fit with a turbulent environment. 25

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Table 12 The content of the business plans Marketing Finance Copyrights/patents Strategy

Yes, all 4 5 0 4

Yes, partly 6 5 2 6

No 9 9 17 9

Results obtained from the second survey for the Entrepreneurs population.

Legal form of the firm Usually the ventures of the entrepreneurs do not have a legal form, although some of them have created a company. There is no need to have a real legal form at the early stages of the venture in Second Life® and Entropia Universe®. Search for the facilities and the financing The financing of the ventures are primarily coming from the funds of the entrepreneurs, Table 10. The facilities are easy to find in Second Life®, less than 1 h, and in Entropia Universe® as soon as an auction for a land or a stores comes to the end, the entrepreneur can have it. The search of facilities and financing is very rapid for ventures launched in Second Life® and Entropia Universe®. Starting of the operations In Second Life® starting the operations can even be done without having the financing and the facilities: creating an object cost nothing and launching a service or selling objects can be done if the entrepreneur has already a social network. In Entropia Universe® it is different since the raw materials need to be accumulated in advance and dropped in the inventory for future manufacturing. We can conclude from the steps done by the entrepreneurs launching ventures in Second Life® and Entropia Universe® that some steps are certainly essential (formation, screening, and protection of ideas, search of facilities and financing, launch of the operations) and others insignificant (planning and elaboration of business plan, creation of the legal form of the venture). In fact, in Second Life® and Entropia Universe®, as soon as an opportunity has emerged an entrepreneur may eventually invest a small amount of money and start immediately his or her business.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Conclusion From 103 players of Entropia Universe® and 141 players of Second Life® having participated to the first survey, nineteen entrepreneurs were identified and questioned with a specific second survey. Fundamentally, the entrepreneurs of Second Life® or Entropia Universe® are players of MMORPG and they have a good knowledge of the platforms, as players do. Considering the trait of the entrepreneurs, experience in the platforms is relevant for launching a new venture in those games. One of the main reasons for the entrepreneurs to go for MMORPG is the fun aspect. That is a fundamental trait, which indicates that entrepreneurs involved in MMORPG are trying to fulfill their needs. A second trait, which is specific to the entrepreneurs, is the use of the platform to make money; in any case the entrepreneurs have a clear goal for their ventures. Second Life® and Entropia Universe® platforms are well-advanced platforms and give all the necessary tools to enable venturing. The markets inside those platforms are growing and will continue to grow since Linden Lab® and Mindark® are looking for new markets to expand. The different entrepreneurs have developed ventures in several markets from land management, banking services, newspaper, to clothing stores. They had a good idea of their venture and defined well the strategy they wanted to adopt. Moreover, the entrepreneurs have examined the different markets in which they have entered although they did not use all the tools know in the marketing field. Furthermore, some steps in the process of creation of the venture may not be important and some may be done relatively promptly. In view of Park’s model, it appears that opportunity recognition and consequently entrepreneurship exists in MMORPG since all the conditions are present: an entrepreneur willing to invest money in order to increase his wealth, a new technology giving new sources of revenues and a market which is growing and well understood by the entrepreneurs. However, the type of platforms has an impact on entrepreneurship: the low initial investment needed in Second Life® and the different possibilities offered by this game compared to Entropia Universe® lead to a higher proportion of players seeing themselves as entrepreneurs in Second Life®. It explains that fifteen entrepreneurs form the nineteen having participated to this paper come from Second Life®. The ventures launched by eighteen entrepreneurs have good returns of the initial investment. Surprisingly, seven ventures have multiplied by 15 times or more their initial investment and eleven ventures have at least doubled their investment over the period of existence. Even if the environment is very turbulent the virtual firms are still doing well. It means that those ventures have the ability to adapt very quickly to the modifications Mindark® and Linden Lab® can bring to the games. However, it should be pointed out that only successful ventures have participated to the paper and the bankrupted ventures were not willing to. A next step of the current study would be to contact the nineteen entrepreneurs after 2-3 years and evaluate the failure rate.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

In Entropia Universe®, the entrepreneurs have a resource-based advantage which is correlated with the implantation of new features by Mindark®. On the other side, entrepreneurs in Second Life® have market-based advantages since they are first movers and propose products and services targeted to specific markets. For both platforms the entrepreneurs try to erect efficient entry barriers when possible to prevent competition to enter their markets. As the European commission concluded in its report (Commission of the European Communities, 2003), entrepreneurship is important by contributing to job creation, growth, competitiveness, and it unlocks the potential of individuals. As a result studying entrepreneurship in platforms like Second Life® and Entropia Universe® has demonstrated new opportunities for individuals looking for new ways of business. Without a doubt the 80% of the active users of the developed countries having their avatars in virtual life by end 2011 (Gartner, 2007) will need to consume products and services. This can also be the explanation for the entry of real life firms in Second Life®, which use MMORPG as a quick way of marketing and behavior testing. With the help of Terdiman’s book “The Entrepreneur’s Guide to Second Life®: Making Money in the Metaverse” and Weber et al. (2008) book Creating Your World: The Official Guide to Advanced Content Creation for Second Life® the reader who plays and has fun in MMORPG could in view of the present paper conclusions create confidently his venture in Second Life® or Entropia Universe®.

Acknowledgements The author would like to thank David C. Arnott from the University of Warwick for his comments.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Bibliography Abrams, R. (2004, May 6). Focus on success, not failure. USA TODAY, New York. Barlow, J.P. (1996, February 8). A Declaration of the Independence of Cyberspace. Retrieved September 25, 2009 from http://homes.eff.org/~barlow/Declaration-Final.html. Barringer. B.R., et al. (2005). A quantitative content analysis of the characteristics of rapidgrowth firms and their founders. Journal of Business Venturing, 20(5), 663-687. Beak, S. (2005). Exploring customer preferences for online games. International Journal of Advances Media and Communication, 1(1), 26-40. Beak, S., et al. (2004). Exploring Customers’ Preferences for Online Games: Proceedings of the Third Annual Workshop on HCI Research in MIS, Washington DC, December 10-11 2004. Bloomfield, R. (2009). World of Bizcraft. Journal of Virtual Worlds Research, 2(3). Retrieved December 6, 2009 from http://journals.tdl.org/jvwr/article/view/743/535. Booz Allen Hamilton (2007, May 24). New Online Consumer Behavior in the Middle East and Globally Demands Changes in Corporate Strategy. Retrieved September 25, 2009 from http://www.boozallen.com/news/38200908. Brandstätter, H. (1997). Becoming an entrepreneur – a question of personality structure? Journal of Economic Psychology, 18, 157-177. Bull, I. and Willard, G.E. (1993). Towards a theory of entrepreneurship. Journal of Business Venturing, 8(3), 183-195. Bull, I., and Willard, G. (1995). Towards a theory of entrepreneurship. In: Bull, I., Thomas, H. and Willard, G. eds. Entrepreneurship. Perspectives on theory building. Illinois: Pergamon, 1-16. Bygrave, W.D. and Hofer, C.W., (1991). Theorizing about entrepreneurship. Entrepreneurship Theory and Practice, 16(2), 13–22. Carter, N.M., et al. (1996). Exploring start-up event sequences. Journal of Business Venturing, 11(1), 151-166. Castronova, E. (2002). On Virtual Economies. CESifo Working Paper No 752, Category 9: Industrial Organisation. Castronova, E. (2005). Synthetic Worlds: The Business and Culture of Online Games. Chicago: The University of Chicago Press. Cole, A.H. (1969). Definition of entrepreneurship. In: Komives, J.L., eds. Karl A. Bostrom Seminar in the Study of Enterprise. Milwaukee: Center for Venture Management, 10-22. Commission of the European Communities (2003, January 21). Green Paper, Entrepreneurship in Europe. Brussels Davidsson, P. (2005). The Types and Contextual Fit of Entrepreneurial Processes. In: Burke, A.E., eds. Modern Perspectives on Entrepreneurship. Dublin: Senate Hall Academic Publishing, chapter 1.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Delmar, F. and Shane, S. (2003). Does the order of organizing activities matter for new venture performance. In: Reynolds, P.D., et al., eds. Frontiers of Entrepreneurship 2003. Wellesley, MA.: Babson College. Diversified media design and market truths limited (2007). The Virtual Brand Footprint: The Marketing Opportunity in Second Life. Retrieved September 18, 2009 from http://www.popcha.com/combinedstory_whitepaper.pdf. Drucker, P.F. (1993). Innovation and Entrepreneurship. New York: Collins. Duranske, B.T. (2008). Virtual Law: Navigating the Legal Landscape of Virtual Worlds. Chicago: American Bar Association. Gapper, J. (2006, October 30). A real-life right to virtual property; [London 1st Edition]. Financial Times, London, 17. Gartner® (2007, April 24). Gartner Says 80 Percent of Active Internet Users Will Have A "Second Life" in the Virtual World by the End of 2011. Press Releases. Retrieved September 18, 2009 from http://www.gartner.com/it/page.jsp?id=503861. Gartner, W.B. (1985). A Conceptual framework for describing and classifying the phenomenon of new venture creation. Academy of Management Review, 10(4), 696–706. Gartner, W.B. et al. (1998). Predicting new venture survival: An analysis of “anatomy of a startup.” cases from Inc. Magazine. Journal of Business Venturing, 14(2), 215-232. Gartner, W.B. and Birley, S. (2002). Introduction to the special issue on qualitative methods in entrepreneurship research. Journal of Business Venturing, 17(5), 387–395. Gondal, S. (2004). Internet and technology new venture development using Soft OR. European Journal of Operational Research, 152(3), 571-585. Graef, A. (2006, November 2006). Anshe Chung Becomes First Virtual World Millionaire. Retrieved September 25, 2009 from http://acs.anshechung.com/news_1.php. Griffiths, M.D., et al. (2004). Online computer gaming: a comparison of adolescent and adult gamers. Journal of Adolescence, 27(1), 87-96. Gruber, M. (2007). Uncovering the value of planning in new venture creation: A process and contingency perspective. Journal of Business Venturing, 22(6), 782-807. Hemp, P. (2006, October). Are You Ready for E-tailing 2.0? Harvard Business Review, Boston, 84(10), 28. Hof, R.D. (2006, May 1). Virtual World, Real Money. Business Week, New York, coversheet. Lin, W.-B. (2006). A comparative study on the trends of entrepreneurial behaviors of enterprises in different strategies: Application of the social cognition theory. Expert Systems with Applications, 31(2), 207-220. Lyons, K. (2008). Towards a Theoretically-Grounded Framework for Evaluating Immersive Business Models and Applications: Analysis of Ventures in Second Life. Journal of Virtual Worlds Research, 1(1). Retrieved September 18, 2009 from http://journals.tdl.org/jvwr/article/view/289/243

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MacInnes, I. and Hu, L. (2007). Business models and operational issues in the Chinese online game industry. Telematics and Informatics, 24(2), 130-144. Market Truths (2007). Second Life Entertainment Market (Q2 2007). Retrieved September 18, 2009 from http://sl.markettruths.com/reports/report.asp?4. Mayer-Schönberger, V. and Crowley, J. (2006). Napster’s Second Life? The regulatory challenges of virtual worlds. Northwestern University Law Review, 100(4), 1775- 1826. Messinger, R. et al. (2009). Virtual worlds – past, present, and future: New directions in social computing. Decision Support Systems, 47, 204-228. Mindark (2009). Annual Report 2008. Retrieved September 18, 2009 from http://www.mindark.com/press/financial-reports/documents/Annual_Report_2008.pdf. Mindark (2007). Annual Report 2006. Retrieved September 18, 2009 from ftp://ftp.mindark.se/reports/AnnualReport2006_LOW.pdf. Murphy, G.B., et al. (1996). Measuring performance in entrepreneurship research. Journal of Business Research, 36(1), 15-23. New Media Age (2007, September 6). Who will fill the gap between Second Life and Club Penguin? London, 15. Noble, P-E. and Ortiz, A. (2007, August 31). SL Survey: Residents Profile, gambling and engagement. Retrieved November 12, 2007 from http://slsurvey.wordpress.com/. Ondrejka, C. (2007). Collapsing Geography: Second Life, Innovation, and the Future of National Power. Innovations: Technology, Governance, Globalization, 2(3), 27-54. Papagiannidis, S., et al. (2007). Making real money in virtual worlds: MMORPGs and emerging business opportunities, challenges and ethical implications in metaverses. Technological Forecasting and Social Change, 75(5), 610-622. Park, J.S. (2005). Opportunity recognition and product innovation in entrepreneurial hi-tech startups: a new perspective and supporting case study. Technovation, 25(7), 739-752. Robinson, K. (2007, September 1). Virtual Worlds: Another World, Another Business - People Are Using Avatars To Develop Businesses And Have Fun In Virtual Worlds, Such As Second Life. Karina Robinson Reports On The Growing Response From Banks And The Potential They Could Tap. The Banker, London, 1. Sarason, Y., et al. (2006). Entrepreneurship as the nexus of individual and opportunity: A structuration view. Journal of Business Venturing, 21(3), 286-305 Schmitt-Rodermund, E. (2004). Pathways to successful entrepreneurship: Parenting, personality, early entrepreneurial competence, and interests. Journal of Vocational Behavior, 65(3), 498518. Schumpeter, J.A. (1950). Capitalism, Socialism and Democracy. New York: Harper & Row. Second Life (2007). Economic Statistics: Graphs. Retrieved November 12, 2007 from http://secondlife.com/whatis/economy-graphs.php. Second Life (2009a). Second Life. Retrieved September 25, 2009 from http://secondlife.com.

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Second Life (2009b). Second Life. Retrieved September 25, 2009 from https://blogs.secondlife.com/community/features/blog/2009/08/12/the-second-life-economy-second-quarter-2009-in-detail. Shane, S. and Venkataraman, S. (2000). The Promise of Entrepreneurship as a Field of Research. The Academy of Management Review, 25(1), 217-226. Silva, O. (2007). The Jack-of-All-Trades entrepreneur: Innate talent or acquired skill? Economics Letters, 97(2), 118-123. Song, S. and Lee, J. (2007). Key factors of heuristic evaluation for game design: Towards massively multi-player online role-playing game. International Journal of HumanComputer Studies, 65(8), 709-723. Terdiman, D. (2007). The Entrepreneur's Guide to Second Life: Making Money in the Metaverse. Indianapolis: Wiley. The Economist (2005, January 22). Finance and Economics: A model economy; Economics and gaming. London, 374(8410), 85. Weber, A., et al. (2008). Creating Your World: The Official Guide to Advanced Content Creation for Second LifeÂŽ. Indianapolis: Wiley. Vesper, K.H. (1998). Unfinished Business (Entrepreneurship) of the 20th century. USASBE, San Diego, January 1998. Whang, L.S. (2003). Online Game Dynamics in Korean Society: Experiences and Lifestyles in the Online Game World. Korean Journal, Autumn, 7-34. Wijbenga, F.H. and van Witteloostuijn, A. (2007). Entrepreneurial locus of control and competitive strategies â&#x20AC;&#x201C; The moderating effect of environmental dynamism. Journal of Economic Psychology, 28(5), 566-589. Woodcock, B.S. (2009). Total MMOG Active Subscriptions. Retrieved September 18, 2009 from http://www.mmogchart.com/Chart4.html. Yee, N. (2007). Motivations of Play in Online Games. Journal of CyberPsychology and Behavior, 9, 772-775. Young, K.S. (1996). Internet addiction: The emergence of a new clinical disorder. Journal of CyberPsychology and Behavior, 1(3), 231-244.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Appendix A

I am currently in my 3rd year distance learning MBA at the Warwick University (UK), and i have chosen for my project 'Entrepreneurship in MMORPG'. For my project, I will need to have a sample of the population playing MMORPG before interviewing some entrepreneurs. It would be very helpful if you could complete the survey, thank you very much. There are no mandatory questions.

Why MMORPG (Massively Multiplayer Online Role-playing Game) Which of those MMORPG do you play mostly

Please enter further details for the 'other' item you entered above. Do you play SL and/or EU

Dark Age of Camelot EverQuest World of Warcraft Eve Online Second Life Entropia Universe other for fun for curiousity for creativity to meet people to make money other

Please enter further details for the 'other' item you entered above. Do you play other computer games than MMORPG

Yes Maybe No

What is the proportion of computer playing time you devote to MMORPG

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

How often do you play per week

Less than 1 hour 1 to 5 hours 6 to 10 hours 11 to 20 hours 21 to 40 hours 41 to 60 hours Over 60 hours

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

Appendix A

Do you have skills in I am an Expert Marketing Strategy Business plan Project management Finance Patent/Copyright Human behaviour

A lot

I can fearly manage

Few

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

About You in Virtual Life When did you create your main avatar Are you satisfied with what you ve done with your avatar

Extremely Satisfied Very Satisfied Satisfied Somewhat Satisfied Not Satisfied

Appendix A

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

You as an Entrepreneur in SL and/or EU Do you consider yourself as an Entrepreneur in SL or EU

Yes No Do not know

Why Would you like to be interviewed as an Entrepreneur email contact for the interview

Yes No

Appendix A

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU

About You in Real Life Your gender is:

Male Female

What age group are you in

18 or under 19-25 26-35 36-45

What is your marital status

Single Married Divorced

Region

North America South America Asia Europe Africa Oceanie Middle East

Educational Level

School (up to 11 years of age) School (up to 16 years of age) College (17-19 years of age) Undergraduate education Postgraduate education No formal education

What type of Employee are you.

Full Time Part Time Contractor Temporary

Which department do you work in

Sales & Marketing Human Resources Customer Help Desk Consulting Finance & Administration Management Research & Development

What is your Salary Range

Less than $30,000 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $59,999

Entertainment

Sports Cinema Dinning out Music/concerts Work addict Television

46-55 56-65 65 or older

$60,000 to $74,999 $75,000 to $99,999 $100,000 or more

Appendix A

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

I am currently in my 3rd year distance learning MBA at the Warwick University (UK), and i have chosen for my project 'Entrepreneurship in MMORPG'. You have entered the 'Entrepreneurs' questionnaire. It would be very helpful if you could complete this questionnaire. There are no mandatory questions. The questionnaire is also anonymous (i am not interested by your RL name, address, etc). Big Big thank you for participating to my project

Avatar Q1(a)

Avatar name

Q1(b)

In which game

MMORPG (Massively Multiplayer Online Role-playing Game) Q2(a)

Which of those MMORPG do you 'play' mostly Dark Age of Camelot EverQuest World of Warcraft Eve Online Second Life Entropia Universe other

Q2(b)

Please enter further details for the 'other' item you entered above.

Q2(c)

Do you play SL and/or EU for fun for curiousity for creativity to meet people to make money other

Q2(d)

Please enter further details for the 'other' item you entered above.

Q2(e)

Do you play other games than MMORPG Yes Maybe No

Q2(f)

How often do you play per week Less than 1 1 to 5 hours 6 to 10 hours 11 to 20 hours 21 to 40 hours 41 to 60 hours Over 60 hours

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

MMORPG (Massively Multiplayer Online Role-playing Game) Q2(g)

What is the proportion of computer playing time you devote to MMORPG 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

About Second Life You do not need to answer question for SL if you do not play SL Q3(a) Are you satisfied with SL as a player Extremely Satisfied Very Satisfied Satisfied Somewhat Satisfied Not Satisfied Q3(b)

Why

Q3(c)

What do you like with SL Graphics Concept People Sound Gameplay Other

Q3(d)

Please enter further details for the 'other' item you entered above.

Q3(e)

What do you dislike with SL

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

About Entropia Universe You do not need to answer question for EU if you do not play EU Q4(a) Are you satisfied with EU as a player Extremely Satisfied Very Satisfied Satisfied Somewhat Satisfied Not Satisfied Q4(b)

Why

Q4(c)

What do you like with EU Graphics Concept People Sound Gameplay Other

Q4(d)

Please enter further details for the 'other' item you entered above.

Q4(e)

What do you dislike with EU

Other comments Q5(a)

Any other comments about MMORPG

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

Are you familiar with those marketing notions Yes, i know it, and i can use it Q11(a)

Strategic Choice Approach

Q11(b)

Soft Systems Methodology

Q11(c)

SWOT Analysis

Q11(d)

PEST Analysis

Q11(e)

Porter's Generic Stategies

Q11(f)

Porter's Five Forces Model

Q11(g)

Scenario modelling

I have heard about

Did you use of those techniques Yes Q12(a)

Strategic Choice Approach 2

Q12(b)

Soft Systems Methodology 2

Q12(c)

SWOT analysis 2

Q12(d)

PEST analysis 2

Q12(e)

Porter's Generic Strategies 2

Q12(f)

Porter's Five Forces Model 2

Q12(g)

Scenario Planning 2

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

How did you find your project Q13(a)

Did you exploit a gap that you have discovered Yes No Other

Q13(b)

Please enter further details for the 'other' item you entered above.

Q13(c)

If Yes, how did you find the gap

Did you do the following before launching your business Yes

Q14(a)

Research about consumers

Q14(b)

Research in Data/Published reports

Q14(c)

A risk failure analysis

Q14(d)

Research about existing products/services

Other

Did you do the following Yes Q15(a)

Segmentation of the market

Q15(b)

Targeting your segment

Q15(c)

Positioning your service/product

Q16

Did you create a competitive advantage Yes No other

Q17

Please enter further details for the 'other' item you entered above.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

Q18

If Yes, how

The Marketing Mix Q19(a)

How did you define your product/service

Q19(b)

How did you set the price(s)

Q19(c)

What is your distribution channel, how did you select it(them)

Q19(d)

How do you promote

Q20

Any comments about Marketing

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

Sources of finance Q21(a)

From whom did you get the money to finance the early stages of you venture Bank loans Government enterprise agencies Friends Family Own money Business angels Venture capital other

Q21(b)

Please enter further details for the 'other' item you entered above.

Q21(c)

Can you give an estimate of the ratio Debt/(Equity+Debt)

Q21(d)

From whom do you get the money to finance your venture now Bank loans Government enterprise agencies Friends Family Own money Business angels Venture capital other

Q21(e)

From whom do you get the money to finance your venture now - Other details

Do you do or have done the following Yes Q22(a)

Defining the break even point

Q22(b)

Cash flow management

Q23

Have books with the following Profit and Loss Account Balance Sheet Cash Flow Statement Ratios

Q24

Any comments about Finance

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

Did you protect your venture Q25(a)

Did you get the following for your venture Patents Copyrights Design patents/rights Trade secrets Trademarks other

Q25(b)

Please enter further details for the 'other' item you entered above.

Q25(c)

Did you create a barrier of entry for competitors Yes No other

Q25(d)

Please enter further details for the 'other' item you entered above.

Q25(e)

How did you create the barrier of entry

Q25(f)

Any comments about Copyrights/patents

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

Did you ask yourself the following questions Yes

Q26(a)

Is there a market for the product or service?

Q26(b)

Can i get the necessary resources (availibility, cost and quality)?

Q26(c)

Who else can aquire these resources (potential competitors, suppliers, employers)?

Q27

You decided then to go for Joint venture/alliance Indepedent firm stat-up

Q28

Did you do a business plan before launching your business (if your answer is no, you just need to fill the next question of this page) Yes No

Q29

Why ?

Did you incorporate the following in your business plan Yes, all Q30(a)

Marketing

Q30(b)

Finance

Q30(c)

Copyrights/patents

Q30(d)

Strategy

Yes, partly

About the idea of your business This is a ranking question. Rank the items below from 1 to 2, where 1 is the highest rank, and 2 is the lowest. It is mandatory that you select an item for each of the ranks. 1st 2nd Q31(a)

A need and a solution

Q31(b)

Vision and strategy

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

About the market gap and competition This is a ranking question. Rank the items below from 1 to 5, where 1 is the highest rank, and 5 is the lowest. It is mandatory that you select an item for each of the ranks. 1st 2nd 3rd 4th 5th Q32(a)

Need for today

Q32(b)

Imitation

Q32(c)

Competition growth and diversification

Q32(d)

Mergers

Q32(e)

Evolution of market

Management of the new venture This is a ranking question. Rank the items below from 1 to 4, where 1 is the highest rank, and 4 is the lowest. It is mandatory that you select an item for each of the ranks. 1st 2nd 3rd 4th Q33(a)

Entrepreneur self-evaluation

Q33(b)

Start-up team and structure

Q33(c)

Phases of growth

Q33(d)

Becoming professionally managed

Questions every entrepreneur should answer Yes, i ask myself this question

No, i did not already think about

Q34(a)

Are my goals well defined

Q34(b)

is the strategy well defined, is the strategy sustainable, are the goals for growth realistic

Q34(c)

do i have the right resources and relationships

Q35

Any comments about Strategy

I do not know

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

Your business Q6(a)

When did you start your business

Q6(b)

The purpose of your business is: New Existed already Other

Q6(c)

Please enter further details for the 'other' item you entered above.

Q6(d)

Why did you start a venture in a MMORPG

Q6(e)

Can you give an estimation of how much you did invest at the early stages of your business

Q6(f)

Currently, how much is your business worth

Q6(g)

How many employees do you have

Q6(h)

Did you create a website in order to bring more services/products to your customers Yes No other

Q6(i)

Please enter further details for the 'other' item you entered above.

Are you 100% addict to your venture Q7(a)

Do you plan to sell your venture in the future if you can get an interesting lump sum Yes No Other

Q7(b)

Please enter further details for the 'other' item you entered above.

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

What are the good sides of EU or SL for your venture Q8(a)

Can you give positive aspects of the game that help your venture

What are the bad sides of EU or SL for your venture Q9(a)

Can you give negative aspects of the game that do not help your venture

Q9(b)

What kind of improvement would you like to have from the game owner (LL and Mindark) that could help your venture

Q10

Any comments about your venture

Journal of Virtual Worlds Research- An Exploration of Entrepreneurship in MMORPG: SL and EU Appendix B

About You in Real Life Q36(a)

Your gender is: Male Female

Q36(b)

What age group are you in 18 or under 19-25 26-35 36-45

Q36(c)

46-55 56-65 65 or older

What is your marital status Single Married Divorced Other

Q36(d)

Region North America South America Asia Europe Africa Oceanie Middle East

Q36(e)

Educational Level School (up to 11 years of age) School (up to 16 years of age) College (17-19 years of age) Undergraduate education Postgraduate education No formal education

Q36(f)

What type of Employee are you. Full Time Part Time Contractor Temporary

Q36(g)

What is your current job (if you are not full time working for your venture)

Q36(h)

What is your Salary Range Less than $30,000 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $59,999

Q37

Any final comments you want to make

$60,000 to $74,999 $75,000 to $99,999 $100,000 or more

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Topping from the Viewfinder

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Topping from the Viewfinder: The Visual Language of Virtual BDSM Photographs in Second Life By Shaowen Bardzell School of Informatics and Computing, Indiana University, USA

Abstract The paper explores the mutually constituted relations between avatars, space, and artifacts depicted in virtual photographs from Second Lifeâ&#x20AC;&#x2122;s BDSM (bondage, discipline, and sadomasochism) communities. Photographs were sampled from thousands of user profiles of Second Life users who explicitly associate themselves with one or more BDSM communities or groups. Using visual analysis and social semiotics, I describe the visual language of these images, and with them, the grammar and symbolism of power and submission, of individual and institution, and of photographer and viewer. The visual language of these photos sheds light on the nature of these communities, including the social and computer-mediated interactions of their participants, and helps explain why virtual BDSM is such a compelling form of play and source of aesthetic innovation for thousands of Second Life residents. Keywords: Visual language; sexuality; virtual BDSM; identity; Second Life.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research – Topping from the Viewfinder 4

Topping from the Viewfinder: The Visual Language of Virtual BDSM Photographs in Second Life By Shaowen Bardzell School of Informatics and Computing, Indiana University, USA

Introduction Though the multi-user virtual environment (MUVE) Second Life gained sudden media acclaim in 2006, the game-like space has existed since 2003. Second Life is a participant-created virtual world, which means that every hill, house, skirt, bike, and pair of shoes was created by a Second Life user. Not surprisingly, it is a highly eclectic and often bewildering space. In the relatively quiet years of 2004 and 2005, the world was developing many of the characteristics that have come into their own today, such as virtual fashion lines, a thriving virtual economy, scripted interactive furniture, vehicles, and toys. Perhaps not surprisingly, much of the early content was adult in nature, from cyberstrip clubs to kinky lingerie, sex animations, and interactive virtual genitalia. More surprisingly, to this observer at least, was the visibility and prevalence of the BDSM (bondage, discipline and sadomasochism) subculture. One could go to an ordinary virtual shopping mall and not be surprised to see a master shopping with two kneeling submissives chained beside him. A little inquiry revealed that BDSM factored in many innovations at the time, from some of the most important virtual stores (e.g., Xcite!) to a number of Second Life’s most famous early celebrities, whose profiles at the time (if not now) indicated their participation in this subculture. The virtual BDSM subculture was a force during the early days of Second Life, when users were figuring out how to innovate in the space and make it worthwhile to themselves and the millions who have since followed. Many factors explain this phenomenon. One of them is that sex was often a driver in the early days of a technology, from the VHS to e-commerce, and BDSM is a sexual practice. A second factor is that BDSM, with its strong roles and tight-knit communities, facilitates the creation of a virtual identity and a social place in the world. And another one is that BDSM offers a well-defined aesthetic, which offers those who appreciate it a sense of fulfillment and even self-transcendence (Bardzell & Bardzell, 2007). BDSM is a sexual and social practice that involves consensual relations of domination and submission (Wiseman, 1996; Weinberg, 1978). In BDSM fantasy play, whether real-life or virtual, slaves and submissives are docile by definition. They have consented to hand over their autonomy to their Doms (male dominants) or Dommes (female dominants), hereafter abbreviated as Dom/mes, which may include surrender of the body for examination, sexual gratification and even dressing, silencing of the voice, limited mobility and other forms of submission (Abernathy, 1996). In return, Dom/mes are expected to provide protection, guidance, and in many cases devotion (Lorelei, 2000). As the foregoing makes clear, the practice of BDSM is not merely sexual: there is often a psychological and emotional attachment (such as trust) between the Dom and the sub, and above all, the D/s relationship is based on a system of values, that is, a system of rules that enables such a lifestyle to function. For example, emphasis is often placed upon explicit education to counter intrinsic danger, and consent and the use of safe words are additional mechanisms to ensure safety and pleasure during power-exchanging role-playing scenarios that incur risk, pain, and/or extreme behavior. 4

Journal of Virtual Worlds Research – Topping from the Viewfinder

BDSM also exhibits a recognizable visual aesthetic. Common BDSM icons include ropes, crosses, leather, boots, tattoos, and women in submission. Beyond the mere presence of these icons, the BDSM aesthetic also covers a coherent arrangement of these icons. For example, in Japanese rope fetish photography, we observe that knot patterns, exotically sculpted body positions, minimalist props and color schemes, and unusual camera angles combine to construct a visual aesthetic. Likewise, the use of floggers, the focus on buttocks and thighs, as well as carefully arranged stripes, bruises, and welts on the flesh all mutually constitute the visual language of the spanking fetish. In all, both the practitioners and the artifacts participate and interact in a larger visual-semiotic system in BDSM practice. One characteristic of that aesthetic, and it is the subject of this paper, is its powerful visual language. BDSM’s visual language is not only, thanks to its subject matter, intense but also personal. It enables its practitioners to express their place in the world, attitudes towards their bodies, standards of beauty and sexual desire, fantasies of power, constructions of gender and intimacy, and spirit of play with risk and safety, among others. My hypothesis has been that BDSM fantasy in Second Life is far more than a sexual pastime. I was first attracted to this hypothesis by my observation of the sophisticated behavior and sheer innovation coming out of the communities. Two years of ethnographic observation, interviews, and artifact analysis later1, I am more than ever convinced that all subcultures have the capacity to incubate innovation in a user-created content, and BDSM is successful particularly because of its combination of a potent visual language and the intense personal desires it stirs. In the project described in this paper, I analyzed hundreds of virtual photos taken from the public profiles (Figure 1) of Second Life’s BDSM practitioners. These profiles combine autobiographical texts, lists of group memberships, virtual photos, and other information to help users get to know each other. Second Life participants commonly use these profiles as ways to choose with whom among a collection of strangers to start a conversation, to get to know a new acquaintance better, as well as to express themselves and their values. The profile pictures become prominent representations of the player to other players.

Figure 1. Self-portrait of a collared submissive.

The analysis of these images reveals much about the BDSM subculture and about one of its most powerful assets: its visual language. Using still images, with the aid of in-game imaging technologies and photographic conventions, practitioners depict stories of masters and submissives as well as their attitudes toward these relationships, and they also draw viewers into 1

The completed result of the study is published in Bardzell & Odom, 2008; Bardzell, 2009.

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these relationships. Because the majority of community members are submissives whose capacity for self-expression is ritually circumscribed in D/s play, especially in public, these selfportraits become a mechanism for the submissives to express subtle emotion and mood. The richness of the social practices, sophistication of its institutions, and maturity of its aesthetics all contribute to the success of virtual BDSM. In an eclectic, user-created world such as Second Life, users are often bewildered at its sheer incoherence. In contrast to proper games, such as World of Warcraft, Second Life generally lacks a graduated introduction to its world that acclimates new users to the space. BDSM communities offer, in addition to sexual gratification, a regular place to go, a community, a sense of purpose, and a complex and, for many, fulfilling subculture. Understanding the appeal of virtual BDSM may help us gain more general insights of relationships among desire, virtual communities, aesthetics, and design. The combination of visual analysis and social semiotics used in this project offers us ways to understand and describe the value of these communities for their users.

Methodology Rather than relying solely on “a good eye,” visual analysis is used as a systematic way to collect and categorize groups of images, in this case, a collection of virtual BDSM members’ self-portraits, in a consistent manner. This approach also provides the foundation for critical visual analysis through a social semiotic interpretation method after data collection. No members of a BDSM group were recruited for this study, though the study was informed by other research involving contact with members of these communities.

Image Selection Procedure A collection of images was selected for the study by accessing the Second Life’s group search menu. A search on 8 keywords — “sub,” “Dom,” “sado ,” “bondage, “bdsm,” “sade,” “gor,” and “slave” — yielded 286 BDSM-related member-operated groups in September 2006, with a total of 6,166 members. Each of these groups has a publicly viewable charter and a list of its members. Clicking names in this charter brings up members’ individual profiles, which includes member photos, avatar rating (given by fellow avatars in-world), group affiliations, and autobiographies (Figure 2). Both avatar self-portraits and the snapshots from the “Picks” tab, which often depict avatars in social relations such as master/slave, professor/student, fellow submissives and so on (Figure 3), are included in the study.

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Figure 2. A typical Second Life member profile.

Figure 3. A snapshot from “Picks.”

Randomization was used to select 57 groups from the 286 groups identified for the study. Due to the large data set, and to ensure that the images I analyzed were representative, I performed another randomization procedure using a sample-size calculator to arrive at the sample size of 372 images for the study, with 95% confidence level and a confidence interval of 5%. For the final analysis, 375 pictures were studied. All 375 images follow the same naming conventions in the spreadsheet used to record the data and subsequent analysis: images are named by their group ID number, followed by an underscore and then the image number.

Coding Categories Having selected a sample of BDSM group members’ self-portraits, a set of categories for coding these images was devised with the objective of facilitating ensuing analysis and interpretation. The categories were developed based on the central research predispositions: (1) that visuality depicts and conveys social relations and emotions, and (2) that quantitative (such as content analysis) and qualitative (such as semiotics and psychoanalysis) visual methodologies are not mutually exclusive (Krippendorf, 1980; Rose, 2001). The resulting coding categories and issues were selected specifically to support critical interpretation in order to situate each image in the broader socio-cultural context. The coding categories, both descriptive and interpretive, are devised to avoid overlaps and strive to be as comprehensive and exhaustive as possible in order to capture the richness of the images studied. In all, 29 image characteristics are identified, divided into 4 different coding categories, as specified in Table 1.

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Coding Categories Presentations of film techniques

Representations of the body

Representations of activities

Representations of socio-cultural elements

Issues Examined • Location of the shot • Surroundings of avatars photographed • Setting • Light (outdoors & indoors) • Overall color of the photographs • Vantage (point from which the camera perceives the main figure) • Shot composition (framing) • Race • Gender • Hair color • Hair style • Body types • Masculinity • Femininity • Number of avatars in the photograph • Activity level of the foreground avatar • Activity type of the foreground avatar • Agency and activity • Intimacy styles • Interaction (avatar-avatar) • Interaction (avatar-artifact) • Eye contact • Pose • Positional communication (spatial arrangement of the avatars) • Ritual focus • Fashion (fabrics) • Fashion (styles) • Presence of props • D/s status

Table 1. Coding categories for BDSM members’ portraits

Each of the randomly selected BDSM group members’ self-portraits was examined against these four coding categories with the relevant codes assigned to it. A spreadsheet with multiple worksheets for each category was set up to record the information.

Analysis The results of the coding process provided the foundation for a semiotic analysis, intended to facilitate a description of the photos’ visual language. A social semiotics approach to visual analysis involves “the description of semiotic resources, what can be said and done with 8

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images (and other visual means of communication) and how the things people say and do with images can be interpreted” (Jewitt & Oyama, 2001). Using language as a metaphor to describe images, the social semiotics approach provides a detailed way to understand the correlations among avatars, space, and artifacts depicted in these BDSM self-portraits, through the examination of a collection of socially and culturally meaningful symbolic signs — the shared grammar of these photographs, so to speak. These images illustrate the social life and history of the avatars in the context of Second Life BDSM subculture. The context is significant as it impacts how the portrait is staged and photographed, how the message and expectations of the BDSM participants are constructed (i.e., how virtual BDSM participants attach ideas and meanings to the intimate experiences they have in-world), as well as how the viewer perceives the portraits. To explore the mutual relationships between the images and spectatorships, between form and meaning, I examined these 375 self-portraits by reviewing their narrative structure (the representations of film techniques and body) and interaction structure (the representations of activities and cultural elements).

Narrative Structure As in literary works, narrative structures in images include settings and actors. In this section, I explore these two notions as presented in BDSM resident self-portraits.

Pictorial Settings: From Space to Place The locations and surroundings depicted in these self-portraits provide the situated context for the particular pictorial story to develop. Stories are made meaningful in large part due to the inter-connection between space and place. Space deals with physical coordinates and topological relations between the architectural forms; it is external to human understanding. Place, on the other hand, is a socio-cultural construct where notions of the self and identity are formed (Harrison & Dourish, 1996; Wright et al., 2005). The self-portraits reflect how these residents come to understand and appreciate such architectural forms not merely as products of perception but as something meaningful and emotional to the individual as well as the community. In the 375 pictures studied, 204 pictures were taken outdoors (54% of all images), many in full daylight, and in both urban and rural settings. Only 33 of all the pictures studied are set in fetish-themed indoor dungeons (9% of all images). The openness of these settings underscores members’ sense of the acceptance of the lifestyle, that it is not the social taboo needing to be hidden from sight that it is in real-life America. This openness is further expressed by the deployment of the extreme long shot in some of these pictures where the emphasis is placed upon the environment and the background the avatar is set against (as seen in Figure 4). The intimate details of the avatar are rendered less discernible, signifying the relative value of the individual in the whole scheme of the setting, rather than the particulars of the avatar, him- or herself. The combination of the wide shot and body position contributes to the understanding of the relative value of the submissive’s place in the world, a self-effacing move for a profile portrait. The fact that the subject is relegated to such a small role reinforces the power dynamics between Dom/me and sub. The setting, and its relation to the avatar, is only one signifier of the submissive’s place in the world. 9

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Figure 4. Wide-angle shot reveals submissive in his environment.

Actors in Pictorial Stories Actors are obviously central aspects of any visual narrative. The depiction of avatars in the self-portraits conveys personality and preference of the avatars and also projects psychological states and ideology. Basic avatar demographics information emerges as a result of coding the sample collection of 375 pictures. Note that these demographics apply to Second Life avatars, not to their human real-life players. In all, about half (49%) of the avatars state whether they are Dom/mes or subs. Of those that self-identified, 46% of the Doms are male and 54% of the Dommes are female. The majority of the subs are female (94%). The gender split is evident in D/s relationships: 34% of the male avatars self-identify as Doms and 6% of the male avatars identify as subs; 13% of the female avatars identify as Dommes and 44% of the female avatars identify as subs (the remainder could not be identified as either Dom/me or sub). The findings are consistent with the general stereotypes of gender dynamics in BDSM practices, that men are natural Doms and women are natural submissives. The depiction of the characters/avatars often has more explicit BDSM themes; it also demonstrates a higher correlation between both the BDSM social conventions and photographic conventions as well as the individual’s understanding and adherence of such conventions. In all, the self-portraits are fairly simple with little ornamentation (55% of them contain only 1 avatar and 60% of them have no props present). The simplicity of the portraits encourages viewers to concentrate on the avatar herself/himself. However, within such simplicity, dynamics are revealed as the avatars either conform or deviate from the established conventions in order to express their identities. For example, as I will elucidate below, while most avatars share similar physiques and photographic framing, some stand out, for example, by the unique fashion she/he wears, or by unique framing of the self-portraits.

The Ideal of Beauty A unique set of avatar attributes emerges from the coding of BDSM resident selfportraits, presenting a picture of residents’ collective consciousness about the self and what constitutes “beauty” and “normality” in the community. The body types depicted in the Second 10

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Life BDSM group members’ self-portraits are overwhelmingly slender and desirable. Added to that are notions of desirability embedded in race and fashion: 87% of the avatars are white, 2% are of color, 9% are non-human, 66% of the avatars are female and 59% of the photographs depict avatars with long, luxuriously flowing hair. Black is the preferred hair color (35%), followed by blonde (21%). Tall, thin, pale skin, dark-haired avatars suggest a Goth influence on the BDSM subculture, not surprising given its “dark” nature. This influence is generally common to all of Second Life, as Goth is a major visual influence throughout the world. Hair is one of the most powerful symbols to describe individual and group identities as it reflects both personal and public preference (Synnott, 1993). In Second Life BDSM community, while the choice of hairstyle is private and voluntary, the individual is also subject to enormous pressure exerted by the community to adhere to the community’s expectation of what is considered “beautiful” and “acceptable.” The submissives, especially, are expected to have long hair (Figures 5 and 6), a gendered sign and representation of sexuality in the community (and our society for that matter) as the Doms (mostly men) prefer that their subs have long hair because it is sexier and more feminine2. The virtual BDSM community in Second Life goes a step further as the Dom uses the punishment of short hair as a way to discipline those submissives who are insubordinate, a branding of the submissives in the community in which obedience and surrender of both the body and mind are prized. The long hair is thus not only a cultural product of femininity, it is also strongly associated with community-sanctioned norms and beliefs. Short hair becomes a sign of submissive rebellion, and in addition to the disciplinary humiliation that it brings, it is also a warning of the potentially devastating consequences for those who operate outside of the prescribed conventions. For example, the penalties for insubordinate submissives in some areas include whipping, capture, and even execution, which may be presented in the context of fun and play (as whipping often is) or more serious consequences of being banned from the server (symbolized by execution).

Figure 5. The code of beauty: long and black hair.

Figure 6. Flowing hair as symbol of femininity.

Identity Play through Fashion While bodies belong to individuals, they are nonetheless defined and made meaningful by society; this is even more true in a space such as Second Life, where the construction of avatars is typically achieved by purchasing body parts made by other members (e.g., shapes, which include the body dimensions; skins, which include the skin tone, facial features, and makeup; and clothing, including hair, shirts, lingerie, jewelry, and boots). These bodily 2

This insight was obtained from interviews for a separate project.

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characteristics are non-verbal signifiers that provide communication cues, adhering to the established BDSM notions of the ideal female form, whether Dominant or submissive. For example, many submissives wear translucent skirts that reveal their pubic hair, a signifier of their accessibility (i.e., they are not wearing underwear, which in turn signifies their availability for sex). One’s ability to monitor and control bodily performance mediates and facilitates social interactions (Goffman, 1969), so the fact that these avatars collectively construct a unified social identity with shared characteristics suggests the power of the BDSM community’s social influence over individual’s management of his/her body. This brings to the fore the importance which identity plays in Second Life BDSM fantasy play. As Turkle suggests, “When I step through the screen into virtual communities, I construct our identities on the other side of the looking glass” (Turkle, 1995). Indeed, the nature of the 3Dimmersive medium affords and encourages identity exploration. The flesh-and-blood player behind the avatar is not bound to play a character that shares affinity with the real-life self but is free to experiment and explore. Thus, such exploration affects the formation of both the identity and avatar-avatar relationship (Taylor, 2006). This is evident from the visual analysis of selfportraits as the photographs serve as a documentary of such exploration. The phenomenon is especially evident when I approach virtual BDSM identity play in Second Life from the perspective of virtual fashion. Due to the nature of participant-created environments, in which ready-made objects (e.g., shirt, skirt, shoes, and hair, etc.) are provided and editable by residents, avatars have a significant amount of freedom to perform identity play (Bardzell, 2006). This identity play reflects users’ psychological state (Turkle, 1995), the values of their community (White, 2006) and the practice of gender and racial stereotypes (Nakamura, 2002), in which a dominant white and slender avatar personae emerged as a collective identity of these virtual BDSM participants. The characteristics of virtual fashion seen in these self-portraits reflect the practice of identity play. In all, cloth is the main material for avatars’ outfits (56% of all images), with leather and latex combined as the secondary material (13% total of all images). The use of leather and latex as fabrics for the avatar outfits is consistent with erotic fetish photographic books (e.g., Higgs, 2000; Delves-Broughton, 2003), in which the leather and latex are presented as part of the larger and distinct BDSM code of fetish art. Used in anything from shirts, skirts, bodysuits, and lingerie to harness, gloves, wristbands, boots, and even French maid outfits in Second Life, these materials, coupled with distinctive colors such as black and red, are essential components of virtual BDSM fashion that is sensual, suggestive (of sexual interaction) and mood-evoking. The identity play and implied sexual actions seen in the self-portraits are further reinforced through the embodied forms of dress codes. The outfits (Figures 7 and 8) chosen by those avatars who engage, role-play and experiment with virtual BDSM in Second Life are often low-cut, revealing and barely cover their bodies. Submissives can appear topless, wear fishnet stockings, and with sultry and erotic poses. They can also be seen dressed as kitty cats, with pointy cat ears and tails, or elaborately outfitted as ponies ready to be entered into pony races by their Doms (the racing pony girl fetish is a common fantasy scene in BDSM, as seen, for example, in Anne Rice’s [1990] BDSM-themed Sleeping Beauty erotic novels). These specialized outfits are mapped to culturally-produced visual signs specific to the BDSM lifestyle and to signal the identity of the participants. In the process, it also dictates how spectators should appreciate and understand such identity: by displaying their bodies in such a unique fashion, these avatars naturally identify themselves as erotic objects of the gaze of the Dom/mes as well as spectators.

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Figure 7. A scantily clad submissive in the arms of her Dom.

Figure 8. Latex is a common topos in virtual BDSM fashion.

As much as identity is essential to the lived experience of the avatars, it is also determined by social structures. Wenger’s understanding of communities of practice is that people negotiate meanings and create their identities in communal settings (Wenger, 1998). In the context of virtual BDSM, the interactions between individual identity and community are most visible in selecting a role (Dom/me, sub, switch, outlaw), a community (D/s, Gorean, etc.), and whether one is a virtual-only or real-life BDSM practitioner. These decisions have a profound impact on how participants perceive and present themselves, and they are often manifested via fashion. In one community (Gor, to be discussed below), for example, the clothing options for free women and slave women are dramatically different, and failure to adhere to the fashion mores (e.g., the free woman’s wearing of a veil) may result in a change in roles (such as capture and enslavement, which leads to collaring and new fashion practices). In these ways, the virtual BDSM community itself becomes an important mechanism to establish common ties and a shared identity, an interaction described by Driskell & Lyon (2002, cited in Nardi & Harris, 2006).

Interaction Structure In addition to narrative characteristics that reveal avatar’s position in place and space, BDSM self-portraits also contain elements of social interactions that tease out the dominant cultural values associated with the objects and actors depicted. In conceptualizing visual interactions, Kress and Leeuwen identify two types of participants as the actors in any visual interactions: representative participants (the people, the places, and artifacts depicted in images) and interactive participants (the people who communicate via images — the producers and consumers of images). Representative participants and the interactive participants take part in the following three different interactions (Kress & Leeuwen, 1996): • Interactions between represented participants • Interactions between represented and interactive participants, the attitudes of interaction participants towards represented participants • Interactions between interactive participants These interactions are encoded in the self-portraits studied, through representations of activities as well as artifacts with socio-cultural significance to the avatar and the community she/he belongs to. In this section, I will focus on the first two types of interactions. These are more visible when seen through the lenses of intimacy and artifacts as described below. 13

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Intimacy Since we are social beings, biologically programmed to interact with others, our body language conveys our emotional state during all of our interactions (Norman, 2004). Along similar lines, the avatars depicted in the BDSM group members’ self-portraits transmit their affective conditions through eye contact, expressions, poses, and other subtle or expressive physical performances. Second Life facilitates these forms of expression not only with a fairly rich collection of built-in character animations, but also by enabling designers to design and import custom character animations, which are available by the thousand in Second Life (usually for a nominal fee); animations and poses of intimate relations are particularly well represented. When female avatars are depicted in an activity besides looking at the camera, they are seen in close physical contact with their male counterparts (76% of all pictures studied) through embraces and kisses, sitting or lying down together (Figures 9 to 12). As these pictures demonstrate, female avatars are often seen engaged in male-initiated physical activities: female avatars are often held in the male avatars’ arms, caressed by the male. These images tell a story of dominant male in control. Not surprisingly, female avatars are visually represented as sexually passive in the self-portraits of virtual BDSM practitioners, conforming to the D/s relationship patterns where the (typically female) submissives, dominated by their masters, await male initiation to begin sexual interaction.

Figure 9. Physical interaction between male and female.

Figure 11. Female held in male’s arms.

Figure 10. The male envelops the female in a kiss.

Figure 12. A clingy and vulnerable female.

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Embodied Interaction Through Artifacts Artifacts also contribute to the construction and representation of interactions in these images. In virtual environments such as Second Life, avatars are engaged in lived experiences through interacting with physical objects, such as furniture, toys, houses, clothes, etc. These artifacts support embodied computing, in Dourish’s (2001) sense, because they ensure that inworld social interactions are grounded in concrete, familiar and perceptual reality (as opposed to an abstract symbolic system). The artifacts also mediate avatar activities, in Nardi’s (2006) sense, because they “translate mental processes into instrumental acts.” In other words, the expression and performance of sexual interaction is externalized, visualized, and made meaningful through the use of artifacts. For example, tying a submissive to whipping post externalizes and visualizes the Dom/me’s assertion of authority over the sub. Common BDSM props include toys (e.g., feathers, blindfolds, whips, floggers, crops, etc.) and furniture (e.g., cages, pillows, cushions, Saint Andrew’s crosses, automated avatarmounted fucking machines, etc.). Both toys and furniture (Figures 13, 14, and 15) alike are not only familiar artifacts that provide the necessary physical, embodied presence for the avatars inworld, they are also vital in the construction of scenes that enable virtual BDSM fantasy play. While the scenes in real life BDSM are occasions where sexual interactions take place, in virtual BDSM, as observed through participants’ self-portraits, they become the mechanism in which the spectator can use to visualize experiences (Tong & Tan, 2002). Slave collars and leashes (Figure 16) are especially ubiquitous artifacts featured in many self-portraits. Collars and leashes instantly convey relations of power and suggest interactions and narratives. Though thousands of sexual animations exist in Second Life, the fact is that most sexual interactions are only basically animated while most of the interaction takes place in text chat. Second Life sexual interactions are not fully animated from beginning to end, the way a Pixar movie is. They often involve largely static poses with a single short looped animation, such as a couple in the missionary position on the bed, thrusting over and over again in exactly the same manner. A change in this action typically requires standing up, moving to a new piece of furniture and initiating its animations, which would likewise be largely static with a simple looping structure. Thus, the role of furniture and toys is primarily suggestive, punctuating and visualizing a broader interactive experience that is not fully visualized. The indexical nature of visual representations of furniture and toys extends to profile portraits, which use these items as indices to further an image’s capacity to tell a story.

Figure 13. Female submissives as household furniture.

Figure 14. A caged slave in a submissive pose.

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Figure 15. A Dom in front of Saint Andrew’s Cross.

Figure 16. Slave collars and leashes at work.

Photographer-Spectator Relationships In my analysis of the narrative and interactive structures of these images, I focused primarily on interactions among representative participants, specifically on the mutually constituting relationships among residents, place, and artifacts. Now I turn the focus to the interactions between interactive participants, to show ways that the significance of these interactions is mediated by the photographic techniques used to related stories by the avatarphotographer. The interactions between the photographer and the spectator, while non-verbal and asynchronous, are nonetheless direct and still present and discernable, primarily through the way the photographer acknowledges and engages the attention of the spectator. A special gesture or a tantalizing pose, for example, affects attention and interpretation. Such image “acts” thus constitute and make visible the interactions between interactive participants. This is especially evident in the way the producer of these self-portraits manipulates photographic techniques to demand the spectator’s engagement in the imagery of virtual BDSM. Due to the fact that these resident self-portraits, like most images, separate their creators (photographers) from their viewers, photographers and spectators alike need to reconstitute this relationship asynchronously. In what follows, I will use critical analysis to infer these relationships.

The Significance of Light Sources The deployment of light (both outdoors & indoors) not only bears significance to the resident’s overall sense-making of both space and place, it also serves as a communication conduit between the photographer and the spectator. For indoor pictures, both electric and candlelight are used as light sources, which contextualizes the nature of virtual BDSM the avatar engaged in as depicted in the self-portraits. One major BDSM community in Second Life is a simulation of the 1970s cult BDSM-fantasy novels about Gor, by John Norman. A common topos in fantasy and science fiction novels is the magical medieval setting, and Gor adopts it. Not surprisingly, members of virtual Gorean communities in Second Life use candlelight to highlight the narrative elements of these self-portraits, conveying a thematically appropriate message. The dominant source of light in the majority of the outdoor pictures is sunlight (65%); as noted earlier, the prevalence of sunlight and the outdoors in these images suggests an openness about 16

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the lifestyle that contrasts with real-life, at least in the United States.

Focalization The notion of intimacy and distance not only exists between representative participants as noted earlier, but they are also prominent between interactive participants. Indeed, the affective interactions between the interactive participants (i.e., photographer and the spectator) are conveyed through the technique of focalization as the avatar-photographer constructs and expresses the unique message through the deliberate manipulation of focalization. Focalization (which includes framing and shot composition), carefully chosen by the avatar-photographer to present the pictorial story she/he is narrating, is the artist’s vision in which events unfold. This is akin to the “point of view” or “narrative perspective” in literary works (Bal, 1997), as the reader/spectator views the story from the perspective of character/photographer and accepts what’s being presented. As such, focalization not only relates to perception, it also influences interpretation directly. Indeed, focalization not only orients the spectator during the act of appreciation, it also dictates the relationship between the agent that sees (the spectator) and what is seen (the avatar, in the case of self-portrait). While the spectator may exert voyeuristic domination over the representative participants (the viewed subjects), at the same time, the spectator is also subject to the focalization of the photographer through the exertion of power over the one who gazes. The examination of both the subject and the object of focalization reveals interesting dynamics in the photographer-spectator interactions. Masculinity and femininity, as presented in the self-portraits through focalization, contribute to such interactions. As much as 62% of avatars’ self-portraits utilize the technique of medium shot to emphasize the feminine and masculine physiques from the waist up (Figure 17). Close-up shots are also used: 13% of the self-portraits use such camera composition to emphasize the breasts, while only 0.5% of them single out facial expressions (Figures 18 and 19). These result in a more detailed visual information in the portraits. Since viewers are brought closer to the avatars through these two-camera composition techniques, they become more emotionally involved in the submissives’ and/or Dom/me’s affective states. In addition, recalling Mulvey’s notion of festishistic scopophilia (Mulvey, 1989), where the female body is presented simply as a desired object separated from the person herself, such focalization and its concomitant depersonalization reinforces the voyeuristic gaze of the spectator.

Figure 17. Focalizing on the breasts invites the male gaze.

Figure 18. A close-up shot of a submissive.

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Figure 19. A close-up shot makes the avatars’ affective state visible and the photographerspectator interaction more intimate.

As noted earlier, while an image can encourage the audience to relate intimately and emotionally to the represented avatars, the placement of the props in combination with the photographic framing can also create a sense of distance and detachment. As discussed earlier, the use of wide shots (Figure 20), where the full-body length of the avatar is seen against a rich backdrop, makes it difficult for the spectator to feel physically and emotionally connected to the avatar. Out of all the portraits studied, 89 (24% of all images) keep the spectators at bay this way. As such, the focalized objects (i.e., the environments and the events as opposed to the avatar) dominate the image where the role of the individual is downplayed to highlight the significance of the event, space, and/or community.

Figure 20. A long shot that narrates D/s relationship.

Vantage and Spectatorship Vantage, the point from which camera perceives the main figure in a photograph, often mediates photographer-spectator interaction. While the majority (69% of the pictures) of the selfportraits are taken with the front-and-center camera position where the viewers can easily identify and make aware the avatar’s overall behavior and the environment he/she is in, 13% of the pictures examined stand out with distinct framing. In Figure 21, for instance, the submissive deviates from the photographic convention commonly seen in the sampled images by choosing to shoot the photograph from the vantage point of one that is over her Master’s shoulders: the Dom stands tall and strong, with the 18

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submissive kneeling by his feet, looking up with reverence. The gaze of the two avatars connotes devotion. The spectator is forced to look at the submissive from the point of the view of the master as well — the distance between the master and the submissive becomes the distance between the submissive avatar and her spectator — the viewer, too, is admired by the submissive. The master and the submissive look directly at each other and nothing else — the gaze of the two avatars connotes devotion in the relation. The juxtapositions of the standing master and the kneeling submissive and the careful mise-en-scène together construct a compelling story of virtual BDSM fantasy play in which the spectator participates — as a Master. This is “topping from the bottom,” because the “submissive” is forcing all viewers to relate to her a certain way. The fact that the submissive is able to impose mastery of herself onto all who view her profile is an example of the power dynamics called into play in virtual BDSM practice.

Figure 21. The viewer gazes at the submissive as a master.

Photographic techniques thus contribute specifically to D/s messages: the self-portraits convey a subtle visual language that empowers submissives to speak. While the spectator may gaze (voyeuristic domination of the viewed subject); at the same time, the viewer is also subject to the framing of the photographer (the viewed subject exerts agency over the gazer).

Conclusion The visual language of BDSM is available in a number of places, from fetish photo books to Second Life BDSM goods merchant advertisements. I selected profile pictures because they are widely available and yet also highly personal. BDSM is a personal, intimate lifestyle, on- or offline. The visual language of profile pictures reflects the norms and aesthetics of the subculture, but it is also used for intimate self-expression, self-narration, and identity formation. These are powerful and important activities for participants in virtual worlds, who are typically faced with the daunting task of figuring out who they are online. This language not only enables this self-discovery, but it also facilitates expression of that discovery and situates one within a community that understands and respects it. The role of the profile image as a photograph adds an interesting and even paradoxical dynamic to BDSM imagery. In the case of submissives, though the avatar may be submissive inworld and may accept certain ritual constraints to speech and behavior, she or he has no such relationship with the viewer, and thus has the power of the photographer to use the visual language of BDSM to assert her identity in her own way. This assertion manifests a powerful form of self-expression that goes against her or his putative submission in-world. In the case of Dom/mes, while they can also assert themselves through framing images by including themselves in a sexualized context (their own profiles), they also offer up their bodies to the 19

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objectifying gaze of the spectator. Spectators, who may themselves be Dom/mes, subs or curious by-standers, enter into this power dynamic. For those who are new to virtual BDSM, it may well be that their experience of this kind of imagery creates a compelling, shocking, deeply sexual, repulsive, shameful, or otherwise intense reaction that serves as a quick introduction to BDSM. This happens all at the same time: the desirable and undesirable cultural norms of BDSM are transmitted by indoctrinating new participants and reinforcing themselves with existing ones. Some of these norms include the following: that human relationships involve sexual exchanges of power, that intimate interaction takes place in rich and varied narratives, that women are submissive, that places and communities can provide meaning and support for deeply personal sexual self-explorations, that sexy people are thin and white, that long hair signifies femininity and submissiveness, that the deep secrets of the self can be articulated through hairstyles, latex and erotic pillow-poses, that fear and violence can be controlled and used for pleasure, that exotic sexual fantasies are common and acceptable, and that a complex visual language can be used to augment verbal language and body language in sexual acts and autobiographical expressions about them. The visual language of virtual BDSM is a powerful mode of communication, and its language helps people explore and express their most intimate desires, fears, and fantasies. This, and not temporary sexual gratification or shock value, possibly explains the prevalence and persistence of BDSM in virtual environments such as Second Life. Virtual BDSM visuality is a mode of discourse which empowers even submissives to speak sincerely and profoundly.

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Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Why Virtual-World Economies Matter Mandy Salomon, Smart Services CRC, Australia Serge Soudoplatoff, ESCP-EAP / Hetic, France In this special edition on virtual-world goods and trade, we are pleased to present articles from a global cohort of contributors covering a wide range of issues. Some of our writers, such Edward Castronova, Julian Dibbell or KZero’s Nic Mitham will be well known to you as distinguished leaders in the field, but it is equally our pleasure to introduce exciting new voices. Here you will find pieces written by academics, practitioners, journalists, a documentary filmmaker and perhaps the youngest contributor to JVWR yet, Eli Kosminksy, who attends high school in upstate New York. We would also point out that this issue extends its format to include Anthony Gilmore’s pictorial story, Julian Dibbell’s audio interview, and Lori Landay’s machinima. In real life, most contributors live in the US, the UK and Europe, and we, the editors, are based in Australia and France. We express warm thanks to the team at Texas University, especially to Jeremiah Spence, our editor–in-chief for his guidance throughout this process. We begin with our own thought piece, which is designed to contextualise the deeper contents herein by way of plotting the virtual goods path and placing some historical sign posts along the way. Mandy and Serge Keywords: virtual worlds; economy; virtual goods.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

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Why Virtual-World Economies Matter Mandy Salomon, Smart Services CRC, Australia Serge Soudoplatoff, ESCP-EAP / Hetic, France

Virtual economy: new rules, old rules

The word “Economy” has complex roots. It comes from the Greek “oikonomos”, made of oikos—the home—and nomos—the rules, the usage, the law. Nomos originally means “administration”, and Oikos itself had deeper origins, initially denoting “a clan”. From an etymological point of view, when we talk about economy, we are talking about community management. Economics is then the study of community management—and although it as ancient as the word itself, economics is arguably as elusive as it has ever been. In spite of a plethora of experts, books and even Nobel Prizes awarded to Economists, the complexity of the discipline means that no treasury department, financial analyst, self-made billionaire or academic theorist ever quite has its measure. Let the current Global Financial Crisis be a testament to this. Yet each of us runs our lives believing that we have some control over it—at least at the micro level. Economies have scales of their own, so-to-speak, and from the householder opening a wallet at the checkout, to the secretary of the International Monetary Fund loaning money, through to start-ups chasing Venture Capital, we all wrestle with the same issue: dealing with a virtual entity (money) to transform it into realities which, hopefully, makes us live better, or at least helps us face the continuous disruptions of our environment. It is therefore surprising that so little research has been done on virtual economies, in particular on the comparison between virtual and real economies and the points at which they connect. Virtual goods and trades are not on mainstream economists’ radars. Virtual worlds are considered to be something of a novelty—this in spite of some 650 million-plus registrations for massively-multiplayer and virtual reality environments, and perhaps four or more billion dollars USD in virtual goods traded across worlds and social networks (KZERO 2009). Perhaps the explosion of the Internet bubble in 2000 distracted economists from the Internet field. Certainly, they have been slow to return, preferring to analyze the global financial crisis and associated Ponzi schemes than to track the fast-moving virtual economy that propagates on the Internet, and the increasing importance of virtual goods in people’s lives—an importance that, in turn, has an impact on traditional economies. Businesses and governments are also slow to acknowledge the shifting sands. Notwithstanding the work of academic thinkers including Michel Bauwens, Yochai Benkler, Lawrence Lessig and Pierre Levy, many businesses fail to recognize that the Internet is creating new modes of production. It is transforming the economy in terms of human activities, processes, jobs, expertise and business models. Furthermore, Internet markets have lead to real disruption, in the micro-economic sense (new rules, or rather the return of old rules: peer-to-peer negotiations, village market place, barter); in the usage sense (the explosion of digital goods); 4

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and in the macro-economic sense (privately owned parallel currency, such as those in virtual worlds such as Entropia Universe’s PEDS, Linden Dollars, and the Chinese QQ Coins). Virtual worlds are not the only places where virtual currencies are used: airlines’ mileage plans for example, are another form of virtual currency. The more we go digital, the more gifting and trading—about as elemental as we social beings get—will be expressed in the virtual realm. So what are the main characteristics of a virtual economy? How does it differ from a traditional one? Is it a recent phenomenon? What is its relationship with its traditional counterpart? Many interesting issues are emerging—and they are far from being fully understood. Let us start with a little story, which originates in the medieval age, and which, surprisingly, is told in many countries including Turkey, China, Afghanistan, Korea, Scotland and Brittany: A tramp passes by a restaurant, but does not enter, as he has too little money. The cook is furious to see a tramp in front of his place, rushes him, starts fighting with him, and eventually asks him for some money. The case is brought to a judge, who listens to each side. The tramp insists, “I have eaten nothing, therefore I should not pay”, to which the cook retorts, “He has not eaten, but he has smelled the flavor. This smell is the result of my expertise, and I should also be rewarded for this!” By analyzing this interaction, we can see that the tramp’s perspective belongs to the tangible economy, where people pay for a product, food in this case. The cook’s perspective, on the other hand, belongs to the intangible economy, where people pay for the result of an expertise, cooking in this case, in which the experience goes beyond the consumption of the actual product. How is the tension between the cook and tramp resolved? The judge asks the tramp for a coin, taps it on the table, tells the cook “you have heard the noise, so now you are paid”, and gives the coin back to the tramp. The anecdote is more than just a cute story. Firstly it demonstrates that there is nothing new about the intangible economy, and secondly, that the tangible and the intangible can coexist. The clever judge solves the conflict by putting value in an intangible object: the sound of a coin; this is a preliminary form of a MP3 digital good. However, although the story demonstrates that both tangible and intangible goods share the attribute of perceived value, a fundamentally different rule applies to each: sharing tangible goods means dividing it; while sharing an intangible good means multiplying it. When four people eat a pizza, each one has a portion of it. When four people share a MP3 file, each one has an entire version of it. The rules that govern tangible products are rules based on scarcity, while the rules for intangible products are governed by abundance.

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But scarcity and abundance are not the same as supply and demand – and this is why virtual goods and trade is at the core of virtual community platform creators’ business models; they realize that they can create markets and leverage brands inside their worlds, and further, that in managing the economics favorably to themselves, virtual goods will become central to their revenue stream. Virtual goods are abundant in so much as the ontological behavior of digital content means it can be copied and forwarded without destroying the original. This is far more difficult for a hard product - it can be done, but certainly not with the same ease or speed; a rice seed can, fortunately for mankind, multiply to much more rice, but at a slower pace than MP3 files can be transmitted over the Internet. Virtual goods however can be scarce, whether the scarcity is artificially imposed or not. Electricity is an example: though almost totally intangiblei, it is considered as a scarce resource, and is priced accordingly. The continuous effort of the audio industry to create DRM, then to threaten to put people in jail is a dogged adherence to the economy of scarcity, the only one in which they can maintain their large portion of the pie. The converse is also true : some physical goods are positioned in a economy of abundance, by the simple fact that they can be exchanged or resold, thus generating extra revenue for each good - Trading Card Games (TGC) for example. Even though scarcity is introduced by the distributers, (the so-called ‘rare’ cards), the secondary market follows the rules of abundance. A cursory look at eBay shows over 462,000 listings in the ‘trading cards’ category. In this case, transferability compensates for the absence of replication. Is it, as Julian Dibbell points out, an issue with copy-ability, or is it a matter of rivalrousnessii? Somehow, rivalrousness is attached to the idea of scarcity. If you have a unique object, which no other can have, then the value of it is higher. Brands know this, especially luxury ones, and it is a position they must absolutely maintain if they are to survive. They must ward off any penetration into the market of abundance for, in any rights-managed-world, they have words for it piracy and counterfeiting. “I just don’t understand it. Has anyone here purchased a virtual gift? If so, why? ” Blog comment, TechCrunch 2008 iii A question often raised is why people pay for digital goods, which are, in the eyes of many, totally worthless. In an industrial economy, the price determination rule is “price is cost plus margin”. In a post-industrial economy, the rule is different, price being attached to the value of the usage in a given context. Shakespeare beautifully describes it when King Richard III says: “A horse! A horse! My kingdom for a horse!” The cost of fabricating a kingdom is not comparable to the cost of fabricating a horse, but given the context, the king would trade one for another. In our time, people buy digital goods for the same reasons they buy products in real and the low production cost of a digital good makes obvious that the price paid is based on its perceived or contextual value. worldiv;

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Craig Sherman, the CEO of the virtual hangout Gaia Online, tells the story of a teen subscriber who visited the Gaia stand at a trade fair and found a replica cap of one that he had seen in the virtual setting but that he had not been allowed to buy. The virtual cap cost $2.50; the physical version cost $19.95. The boy was thrilled that his mother permitted him to purchase the replica cap, and he commented, “It’s so cool I can finally buy this. I couldn’t get the real one but at least I can get the copy v.

The momentum for online virtual goods is linked historically to the advent of multi-user dungeons (MUDS) of the late 1970’s and the 1980’s. Gamers acquired treasures that were at that time, entered as text chat. But despite the lack of ‘embodiment’, the intention was the samevi. In 1999, Korea’s Cyworld introduced ‘acorns’, the icons that customers buy with real world money to furnish their virtual rooms. Habbo coins are now so mainstream that they are available at retail outlets such as 7Eleven and Target, where they can be bought as pre-paid cards, on Visa, Mastercard and via the mobile phone. Facebook enables users to gift tokens to one another, and the practice is now integral to its business model, with Silicon Valley pundits putting the revenue figure as high as 60M USDvii. According to ‘Inside Facebook’, a blog for developers, FB is exploring the exchange of dollars for credits, payment to developers in virtual credits, user-touser transactions as a reward for a good post or set of photographs, and virtual branding on giftsviii. Arguably, virtual goods transactions via social networks rather than virtual worlds, is presenting greatest disruption to existing monetization systems is taking place (although a growing convergence between the two somewhat neutralises the distinction). Facebook alone has a subscriber base of 370 millionix. In population terms this is the size of the USA and France combined. Add to this the hundreds of millions of registered users from the combined SocNets of Bebo, Mixi, Cyworld, Black Planet, Habbo, Classmates, Hi5 et al, and it is a recipe for a tidal shift in spending habits and mechanisms. The prospect for a shared online currency that enables users to transact across platforms should be cause for regulators of traditional monetary systems to wake up in a sweat, if they have not already. Parallel currencies used to buy digital goods in virtual worlds have the potential to destabilize national monetary markets. Indeed, China experienced this first hand with QQ coins. Issued by the Internet Company Tencent in 2002, the tokens seeped out into the wider market of 7

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commodities. Originally used as play-money for virtual flowers, chat room buddies, or cellphone ringtones, QQ’s began being traded in games, and were then traded out of the game environment altogether. QQ’s were used to purchase real products and for illicit gambling and laundering venturesx. So widespread was the exchange that alarm bells rang at China’s Central Bank and, in June 2007, the Department of Commerce barred the practice, worried that the exponential growth of such activities could significantly impact on the value of the renminbi. The only permissible trade, it decreed, would be for “virtual goods and services provided by its issuer, not real goods and services”xi. In China’s case, users’ were frustrated by the nations’ banking infrastructure, in particular, the lack of credit card facilitiesxii. QQ coins filled a gap. The errant behavior of the Chinese shopkeepers and currency traders who traded the QQ's at a favorable rate highlighted the smoke and mirrors of currency itself: that official or not, coinage is always virtual, symbolic of the value placed on goods and services. Where the change in status occurs is in the systems that create and support it. Wherever there is trade, there is taxation and the virtual world is not exempt. In recognition of the profits to be made in the virtual environment, many countries now consider a taxation event occurs when virtual currency is converted to real money, known as real money trade (RMT). In China’s case, the authority’s 2008 decision to tax profits of virtual goods from between 3 and 20%, will do little to discourage its millions of online gamers from curtailing their ‘under the table’ trading habits, particularly when the Wall Street Journal reports that filing full documentation attracts the higher tax rate, and incomplete documentation, the lowerxiii. In the US, taxation of digital goods (in the sense of a file which is downloaded on your computer) varies from one state to the otherxiv. However, it is unclear whether a digital object bought in a virtual world answers this traditional definition, and the IRS issued in December 2009 a specific statement about this situationxv, aligning revenues from a virtual world to "bartering, gambling, business and hobby income". In a broader sense, financial institutions will need to come to terms with the serious virtual economic game that is being played, and which can be measured not just in terms of transactions, but also for the clues it may give to new transaction behaviors. Already suites of financial services have been configured for digital trade, metaphors which mirror the financial constructs of the atomic world. They include in-world credit cards (‘MetaCard’), virtual money exchanges, banks, currency speculators, in-world ATM’s and in Entropia Universe’s case, an arrangement where real world ATMs from which its currency, ‘Peds’ can be cashed out. More recently, the first cross-platform virtual currency exchange (Currency Connect) opened, linking IMVU to My Yearbook. Any takers on how long it might be before Paypal constructs a currency for its millions of users? It is a lost opportunity if users who lead the shift are penalized for their ingenuity, financial institutions overlook what insights might be gleaned, and fail to innovate their processes accordingly.

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Virtual worlds and virtual economies: worthy of serious study Whilst virtual economy statistics are somewhat rubbery, (some figures refer to money brought into worlds by gamers and online communities whilst other figures refer to virtual currency traded out of online worlds, that is, real money trade), it is safe to identify the number of people participating in virtual worlds in the hundreds of millions, and the money spent on virtual assets numbering multi-billion US dollars per yearxvi. With such vast numbers of users gravitating to online virtual environments for social and recreational interaction, their value as test beds for economic theory and consumer behavior should not be overlooked. Firstly, the demographics are significant, as more than 300 million teenagersxvii are performing economic tasks in virtual worlds such as Neopets, Habbo, Barbie Girl, etc. Not only are virtual worlds places where teenagers learn financial management, economic rules, and consumer practices, but when they become adults, their approach to real world economic practice is going to be influenced by their usage of virtual worlds, and they may be eager to import their practices into real life. Secondly, virtual worlds lend themselves to simulation, training, modeling and knowledge acquisition, with substantial projects currently being undertaken in various fields such as medicine, the military, team building, education. They are effective data-gathering environments, as actions and responses are readily measured by inworld tracking and analytics (metrics). As social spaces, places of transaction and data nets, virtual worlds are tools for new economic theories and rules. A third factor has to do with re-distribution of government and business expenditure. Remote service delivery via virtual worlds may mean considerable savings; IBM reports a saving of USD250,000 dollars in one single internal event by using the virtual world instead of a physical meetingxviii. Feedback from IBM’s experience showed that not only was the quality of the interaction preserved, but more people than otherwise were able to attend. Whilst the disruptive impact of virtual worlds on the real economy is yet to be felt, global conditions in the past year - including the challenge of the economic crisis, concern over carbon footprint and health issues such as Swine Flu – suggest a framework for virtual worlds’ future. In 2009, they found a niche in the conference and tradeshow sector. Unisfair, a virtual world platform for corporate ‘engagement’, reportedly attracted 25 new conference clients in Q1, 2009, largely from the high-tech, pharmaceuticals/biotech and business services sectors with a combined attendence 100,000xix. As the technology underpinning virtual worlds matures, business may well opt for digital get-togethers in place of real-world trains, planes, hotels and function centers. If this happens, the airline, hotel and tourism industries will also be affected. IP, Copyright and the End User License agreement (EULA) As far as copyright is concerned, authorities are playing catch-up in their response to user-driven virtual trading practices. They follow the well-trodden path of regulators determined to apply old policy to a new environment, the battle to contain music downloads via peer-to-peer file sharing being the shining example. 9

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Traditionally, games were built on a business model of monthly fees: subscribers paying to be part of the game, and the game company owning all objects created. User-to-user transactions were limited, and fast tracking the game play by purchasing the necessary assets, ‘gold farming’, was prohibited. In this hierarchical system, money flowed vertically, from users to the game owner. When a significant numbers of gamers chose not to respect the copyright, and instead hacked the system, or bought and sold digital assets on the black market, publishers moved to ban offenders, freeze accounts and in some cases, prosecutexx. Such unregulated practices were somewhat curtailed in 2007 when games publishers successfully lobbied eBay to ban the exchange of proprietary virtual goods on its auction site. (The exception was content from Second Life®, built on the premise that its subscribers own their content and IP). Has it stopped trade in secondary or black market? No. IGE, the company which presents itself as the legitimate face of virtual trading posts believe that the secondary market may even overcome the primary market within the next few years and suggests expenditure may reach the $7 billion in the years to comexxi. Thus, there is a growing realization amongst publishers that the old model is no longer sustainable. Perhaps taking their cues from Linden Lab, which largely gives Second Life users the ability to resell their creation, either as unique piece or a replicable item, games publishers are shifting to an alternate business model, where access is free, and selling virtual goods is the revenue. Electronic Arts, Atari and Xbox have begun the shift and according to the ‘Inside Social Games’ blog, Activision-Blizzard, the World of Warcraft publishers, is considering similar strategic movesxxii. Watch This Space The metaverse is expanding. Analyst kZero asserts that that virtual worlds numbers are set to double every yearxxiii . This means increased diversity, fresh ideas; the innovation net is enlarged. Contrast for example, the different approaches to banking in Second Life and Entropia Universe. At the same time Linden Lab closed down its privately run in-world banks (citing to a lack of operator transparency), Entropia Universe’s creators, MindArk, made a call for tender, allowing several virtual banks to enter the Game. The big difference is that Entropia Universe manages real dollars, while Linden Lab offers its own currency, the Linden Dollar, which is , according to their Terms of Service, not really money: “1.4 Second Life® "currency" is a limited license right available for purchase or free distribution at Linden Lab's discretion, and is not redeemable for monetary value from Linden Lab.”xxiv This wording, and explicitly the non-redeemable characteristic of the Linden dollar, makes it closer to a prepaid card than real money. With its different orientation, MindArk’s The Mind Bank, which serves as a central bank for all of the different virtual worlds within the Entropia Universe, has been granted official status by the Swedish Financial Supervisory Authority (Finansinspektionen) It will operate alongside Europe’s major financial institutions, and will need to meet the strict regulatory demands of the EU Banking systemxxv. 10

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MindArk’s decision to work with real currency created the conditions for a merged economy and Entropia Universe will become an important indicator as to how real and virtual world economies connect. It is one to watch – but equally, there is much more from many others, still to come. About this issue The time to better understand the way people and organizations are redesigning the how, what and why of goods and services in virtual worlds has arrived. This edition of the Journal of Virtual Worlds Research gives air to those who recognize the paradigm shift is upon us and are equipped to analyze it. We encourage the reader to watch Lory Landay's machinima "Rethinking Virtual Commodification, or The Virtual Kitchen", which addresses in an artistic manner the often asked question of "why do people buy useless things?” Edward Castronova advances the conundrum of real versus non-real money in his provocation, ‘On money and magic’. He asks the question: are the place markers of dollars and renminbi any more tangible than virtual world currency and further, are the dreams which the ‘real’ world of money and finance spin so very different to the dreams of attainment in the virtual world? This edition features an audio interview Julian Dibbell, amongst the first to bring the notion of making money in virtual worlds to the attention of the public sphere, recorded shortly after his panel session at the inter-disciplinary 2009 State of Play Conference, held in June at NYU. Here, Dibbell shares his observations on the evolution of virtual world economies in the six years since the first State of Play Conference. He makes an important distinction between virtual world objects and other digitally distributed goods: while both share the attribute of abundance, one gains its value from being widely circulated (for example music) whilst the other's value lies in its limited supply (for example, a WOW sword). Virtual goods, like their real world counterparts, are being acquired through the efforts of hired help, from a country where labor costs are low and there is no shortage of workers. To be more explicit, China’s gold farmers service the needs of the West’s time-poor gamers by providing them with powerful objects that help the players to advance their status or place in the game. It’s a case of good old fashioned outsourcing. Anthony Gilmore’s photo-journalistic study of gold farming takes us to the coal face of this virtual trade industry: a Chinese village, a hut, routers and a lot of cables. This exclusive excerpt from Gilmore’s screen documentary Play Money, (the title acknowledges Julian Dibbells’ 2006 book of the same namexxvi) will surprise readers who come to the story with preconceived notions of sweat shops and exploited workers. Nic Mitham, CEO of analytics company kZero, has written up his latest thoughts on growing business opportunities in virtual worlds, particularly around branded virtual items. His particular focus is B2B (Virtual Goods : Good for Business). Continuing the line of business analysis, Maura Welch, the Director of Virtual Goods and Content from Wee Worlds has contributed "Teens & Virtual Goods - The fun, useful and affordable luxuries that are driving the virtual economy". She provides some bullish statistics that suggest that platforms that embrace the economy of virtual goods are well placed to make profits. 11

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The hacker ethos is examined by Stefano de Paoli and Aphra Kerr, in their paper "We Will Always Be One Step Ahead of Them" - A Case Study on the Economy of Cheating in MMORPGs". Like their computer programmers counterparts, games cheats are on the innovation edge with their use of ‘bots’. Another challenge to MMOs, at least from game designers point of view, is Gold Farming. Richard Heeks in his paper "Understanding Gold Farming and Real-Money Trading as the Intersection of Real and Virtual Economies", demonstrates that the difference between the real and virtual economy is not that great, and that the model for gold farming closely reflects production trends in developing economies. Entrepreneurship is addressed in two papers, Stéphane Kieger’s, "An Exploration of Entrepreneurship in Massively Multiplayer Online Role-Playing Games: Second Life®® and Entropia Universe®" and Robin Teigland’s "Born Virtuals and Avapreneurship: A case study of achieving successful outcomes in Peace Train – a Second Life organization". Kieger looks at the initiative skills of MMO's strong players. Both authors show the statistical correlation between entrepreneurs in real life (called ‘avapreneurs’ by Robin Teigland) and entrepreneurs in the virtual world. This reinforces the idea that virtual world is a type of "terra incognita". Following in this vein, contributing anthropologist from the University of Helsinki, Minna Ruckenstein, explains that the parallels between online and offline economies are due to shared cultural factors which drive economies in general. Further, in her ‘think piece’, Currencies and Capitalism on the Internet, Ruckenstein advances the case for virtual worlds as ‘an important laboratory for future trends of capitalist production’, identifying the user-as-cocreator as the protagonist. In his paper "World of Warcraft: The Viability of Massively Multiplayer Online RolePlaying Games as Platforms for Modeling and Evaluating Perfect Competition", Eli Kosminsky uses a mathematical methodololgy to correlate economic behavior of free markets and server usages in WOW. Therefore, he argues, virtual world platforms should considered as reliable simulation tools. Why restrict the supply of a branded virtual cap for an avatar when multiple copies can be reproduced at no extra cost? Again, real world values apply. The value of brand, the status of the item and consumers’ relationship to brands in virtual worlds is discussed in Sueng Jin’s paper, ‘Virtual Commerce (V-Commerce) in Second Life: The Roles of Physical Presence and Brand-Self Connection’. Games companies and virtual worlds service providers put their faith in the End User License Agreements (EULA) to maintain what Ted Castronova calls ‘the magic circle’, the protective shield which separates them from the outside worldxxvii, (with diminishing degrees of success if the strength of the black market economy is any indicator). However as online worlds and their use cases mature, a new complexity has arisen: content makers now face the prospect of their content migrating from one world to the next. Open standards across worlds are expanding, and the numerous worlds based on Open Sim are leading the charge. How is copyright in this situation to be protected and controlled? Shenlei Winkler, herself a skilled content creator, is at the leading edge of this discussion and in her paper ‘Licensing considerations for Open-Sim based worlds’ she argues the case for a standardized agreement on 12

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the licensing and transfer of content. Winkler’s arrangement with Intel in its ScienceSim is used as a test case. She also argues for recognition of content creators as a professional entity. Winkler’s paper should stimulate thinking about another problem, highlighted by the December 2009 shutdown of the virtual world Metaplacexxviii: what protection is there for content makers and residents who see their labor and investments disappear when a world collapses?

Bibliography KZERO. (2009). 2010 Virtual Worlds and Beyond: Key Market Trends and Developments. Retrieved December 31, 2009 from the KZERO website at http://www.kzero.co.uk i

Electricity is intangible, but needs a physical, tangible support to be delivered.

http://en.wikipedia.org/wiki/Rivalry_%28economics%29 Retrieved December 31st 2009

iii

Schonfeld, E,“hi5 hopes to make real coin with virtual gifts” TechCrunch, December 10th, 2008. Retrieved Dec 12, 2009

Jeremy Liu, 2009, "Why do people buy digital goods", Wall Street Journal, http://online.wsj.com/article/SB123395867963658435.html Retrieved January 2nd 2010 v Sherman, Craig (2007) ‘Why Virtual Goods Matter: What’s Driving Adoption’ Virtual Goods Summit, Stanford University (Panel Discussion). http://www.vgsummit.com/program.php Retrieved 22 June 2007 vi Wisner B, A Brief History of Muds, June 30th 1990. Google Groups http://groups.google.com/group/alt.mud/browse_thread/thread/9b68f2e6d058f4ba/a0c1c5d5c4a66eba?#a0c1c5d5c 4a66eba Retrieved January 12, 2010 vii

Liew J 2008 Facebook’s digital goods revenue $50-60m’ http://lsvp.wordpress.com/2008/11/12/facebooksdigital-goods-revenue-50-60m-sources-say/ Retrieved Jan 6th 2010 viii

Smith, Justin ‘A Running Summary of Facebook’s Virtual Currency’ tests’http://www.insidefacebook.com/2009/08/26/a-running-summary-of-facebooks-virtual-currency-tests/ Retrieved 14th December, 2009

Zuckerberg M, 2009 An Open Letter from Facebook Founder Mark Zuckerberg. http://blog.facebook.com/blog.php?post=190423927130 Retrieved December 30th 2009 x

Ministry of Commerce the People’s Republic of China 2009 ‘China bars use of virtual money for trading in real goods’ (press release) June 29. http://english.mofcom.gov.cn/aarticle/newsrelease/commonnews/200906/20090606364208.html Retrieved December 14th 2009 xi

Barboza D, 2009 ‘China Limits Use On Gamers’ Online Currency’ New York Times http://www.nytimes.com/2009/07/01/technology/internet/01yuan.html?_r=2&ref=technology Retrieved 14th Dec, 2009 xii

Fowler G, Qin, J, 2007 Wall Street Journal http://online.wsj.com/public/article_print/SB117519670114653518FR_svDHxRtxkvNmGwwpouq_hl2g_20080329.html Retrieved December 4th 2009 xiii

Ye J, 2008 ‘Real Taxes for Real money made by online game players’ Wall Street Journal http://blogs.wsj.com/chinarealtime/2008/10/31/real-taxes-for-real-money-made-by-online-game-players/ Retrieved 14th December, 2009 xiv

http://en.wikipedia.org/wiki/Taxation_of_Digital_Goods Retrieved January 3rd, 2010

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http://www.irs.gov/businesses/small/article/0,,id=215593,00.html Retrieved January 5th, 2010

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http://www.kzero.co.uk/; http://www.insidevirtualgoods.com; http://www.ibisworld.com.au/industry/default.aspx?indid=1906; http://en-us.nielsen.com/tab/industries/media; http://www.gartner.com/ xvii

http://kzero.co.uk/universe.php Retrieved January 20th 2010

xviii

http://work.secondlife.com/en-US/successstories/case/ibm/ Retrieved December 24th 2009

xix

Virtual World News, 2009 ‘Q1 brings Unisfair 25 new customers, 100,000K visitors, new CEO‘ http://www.virtualworldsnews.com/2009/05/q1-brings-unisfair-25-new-customers-100k-visitors-new-ceo.html Retrieved Jan 6th, 2009 xx

Terdiman D, 2009 “Microsoft bans I million X-box Live players” http://www.cnn.com/2009/TECH/11/12/cnet.xbox.live.ban/index.htmlv Retrieved January 14th 2009 Choo E, Kaixin L “Sale of illegal virtual currencies cause game accounts to be frozen” http://www.channelnewsasia.com/stories/singaporelocalnews/view/1013838/1/.html Retrieved January 14th 2009

xxi

IGE 2009 http://www.ige.com/about.html Retrieved 12 January, 2010

xxii Mack C, 2009 ‘Mainstream Games buying more virtual goods’ http://www.insidesocialgames.com/2009/09/21/mainstream-games-companies-buying-more-virtual-goods/ xxiii

Kzero 2009 ‘Virtual Worlds:2010 and beyond. Key trends and market developments’ http://www.kzero.co.uk/ Retrieved December 13th 2009 xxiv

http://secondlife.com/corporate/tos.php Retrieved January 2nd 2010

xxv

Takahashi D, 2009, ‘MindArk’s Entropia Universe now has a legally sanctioned virtual central bank’ Games Beat http://games.venturebeat.com/2009/03/18/mindarks-entropia-universe-now-has-a-legally-sanctioned-centralbank/ Retrieved January 2nd 2010 xxvi

Dibbell J, 2006. Play Money: Or, How I Quit My Day Job and Made Millions Trading Virtual Loot. New York: Basic Books. xxvii

Castronova E, 2005 Synthetic Worlds: The Business and Culture of Online Games Chicago, The University of Chicago Press, 147. xxviii

Koster R, 2009 ‘Metaplace.com is closing’ http://www.raphkoster.com/2009/12/21/metaplace-com-closing/ Retrieved 21st December, 2009

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Rethinking Virtual Commodification, or The Virtual Kitchen Sink By Lori Landay, Berklee College of Music

Keywords : virtual worlds; virtual goods; commodification; machinima.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research - Rethinking Virtual Commodification

Rethinking Virtual Commodification, or The Virtual Kitchen Sink By Lori Landay, Berklee College of Music

In a piece I published last year in The Journal of Virtual Worlds Research entitled « Having but Not Holding: Consumerism & Commodification in Second Life, » I critiqued commodification in the virtual world. But, after another year of being in Second Life, I see that I underestimated some important aspects of virtual goods and services, and I am here to recant. Virtual consumption is not only about not knowing what else to do in a virtual world except remake the actual world, or even about having easily what is difficult, impossible, or even undesirable in the material world. It is also about the value of virtual objects, how virtual commodities connect to social relations, and the importance of virtual « home. » First, all virtual objects are not equal in terms of quality. In my earlier piece, I create, or "rez" a sphere and claim I can make whatever I want in Second Life for free. This is true only if I want spheres! OK, I can make other things, but there is an opportunity cost in terms of time, and there are some things I cannot make myself as well as others can, for the same reason that I do not make my own clothes in the actual world. Look at me a year ago, and look at me now. I cannot make the hat or top that I am wearing. Lady Thera made them, and they are worth paying for. Moreover, part of the fun in this ludic environment is the instant gratification of being able to transform myself from a human … into a centaur for the equivalent of a few U.S. dollars. The objects you now see in this video—flowers and plants by Alexith and Shirah Destiny, Maya Paris's burlesque items, Flithy Fluno's virtual exhibition of the physical paintings which he sells thro ugh Second Life, or Rayzer Haggwood's animations so your avatar can play the guitar— were all made by peoplewho not only crafted their virtual goods but also thought carefully about how to display and sell them. They are skilled designers and talented artists who deserve to be compensated for their creativity, labor, resources, and time. Second, I underestimated the connection between the social and economic aspects of Second Life. When I wrote the earlier piece, I had not been inworld very long, and didn't have many friends, or understand the interactive nature of Second Life. Now I realize that part of the virtual economy is the gift economy, the exchange of items that can be transferred, and how exchanging, giving, and sharing objects can be part of friendships. In addition, virtual objects are not only meaningful for how they express identity, create environment, are aesthetically pleasing, or perform a compensatory function for unsatisfied desires in the actual world, but they can become significant because of their provenance, where they came from, who gave them to you. And finally, I now have a better understanding of how important place can be in a virtual world, and the role that "home" can provide. A virtual home, rented or on one's own land, whether similar to an actual world home or some other kind of space, is not just a simulacra of the familar to make the metaphors of place manifest in a virtual world. It is not just a mirror image, but its own place, a locus of experiences that have occurred there, and are now a part of me. I still do not see the appeal of a virtual kitchen, but I have also spent enough time in Second Life now to know that people's uses of commodities are often creative and ludic, providing frames for play and interaction that stimulate the imagination in ways I could barely glimpse a year ago. Maybe that could even include the kitchen sink.

Journal of Virtual Worlds Research - Rethinking Virtual Commodification

Notes on Rethinking Virtual Commodification

Part of my 2008 essay, “Having but Not Holding: Consumerism and Commodification in Second Life,” was a machinima (neologism of machine and cinema, meaning digital video captured in a virtual world or 3-d game environment) of my avatar, L1Aura Loire, talking from ”her” perspective about virtual commodification. It was my early foray into what became the focus of my sabbatical year in Second Life: virtual subjectivity, both in imagining and performing an avatar's perspective, and in attempting to express ideas in a non-written format. A year later, I stand by most of what I said in the essay and machinima, but there were a few things I got wrong. I chose to make a machinima in response to my earlier piece instead of writing another essay to show as well as tell about the virtual goods I discuss. I am excited about the possibilities for machinima for creative documentary-style pieces with voice over narration like this one, for narrative, for music video, and for experimental video. The biggest challenge for me is to create images and sequences that illustrate the concepts I want to express. Once I plan out my ideas and write my narration, I storyboard the shots I want to use. I set up shots with my avatars, sometimes other people, and sometimes I can use footage I already have. I capture video within Second Life on my MacBook Pro with the software program IShowU HD. I often use two computers, with a second avatar (an “alt”) functioning as the camera, hidden out of sight. To move the “camera,” I sometimes use the SpaceNavigator by 3Dconnexion instead of the mouse. I edit the footage in Final Cut Pro. My other machinma are online at: http://www.youtube.com/user/ProfLL. Finally, here are some thoughts that flesh out what is in the machinima. “Creationist capitalism” is the term anthropologist Tom Boellstorff uses to place the confluence of creativity, social relations, identity, and consumerism in Second Life in a wider context. He defines creationist capitalism as: “a mode of capitalism in which labor is understood in terms of creativity, so that production is understood as creation. Techne is the modality this creation takes; self-fulfillment becomes a means of production—a Robinson Crusoe-like fantasy of the individual working outside social relations” (206). In last year's piece, I am that Robinson Crusoe, alone on the platform I built, giddy with the possibilities of creating out of the virtual nothing, rezzing spheres, making my own clothes. In this year's piece, I am a participant in the virtual economy, a consumer as well as a producer, involved in a social network, with places to go, people to see. It is possible that I have simply been coopted, or caught up in the hegemonic ideals of beauty and behavior of the culture in which I have chosen to engage. At this point in my exploration of virtual worlds, I perceive participating in the virtual economy not so much as playing a game of consumerism (as I did last year), but as an integral part of the virtual world, because I now value virtual goods and services in a different way.

Journal of Virtual Worlds Research - Rethinking Virtual Commodification

For the producers and sellers of the virtual goods featured in the video, there is an economic motivation, and a payoff; their inworld businesses are profitable, in their definitions of that word. In terms of disclosure, the artists featured in the piece are people who I know inworld, some of whom I have met in person, and I appreciate their talent and aesthetics. Instead of researching the economic bottom line of their inworld businesses, I chose to think through the ways in which the virtual goods they produce and distribute are presented in the virtual world, and how I interact with their objects. Only Filthy Fluno's inworld objects have a direct link between the virtual object and a material, physical one. The virtual items for sale in SL by Shirah and Alexith Destiny, Maya Paris, and Rayzer Haggwood only exist within SL. The flowers, plants, and trees that Alexith and Shirah Destiny sell through their inworld business Destiny Blue Designs (http://slurl.com/secondlife/Destiny%20Blue/57/60/22) make virtual space into place. SL residents can use them for landscaping their environment, and they can also be given as gifts, some in vases, planters, or bouquets. The “shop” is a beautiful garden sim where the plants are both in beds and also part of the landscape, with music, dance balls, and places to visit. Some of the plants also have an interesting story. Alexith and Shirah, who are married in Second Life, went to Fiji together—the actual people, to the actual Fiji—and took photographs of orchids that they used to make the textures for the virtual flowers. Alexith's technique for making detailed objects that are very low prim (one or two prim per plant) push the boundaries of Second Life graphics, and the challenge of getting the most depth and beauty out of a prim drives Alexith's creativity forward. For me, his plants hit just the right chord of blending realism and abstraction for representation in the virtual world, capturing the essence of the flower or plant without being too detailed or too cartoony. Maya Paris's burlesque items play a function familiar to many artists; she makes and sells well-designed consumer items to fund her inworld art. In particular, her animated dance fans and animated stockings combine flair and wit. To me, they and her other burlesque items participate in the often-hilariously over-sexualized environment of Second Life with a knowing wink. (When I someday do a piece on sexuality in Second Life called “Being Had without Being Held,” I will feature her items!) How the objects are displayed in her two shops (Bluestocking Burlesque at http://slurl.com/secondlife/Tigerclaw/228/144/55 and also in a “mall” at http://slurl.com/secondlife/Dindrane%20Elfor/184/175/47) show her eye for design. Like her virtual art sculptures and installations (which she also sells at Bluestocking Interactive Art Gallery, http://slurl.com/secondlife/Tigerclaw/233/174/63), these objects call attention cleverly to the absurdity of the virtual, creating ludic interactions with sound, style, and animations.

Journal of Virtual Worlds Research - Rethinking Virtual Commodification

Filthy Fluno's CounterpART project, featured in the New York Times Sunday Magazine, http://www.nytimes.com/2009/03/08/magazine/08fluno-t.html?_r=1, exists both in Second Life at Artropolis (http://slurl.com/secondlife/Artropolis/169/147/22) and in an actual world gallery in Lowell, Massachusetts, USA. Original paintings, some inspired by Second Life, can be purchased through Second Life, so Filthy, who is also Jeffrey Lipsky, crosses the borders between the virtual and actual worlds, using SL as an extension of his actual gallery and business, although not a simulation of it. The digitized images he displays in his sim, Artropolis, however, are not what I would consider virtual art any more than a digitized image on a Web site is virtual art; they are digitized reproductions of artworks displayed and exhibited in a virtual space. (Virtual art as opposed to art in a virtual world, in my criteria, uses the possibilities of the 3-d, interactive and immersive space of a virtual world.) The gallery in SL, however, is a virtual place, and Filthy's use of virtual exhibition is smart and engaging, with reproductions of posters, articles about him and his work, as well as the virtual representations of the actual paintings and prints for sale through the SL sim, and on the Web. Rayzer Haggwood's HUDs (heads-up displays) scripted objects can be seen in the user's interface and used to control an avatar or interact with an object. The rock animation HUDs he sells at Rayzer's Rock Quarry Animations (http://slurl.com/secondlife/Sukhumvit/161/105/21) for playing guitar, singing into a microphone stand, playing other instruments, and playing guitar with a floor monitor all simulate rock performance movements, and make Second Life a little more like Guitar Hero or Rock Band. The details Rayzer includes in his animations capture the spirit of rock performance; to me, when my avatar strums the guitar, so cool, or twirls full around, landing perfectly, it is transcendent, and great fun. Like Alexith's flowers, Rayzer's animations find a subtle sweet spot between realistic and iconic, an appropriate tone for experiences in the stylized visual environment and social world of Second Life. Although I have discussed the virtual goods as existing only in the virtual world, overall, I recognize the virtual world as a place that is not dichotomous to the physical world, but see the connections between the two. The vibrancy of the virtual economy points to the permeability of the boundaries between the virtual and the material. The experiences one has within a virtual world become part of a person, like telephone conversations canâ&#x20AC;&#x201D;or dreams.

Journal of Virtual Worlds Research - Rethinking Virtual Commodification

Bibliography Boellstorff, Tom. (2008). Coming of Age in Second Life: An Anthropologist Explores the Virtually Human. Princeton, NJ: Princeton UP. BOOSTROM, JR., R. (2009, November 14) The Social Construction of Virtual Reality and the Stigmatized Identity of the Newbie. Journal of Virtual Worlds Research, North America. Retrieved from https://journals.tdl.org/jvwr/article/view/302. Castronova, E. (2005). Synthetic Worlds: The Business and Culture of OnlineGames. Chicago, IL: University of Chicago Press. Corbett, Sara. (2009, March 5).â&#x20AC;&#x153;Portrait of an Artist as an Avatar.â&#x20AC;? New York Times Sunday Magazine. Retrieved fromhttp://www.nytimes.com/2009/03/08/magazine/08flunot.html?_r=1 LANDAY, L. (2009, November 14) Having But Not Holding: Consumerism & Commodification in Second Life. Journal of Virtual Worlds Research, North America. Retrieved from: https://journals.tdl.org/jvwr/article/view/355/265. Lehdonvirta, Vili. (2009). Virtual Consumption. Diss. Publications of the Turku School of Economics, A-11:2009, Turku. Retrieved from http://info.tse.fi/julkaisut/vk/Ae11_2009.pdf Tuan, Yi-Fu. (1977). Space and Place: The Perspective of Experience. Minneapolis, MN: University of Minnesota Press.

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

On Money and Magic By Edward Castronova, Indiana University

Keywords: bank; currency; multiplayer game; fantasy.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research - On Money and Magic

On Money and Magic By Edward Castronova, Indiana University

“The Bank will strengthen management of the virtual currencies used in online games and will stay on the lookout for any assault by such virtual currencies on the real economic and financial order.” When the world first heard of virtual currencies in the early years of this century, some speculated that there might be a future blending of economy between the real and the virtual. That future came sooner than expected; the statement above was issued by the Bank of China in February 2007, in reaction to a genuine monetary shock produced by the virtual currency QQ Coins. One recalls also from the early days of this century the repeated stories announcing that “someday” computers would be everywhere: in cars, refrigerators, vacuum cleaners, toys, telephones. As I write in December 2009, “someday” has clearly arrived, although no one reports about it. Similarly, no one reports that virtual and real economies are now, in fact, overlapping. That is so 2007. Media content continues to increase its share of our eyeball time and with it, the share of value being created and transacted through the wires. Most people still stick on the immateriality of virtual value. A virtual gift given through Facebook is said not to be real. The U.S dollar is said to be real. A moment’s reflection reveals that the U.S dollar exhibits no more reality than a Facebook chotchke, yet the normal person still feels that there is something special about the Dollar. What is it? What makes the Dollar special? Magic.Magic? Wait. You mean a real magic, a magic that genuinely exists? Yes, and indeed, nothing more than this: Magic is an identifiable sociological process by which individual fantasies become social reality. The magic in the Dollar flows like this: Individual people adopt a fantasy that a slip of paper with green and black ink and certain symbols has a certain worth in exchange. This is initially an individual fantasy, a madness, a construct, a dream. But then the individuals become aware that others share this same fantasy. They share it in general; they share the general as-if that slips of paper with ink may be worth something. They also share fantasy in critical particulars; they share the view that papers with 10 on them are worth twice as much as papers with five on them. These fantasists then become aware that everyone has become aware that everyone has become aware that…. And so on, in infinite regress of awareness. It becomes common knowledge that the whole world has dreamed itself into believing that these slips of paper are worth something. In short, the whole world has gone mad. In a mad world, what is a sane person to do? You might resist; you might stand on your toes and shout “This money is worthless!” But eventually you would need food and shelter and clothing and companionship. You would find that the only way to get these things was by trading in these worthless slips of paper, by giving in to the madness all around you. You would do best to simply allow the fantasy to be real for you. 4

Journal of Virtual Worlds Research - On Money and Magic

The same logic applies to everyone: Given that everyone is dreaming, you should dream. The web of fantasies forces you to do so. It forces everyone to do so. Everyone dreams. Everyone is charmed. The whole world lives in a land of make-believe, not because they want to, but because they have to. Thus, fantasy is no longer fantasy, no longer a choice, no longer a dream or a hope or a fear or even a possibility or conjecture. It has becomes real, as real as the nose on your face. Money’s magic is strong in this way. Try to resist it. Try for one day. It is nearly impossible. In the distant past, magic was largely emergent. Collective fantasies grew on their own. Then there evolved institutions that managed existing magics. The Bank of China is one such institution, managing the magic of Renminbi. When well-managed, magic is powerful: Its fantasy is adhered to by most people and the coordinated fantasies are quite close in details. The magic can be deep and wide; it can penetrate much of individual life. A well-managed magic can structure a great deal of behavior. Humanity is now on the verge another step in this evolution: We are moving from exquisitely fine management of magic to explicit construction of magic. We need not merely manage the magic that we find; we can create new magic. We are becoming conscious that we ourselves are spell-casters. Game designers who create virtual currencies cast spells, in words and in code, that induce the formation of certain fantasies in the minds of users. The money that results has certain features. In the same way, any designer of a multiplayer persistent game is inducing shared fantasies and is therefore casting a certain kind of magic. It may be strong or weak magic, but it is magic: It is an invocation of shared dreams that creates a forceful and compelling social reality. To move on to construction, to building, to foundation, is a natural step following deconstruction. The French philosophers of the 20th century destroyed everything. They tore the facades off the trees and showed that the trees were built, not grown. All very well; but the trees died from this treatment. Fields of dead trees are boring. What are we left to do but build? If all society is a construct, should we not set about building cool things? As I write at Christmas time I am surrounded by binding realities that have been constructed out of fantasies. Like Scrooge, I have come to judge almost all of these magics to be not only acceptable but positively good: good for the soul. Perhaps there is no Santa Claus, but only a boor seriously thinks about shouting “THERE IS NO SANTA CLAUS!” I would like to up the ante: Denying Saint Nick is not only boorish but corrosive. It eats away at a positively wonderful and uplifting bit of magic, causing an unnecessary decline in happiness for countless others. Don’t do it!

Journal of Virtual Worlds Research - On Money and Magic

Unfortunately, in much old and new writing about imaginatory thinking, the dominant attitude praises debunking. The French philosophers delighted in taking things apart. Dennett (2006) urges us to break spells when we find them. Smug savants in virtual worlds and online media seek about for ways to disrupt whatever it is that people are more or less innocently trying to do. Debunkers beware. The brio with which the magic of the virtual QQ Coin invaded and undermined the magic of the Renminbi should give us pause. As much as we may want to debunk and demystify a given magical practice, its power may surprise us. Such is the nature of any magic worth its pixie dust: It defies demystifying. Merely shouting that the Emperor has no clothes is often insufficient to make society act as though the ruler were naked. Maybe the people here like having a naked emperor with pretend clothes on. Who are you to object? Why not respect the spells woven around you, unless and until you see compelling reasons to fight them? The Renminbi has restored its dominance, for now, not because the QQ Coin is obviously fake but because the spell-casters weaving the Renminbi are powerful indeed. Through the State, they command the attention of billions. But the weavers of QQ Coins have their own powers. Virtual world makers command attention through more subtle but quite possibility more penetrating and irresistible means: tools of affirmation, entertainment, comfort, sociality. We would do well to remember that the makers of game worlds weave magics of not only money but of many other things. They weave magics of language and law. They weave magics of meaning and technology. They weave magics of gods and demons. Moreover, game designers are learning to create magic whereas governments are only skilled at managing magics that already exist. Thus while they are the younger wizards, game designers may be the more powerful. When confronted by spell-casters of the State, they have remained comparatively placid–so far.

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Chinaâ&#x20AC;&#x2122;s New Gold Farm By Anthony Gilmore, Nameless Films, LLC

Keywords: virtual world; China; WOW; farm.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research – China’s New Goldfarm

CHINA’S NEW GOLD FARM A tier 3 WOW gold farm workshop just outside Beijing. IN A SMALL AND DUSTY VILLAGE, THIS WORKSHOP STRENGTHENS PLAYERS’ CHARACTERS WHILE SETTLED AMONGST FARM LANDS. 3 GENERATIONS OF FARMERS LIVE TOGETHER ON THE FAMILY FARM MAINTAINING STRONG, CLOSE BONDS.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Chinaâ&#x20AC;&#x2122;s New Goldfarm

Working Online game players paying real money for virtual services within the virtual worlds they inhabit fuel an industry that deals in commodities that really donâ&#x20AC;&#x2122;t exist. This is the world of the Real Money Industry. In RMT, studios like this farm in Beijing help players progress their characters by providing them with a multitude of services: leveling characters while the players are not logged in online, offering in-game currency for sale, gaining points to improve the characters, and even items and equipment. Studios can range from a small family operation like this one to large

scale

companies

employing

hundreds of workers. There are many online

games

service,

but

predominantly The World of Warcraft reigns as the primary market source for the RMT industry.

Journal of Virtual Worlds Research – China’s New Goldfarm

The Office Summertime is hot and balmy out in the countryside. Without the luxury of AC, an army of fans runs to cool off the sweating workers as well as the warm PCs on which they do their work.

Not So Regular Hours Work shifts are typically 12 hours long in smaller studios. Here, workers can earn overtime pay by working longer hours. However, at this farm, three-meal breaks help reduce that “long day” feeling.

Gateway To The West The router is a unique find in a small farming village like this and is likely the only one in the whole village. Staying connected is a vital part of an RMT company and as such, this farm opts for the router over plumbing.

Journal of Virtual Worlds Research – China’s New Goldfarm

The Process A player looking to purchase some gold for The World of Warcraft could easily google “wow gold” and find a slew of listings for gold selling sites-most of these being Brokerages. Having located a Web site to go through, the player would then enter target information so that the delivery willHE be toPROCESS the correct avatar (player’s character). The average price of gold varies depending on supply available and demand. The customer selects how much gold Athey wish to order at an average USD 1,000 player looking to purchase someof gold for 15 Thefor World of Gold and Warcraft easily gold”options. and find a slewthe of order listings usually has could a choice of google in-game“wow delivery When is for placed, selling sites-most of these being Brokerages. Having located a thegold Customer Service Representative at the Brokerage will contact a network Web site to go through, the player would then enter target information of so Gold from which toto purchase supplies of(player’s gold forcharacter). the Brokerage. thatFarms the delivery will be the correct avatar The average price of gold varies depending on supply available and demand. Thefilling customer selectsthe how much gold they wish order Upon the order, Customer Service Rep. to will thenatan contact of USD for 1,000 andthrough usually has choice ofchosen in-game theaverage customer and15deliver theGold gold the amethod by the delivery options. When the order is placed, the Customer customer. Sometimes theat Service Rep. will delivers thea gold directly to the Service Representative the Brokerage contact network of Gold

customer, but most of the time the Gold Farmer will do the actual delivery. Farms from which to purchase supplies of gold for the Brokerage. The Payout: Out of a USD 15 order of gold, the Brokerage acquires The Payout: theOut largest percentage thethe order payment due the to largest large overhead of a 15$ US order ofofgold, Brokerage acquires percentage with of themassive order payment duefor to large overhead expenditures expenditures expenses advertisement and the payroll of with massive expenses for advertisement and the payroll of hundreds hundreds of workers, especially that of English-proficient employees. of workers, especially that of English proficient employees. Depending

Depending on the individual company’s network make-up, their percentage on the individual company’s network make-up, their percentage can be can be as high as 75% of the order cost. as high as 75% of the order cost. The Gold Farm typically would then intake 25% of the order cost. Gold Farms have a much riskier role on

The Gold Farm typically would then intake 25% of the order cost. Gold Farms have a much riskier role on RMT because of the threat of RMT because of the of account generallycosts have due to account banning, butthreat generally havebanning, lower but overhead lower overhead costs due to maintaining fewer staff than their much maintaining fewer staff than their much larger Brokerage counterparts. larger Brokerage counterparts.

The Customer’s Side: Just like in any other service industry, providing the customer with quality service and product is the primary The Customer’s Side: mantra of many of the businesses in the RMT industry. Customers often pay Just like in any other service industry, providing the customer with through credit cardsis as they were ordering a product qualityPayPal serviceor and product theifprimary mantra of many of the from an online shopping site.RMT Mostindustry. RMT businesses provide measures to safely businesses in the Customers often pay through PayPalmake or cards as if because they were ordering product from online andcredit receive orders gaining theaconfidence andantrust of the customer is as important as the service they offer. Once the customer receives the gold shopping site. Most RMT businesses provide measures to safely make through a delivery within thethe game, they doand as trust they of wish and receive ordersoption because gaining confidence the with the customer is ashave. important as the service they offer.have Once customer gold they now For most players that don’t thethetime to produce receives the gold through a delivery option within the game, they sufficient amounts of gold in-game, these services are very useful do andashelp they wish with the gold they now have. For most players that don’t them tothe keep uptowith theirsufficient friends and familyof with which they enjoy the have time produce amounts gold in-game, these game-playing experience. services are very useful and help them to keep up with their friends and family with which they enjoy the game playing experienc

Journal of Virtual Worlds Research – China’s New Goldfarm

THE BOSS AS A 3RD GENERATION FARMER, MA LIANG IS USED TO HARD WORK AND STRONG VALUES, BUT HE DOESN’T TEND THE FIELDS. INSTEAD, HE TENDS THE INTERNET. ALWAYS SCANNING THE RMT MARKET, HE WATCHES OVER AND MANAGES HIS FARM WITH FAIR DISCIPLINE MAINTAINING A RELAXED AND FUN ATMOSPHERE FOR HIS WORKERS.

Journal of Virtual Worlds Research – China’s New Goldfarm

The Chinese Gold Farmer Many gamers think the gold farmer is an evil robotic persona out to ruin their game. This is a misconception fueled by misunderstanding. The real gold farmer is just another person that enjoys playing games as much as the players for which they provide virtual services. Much of their offtime is spent playing Starcraft, Warcraft III, and even their own World of Warcraft accounts.

THE NOOB

The only real difference is that they get paid when on the clock. Making an average of USD 300 per month, doesn’t sound like a lot but in rural China, it is a very comfortable

amount.

With

working experience and salary raises, one farmer has saved up enough money to get married and start a family thanks to all the customers he has done work for. On the other hand, another farmer maintains a busy life of many girlfriends because of the money he can make through RMT. Generally, though, most of the workers send money back home

THE DAY SHIFT

to their parents to help the family out to improve their quality of life. This is all made possible by the demand that is produced by the game players of these online videoDAY games. SHI THE FT

THE TOP LEVELER 9

Journal of Virtual Worlds Research – China’s New Goldfarm

The Cook On the farm, Ma Liang’s mother gathers crops and prepares all the meals for their family and the workers. She feels that she is taking care of a large family with the workers acting as sons. In China, families are allowed only one child, but for her, she is one of the few to enjoy the feeling of having many.

Gamer Fuel In China Traditional home cooked meals fuel the workers at this farm. Ranging from a variety of vegetable dishes to rice and buns, the workers enjoy three square meals a day—a luxury compared to many gold farms where the workers must provide meals for themselves.

A Ladies’ Touch Having met Ma Liang online through some games, she is quite comfortable around an environment of gamers, and is very proud of Ma Liang’s work. Ma Liang’s girlfriend lives at the farm with him and his family and helps manage the farm by keeping him happy and relaxed—an uncommon dynamic found at this unique farm. When the year is right, they plan to get married and continue their lives.

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Virtual Goods: Good for Business? By Nic Mitham, Kzero

Keywords: virtual worlds; virtual goods; B2B; B2V; B2C.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research – Virtual Goods

Virtual Goods: Good for Business? By Nic Mitham, Kzero

Whilst 2008 saw the emergence of the virtual worlds sector, 2009 has to be called the year of the virtual good. With online destinations such as social networks seeing a creation of brand-new revenue steams and virtual worlds ‘giving the users want they want’, the virtual goods sector is one of the fastest growing areas of the Internet. In its most popular form, virtual goods relate to accessories for avatars–clothing, hair and other person-related apparel. These are purchased by users to customize their appearance and are popular across all types of virtual worlds, from kids and tweens right through grown-up worlds and also apply across all genres. There is an incumbent demand for users to want to change and control how they are seen in virtual worlds. But virtual goods don’t just include avatar appearance customization. Online communities are learning how to monetize all aspects of the user experience, including the ability, for example, to buy a bespoke user name or access specific areas inside a virtual world. On the SocNet side, virtual goods are being used to great effect with social/mini-games, providing ‘tools’ to complete a game faster/level-up. Interestingly, average revenues per paying user (ARPPU) increases in line with age, highlighting the value in older demographics. Typically ARPPUs from SocNets peak at around $5 per month, rising slightly to around $6 for virtual worlds. In terms of the overall market in total revenue terms, we estimate it to currently be worth $3 billion globally, rising to $14 billion in 2012.

Journal of Virtual Worlds Research – Virtual Goods

This growth rate is potentially underestimating the future market value when you factor in the impact of augmented reality revenues and other sources of virtual goods platforms such as the AppStore. Drilling down to a company level, late-teen virtual world IMVU recently announced monthly sales of $2m, the majority coming from virtual currency sales for virtual goods. And other virtual worlds will also be earning this level of income shortly. Recent estimates of Facebook earning from virtual goods highlights another facet of the model–gifting. In this context, virtual gifting simply means the sending of an item or service to another. Facebook is estimated to be earning circa $40 million per year from virtual goods, representing 10% of total revenues and gifting plays a major here. And that’s great. People are sending real world money to purchase virtual currencies, goods, and services, and the trend shows no sign of slowing down. But interestingly, all of the market is focusing on the consumer side–virtual goods for socializing and playing. What about the B2B side? Is a new model for business related virtual goods (B2V) about to appear? There’s certainly a strong argument to suggest B2V is a market with potential. We’ve already seen corporate adoption of new internet channels, such as blogging, micro-blogging and video (viral) activities. Also, many global corporations have already experimented with virtual worlds, most inside Second Life. Unfortunately, the vast majority of these ‘early adopter’ companies used the wrong strategies with their first attempts. They were thinking symbolically (how shall we show our brand, products) rather than metaphorically (how can we convey our brand). They also overlooked, in most cases, what they did in the real world in relation to leveraging that product/service into a virtual context. Looking at forecasted revenues for the VW B2B space specifically, the graph shown below presents growth through to 2013.

Journal of Virtual Worlds Research – Virtual Goods

Although B2B revenues are considerably lower than those for consumer, this forecast clearly indicates that these revenues are not insignificant. Virtual world revenues for 2010 are tipped to reach $180 million, rising to almost $1 billion in 2012. If the same model observed on the consumer side is mirrored by B2B, then virtual goods for business will definitely mean business. Moving onto strategy, it shouldn’t just be a case of ‘pushing’ a corporate brand into a virtual space and relying on avatars to want to interact–there has to be a compelling reason for the engagement and genuine value deliver via the virtual good or service. There’s also been a major push in the area of cost-saving across the global economy and several large tech/IT companies advocating virtual worlds as excellent platforms for business. This is another indication of future adoption. So, there are signs that businesses will use virtual worlds more moving forwards. Corporate avatars in virtual spaces and greater adoption of SocNets for business could mean a new market appearing. And there’s a few different ways virtual goods could be distributed. Also here, it’s worth remembering that gifting and giving plays as important role as a direct purchase. Virtual goods could be given from companies to employees. These could relate to tools or items that can be used by the employee in a virtual world and would probably carry a degree of branding. The company to potential customer relationship is probably the most obvious application of B2V–companies giving, gifting or selling virtual goods related to their real world operations and brand to avatars and SocNet presences of potential clients.

Journal of Virtual Worlds Research – Virtual Goods

Or, on a more intimate basis, an employee to potential customer relationship would mean a sales person (for example) being the instigator of the transaction. On a similar basis, company to company would mean one company giving all representatives of another company a virtual good or service. Looking at these relationships from a different perspective, B2V could be used as part of a job application or ‘skills promotion’ process by potential employees to company mechanics. What types of B2V’s are possible? Here’s a list brainstormed list: Firstly, apparel. Just as avatar customization is popular for consumer virtual goods, ‘business’ avatars need to look good too. Real-world clothing and accessory brands that have business-related ranges are prime candidates here. Examples could be a range of corporate branded avatar clothing or accessories, designed to inform other avatars of the company presence. A recent Gartner report hinted at this idea: ‘Avatars are creeping into business environments and will have far reaching implications for enterprises, from policy to dress code, behavior and computing platform requirements,’ according to Gartner, who predicts that by yearend 2013, 70 percent of enterprises will have behavior guidelines and dress codes established for all employees who have avatars associated with the enterprise inside a virtual environment.’ Related to avatar accessories and apparel is the actual physical appearance of the avatar itself. Avatar creation services (sold as virtual goods) seems like another reasonable application. Arguably business avatars need to look more realistic, perhaps even photo-realistic in order to drive the adoption of enterprise use in virtual worlds. This product would automatically make person-specific avatars. Thinking more about wider business services and their application to virtual goods, companies with product or service-specific solutions need to think about how a virtual space can accurately translate these products (or brand) whilst providing value to the end user. This might be a car company providing transportation/teleportation services into a virtual world to promote a new car to business users, or an accounting firm creating a tool to manage virtual currencies. Another examples could include a real-world hotel providing virtual meeting rooms, an architect providing virtual offices, or a company providing a prototype of a new real-world design. Training companies might also offer sponsored orientation services in virtual worlds for the newbies. IT companies could allow customers to ‘construct’ their orders in a virtual content, a concept tested by Dell in Second Life. That’s just a quick list of potential B2C applications. One thing is clear, the enterprise and corporate use of virtual worlds is increasing. This means more companies and more employees entering this space and interacting with other companies. Just as virtual goods act as a key stimulus in consumer worlds, there’s a compelling argument to suggest virtual goods for business is a sector about to emerge.

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

"We Will Always Be One Step Ahead of Them" A Case Study on the Economy of Cheating in MMORPGs By Stefano De Paoli and Aphra Kerr Department of Sociology and NIRSA, National University of Ireland Maynooth

Abstract Massive Multiplayer Online Role-Playing Games (MMORPGs) are a sub-sector of virtual worlds that share with other worlds the characteristics of both complex technological systems and complex societies. The success of several MMORPGs makes them a vibrant area for research from different points of view, including their economic aspects (Castronova, 2005). Our research is mainly concerned with the practice of cheating in MMORPGs and its consequences. In this paper we explore the economic dimensions of cheating in MMORPGs as they relate to the business activities of companies that offer cheating software, in particular programs called 'bots'. Specifically, we address the following question: "How do cheating practices shape economic interactions around MMORPGs?" We characterize the economy of cheating (as it is carried out by cheating companies) as an answer to breakdowns in the relationship between cheaters and cheating companies (Winograd and Flores, 1987; Akrich, 1992), which involves both learning and innovation processes. In order to answer our question we present a case study of the Tibia (http://www.tibia.com) and an ongoing anti-cheating campaign. In the conclusion of the paper we provide some general reflections on the relevance of the economy of cheating to Virtual Worlds research.

Keywords: economy of cheating; bots; MMORPGs; breakdown; ethnomethodology; ethnography. This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research – Economy of Cheating

Massive Multiplayer Online Role-Playing Games (MMORPGs) are a highly successful sub-sector of the digital games industry1 whereby players participate in a virtual world (Bell, 2009; Schroeder, 2009) which is persistent, meaning that it runs independently from the user and requires continuous customer support from the game developer (Kerr, 2006). MMORPGs are both highly sophisticated technological systems — in most cases built around a client-server architecture2 — and 'deeply social' worlds (Castronova, 2005; Taylor, 2006; Acterbosch et al., 2008) in which millions of players chat, co-operate, interact, compete, and trade with each other online through their avatars. The complex social and technical nature of these virtual worlds make them subject to a range of disruptive practices (ENISA, 2008), including fraud (Bardzell et al., 2007), harassment (Foo and Koivisto, 2004), or social conflicts (Smith, 2004). In our research we are particularly concerned with the consequences of cheating in MMORPGs (see next paragraph for a discussion and definition of cheating), and in virtual environments more generally. Cheating in a MMORPG is a highly contested practice that deserves particular attention, insofar as it is perceived by the developers, publishers, and many players to be a threat to the social experience, economic viability, and security of a game world. For others, cheating is viewed as justifiable because it offers the potential to generate large amounts of real and virtual money, or to more easily make progress in the game rankings. In this paper we adopt an emergent approach, in particular following some of the methodological principles proposed by Callon (1986), to study how different actors understand cheating within a game and to establish how cheating in MMORPGs shapes economic practices in the real world. In particular we focus on one cheating practice, that of botting3: the use of computer programs to automate several game tasks (so called bots) in violation of End User License Agreements of games. Specifically, we seek to provide a qualitative account of the socio-technical dynamics (the how) of this phenomenon (Garfinkel, 1967; Latour, 2005). This paper is based on an ongoing case study of the MMORPG Tibia (http://www.tibia.com) and focuses on the struggle between its developer and publisher CipSoft—which tries to regulate game players—some of whom wish to be able to use bots and some of which do not, and external cheating companies aimed at exploiting player demand for bots. It is a dynamic story that involves learning processes and incremental innovations such as new software tools, including cheating software,s well as new models of governance for the regulation of players' behavior. Our conceptualization of cheating in MMORPGs as an economy is based on ongoing qualitative data analysis of Tibia gameplay and Internet forum discussions where we observed that some cheating practices, such as developing, selling, and using bots, are productive and can lead to value creation in the real world. 1

For statistics on market share, user base and other dimensions of major MMORPGs, see http://www.mmogchart.com 2 The most common architecture used in MMORPGs is the client-server, which consists of a centralized server (the master) with several clients (the players’ machines) connected to it. 3 See the section The Case of Tibia and the Cheating Companies in this paper for a discussion.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

This paper consists of a brief critical review of the relevant literature on cheating in online games, followed by a discussion of our research methodology, the findings from our empirical research on cheating, learning and innovation practices surrounding Tibia, and finally some general conclusions for understanding cheating and its relationship to the economy of Virtual Worlds.

Cheating in Online Games in a Nutshell In our investigation of the practice of botting in MMORPGs we follow an approach in which cheating is conceptualized in both technical and social terms (Latour, 1988). In particular we cut across the distinction between social and technical, and we assume reality to be hybrid, composed of a mixture of the two. In this regard our working definition considers cheating as the result or outcome of the relationships between many interleaved social and technical elements (including cheating software, the security design issues, negotiations among players, game companies anti-cheating activities, anti-cheating tools, and in general everything that relates to cheating). We consider our approach, conceptualizing cheating as a socio-technical process, to be useful for the goal of this paper, insofar as it will allow us to investigate the economy of cheating in MMORPGs without operating any a priori reduction to either the technical or the social (Latour, 1988) or making a judgment that cheating is either good or evil (Latour, 1987). However, our approach is substantially different from current literature on cheating in MMORPGs that, in most cases, assumes a strong distinction between social and technical aspects of cheating. Cheating in games is indeed often just described as a practice which is detrimental to the spirit of fair play and provides unfair advantages to cheaters. A mainstream definition of cheating comes, for example, from Yan and Choi (2002) and states that cheating is "Any behaviour that a player may use to get an unfair advantage, or achieve a target that he is not supposed to" (p. 126). Hoglund and McGraw (2007) even suggest that "Cheats come closest to actual crime when they are used to make a great deal of money." (p. 8). Common examples of cheating in online games include practices such as exploiting bugs and weaknesses in the game design, the use of macros and software to manipulate the game code either directly or indirectly,or even the direct manipulation of other players' trust and social expectations. While the definition of cheating we present here captures some of the elements of this phenomenon; it does not, however, account for all the complexity of cheating in online games. In fact, cheating appears to have a mobile and permeable boundary which is not always easy to define (Consalvo, 2007). Moreover, cheating phenomenology varies according to different games, technologies, motivations, and outcomes (Yan and Randell, 2005). A further problem in the definition of cheating lies in the differences between the way it is treated in computer science literature as opposed to social or media literature. Most of the technical or computer science-oriented literature on cheating in online games defines it as detrimental to gameplay. The advantages obtained by using cheating techniques are not supposed to be achieved by players (Yan and Choi, 2002). In most cases, it is also said that cheating is due to poor (sometimes non-existent) security design (Yan and Randell, 2005). In this way, such literature reduces cheating to a technological problem: solving the technical limitations of security design will lead to a fair game. Anti-cheating techniques, as formalized in computer 5

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

science literature, are supposed to contribute to the achievement of this ideal fair game. Examples of anti-cheating techniques include the use of CAPTCHA4 to detect 'bot' users (Golle and Ducheneaut, 2007), anti-cheating protocols (Di Chen and Maheswaran, 2004), techniques for preventing software client modifications (MĂśnch et al., 2006), and techniques used to detect cheats in real-time games (Ferretti and Rocetti, 2006). We are not saying that the computer science or technical approach to cheating in online games is necessarily wrong but we feel that it is limited, to the extent that it is one-dimensional and tries to reduce cheating to a technical or security design problem. In this regard we feel that media scholars and game-studies scholars provide a richer approach by pointing out that cheating is a multidimensional problem, and one which is the subject of conflict among different groups. For example, Fields and Kafai (2009) describe the case of an educational website where teenagers were able to engage in complex learning activities which included the discovery of smart cheats for solving casual5 science games. By conceptualizing cheating as a form of learning, Fields and Kafai provide an example of how the reduction of cheating to a technical problem is clearly a limited approach. Another example is Smith (2004), in which cheating in online games is described as 'extra-mechanical conflicts' (together with, for example, norms violations or grief play6) that are the direct consequences of the social spaces created by these games. This is as opposed to 'intra-mechanical conflicts' (for example the conflict that arises when one plays against another in a first-person shooter game), which results directly from the game rules (results explicitly from its design) and are therefore not disruptive. The work by Smith shows that cheating relates to the complex social space generated by these games. A further contribution to the debate on cheating is made by KĂźcklich (2007 and 2009), who has suggested using cheating as a methodology to explore non-obvious aspects of digital gameplay, including its machinic/cybernetic processes: an approach that he defines as deludology. The study by Consalvo (2007) constitutes perhaps the main example of how media studies conceptualize the multidimensionality of cheating. Indeed, for Consalvo (2007) cheating in online games is something that gets culturally negotiated by players, cheaters, and the anticheating industry, and she seems to suggest that a single definition does not help in understanding its cultural and dynamic character. In this regard Consalvo notices that often what is at the centre of the players' negotiations are what she calls 'soft rules', or in other words those game rules that do not depend directly on the game code (the so-called 'hard rules') and that "can be broken more easily than the game code" (p. 87). Consalvo's work takes into account not only social and cultural dimensions but also, in part, the technological dimensions. For example, the whole of Chapter 6 provides an analysis of the different cultural attitudes existing in the anticheating industry and an analysis of different anti-cheating strategies. Although we recognize some links between our work and that of Consalvo, and its influence on our own conceptualization of cheating, we are of the opinion that more empirical research will need to be done in order to better frame how cheating is practiced in MMORPGs. In conclusion it is our opinion that media and game-studies literature on cheating goes in the opposite direction to computer science literature. In media research, cheating is described as negotiated and permeable and is also often reduced to social or cultural elements. When reading 4

Completely Automated Public Turing test to tell Computers and Humans Apart. A 'casual' game is a video game or online game targeted at a mass audience of casual gamers. 6 Grief play is when a player intentionally disrupts the gaming experience of other players (Foo and Koivisto, 2004). 5

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

media literature it is also not uncommon to recognize the specific implication that cheating can be evidence of player power and resistance. Therefore what we have in the literature on cheating in online games is a continuum that goes from a purely technology-focused world (the lack of security design) to a purely social world, whereas both ends of the continuum grasp some aspects of the phenomenon of cheating.

The Theory and Method of Our Research: An Emergent Approach Our approach to the study of cheating in MMORPGs emphasizes the accounts that are provided directly by the actors themselves: the various cheating companies, their customers, game developers and publishers, and finally how non-cheating players see and define cheating. Moreover, we include as actors how game design, cheating and anti-cheating software, and licenses enter into the picture as active elements of concrete negotiations. In doing so, we follow an important research tradition that relates to the phenomenology of technology, ethnomethodology and Actor-Network Theory (see in particular Garfinkel, 1967; Callon, 1986; Winograd and Flores, 1987; Akrich, 1992; Latour, 2005). In particular we adopt the principle whereby the observer does not decide in advance the social and technical attributes of the technological system (or virtual world in our case). Instead, we consider the attributes to be ethnomethods (Garfinkel, 1967) that emerge from the negotiations surrounding the virtual world. Ethnomethods are native conceptions, terminologies, explanations, and in general methodologies used by the actors to make sense of the world they inhabit. These native conceptions and methodologies are epistemologically opposed to those of a possible (and fictional) external scientific observer educated in the relevant scientific domain (Lynch, 2007). This also implies that the observer is required to not impose or implement in advance a theory to explain or understand ethnomethods. Michael Callon (1986) describes this emergent approach as follows: "the observer must consider that the repertoire of categories which he uses, the entities which are mobilized, and the relationships between these are all topics for actors' discussions. Instead of imposing a pre-established grid of analysis upon these, the observer follows the actors in order to identify the manner in which these define and associate the different elements by which they build and explain their world, whether it be social or natural." (pp. 200-201). According to Akrich (1992), one of the key methods for approaching the problem of how the actors build and explain their world is to focus on the moments of rupture that occur in the "natural flow of things," and in particular on those situations in which devices and technologies go wrong. The author observed that we need to focus on disputes around technological or device failures as the crucial moments that reveal the actors' activities and ethnomethods. Winograd and Flores (1987), in their pivotal work on the design of computer artifacts, proposed the specific term breakdown in order to capture these moments of rupture. During breakdowns, the objects that populate the world we inhabit (again, often technological systemsâ&#x20AC;&#x201C;think about your car or your laptop) and that we take for granted (and that therefore lie unobserved in the background) become particularly evident or present to us as they become the subjects of controversies, negotiations. and adjustments. Indeed, when technological devices break down, actors become aware of their presence and importance, and most importantly, they undertake a series of actions to fix the broken devices. It is therefore during breakdowns that we, as observers, can be direct witnesses to the actors' efforts to bridge and solve the ruptures. In other words, the concept of 7

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

breakdown provides us with a concrete way of approaching the 'how' of the economy of cheating as ethnomethod: something that reveals its fundamental traits and attributes during the disputes and negotiations around the technological aspects of cheating practices. As described before, a key element of this approach is to focus on the relevant social groups in innovation processes. Users are in many cases one of these groups. The role of users in the innovation process is a focus for researchers from evolutionary economics to science and technology studies to media studies (Edquist, 1997; Woolgar, 1991; van Oost, et al., 2009). In the innovation process, users can have indirect roles (through, for example, market research) or more direct roles (for example, usability testing and participatory design). Their tacit layman's knowledge can provide important inputs to the innovation process,but can also lead to its failure. Another relevant social group in innovation processes is that of technology designers and technology builders in general, whose task is often to inscribe patterns of use in the technologies they create, hence envisioning a possible evolution of society (often referred to as a 'script', see Akrich, 1992; Latour, 1987) through technological means. The data in this paper draws upon a virtual ethnography (Hine, 2000) of the game Tibia, the official Tibia forums, and the forums of cheating companies who develop bots for Tibia7. This paper draws in particular on the forum threads directly related to an anti-cheating campaign launched in early 2009 and discussed both on official Tibia forums (a total of 379 threads) and on cheating companies' forums (a total of 442 threads)8. The data gathered from the forums was supplemented by participant observation within Tibia and included the creation of a character that was played for at least six hours each week on a PvP server9 since February 2009. Game play has enabled us to interact with players, understand the gameplay's dynamics, and understand the use of language and terminology in the game10. Our mixed method approach allowed us to capture spontaneous discussions and negotiations on the forums11 and to understand these in relation to gameplay. In terms of data analysis, our approach followed that proposed by Latour (1988, p. 10) which suggests that one follow the 'storytellers' (i.e. the main actors and groups) and how they attribute causes, endow entities with qualities or classify actors, in line with what was previously described. This approach enables us to provide a dense account of how the actors and relevant groups themselves describe the world they inhabit (their ethnomethods), without trying to impose a predetermined grid of analysis. In this paper we present forum messages and other data produced by the Tibia storytellers (Cipsoft the Tibia developer, the cheating companies, and the players both cheaters and honest ones). These data have been selected as illustrative examples of the wider and 7

Official Tibia forums are at the following URL: http://forum.tibia.com/forum/?subtopic=communityboards. Cheating company forum URLs: http://www.blackdtools.com/forum/ and http://forums.tibiabot.com/ 8 The threads on both the official and cheating companiesâ&#x20AC;&#x2122; forums are of different lengths, ranging from just a few posts and spanning a few days, to threads composed of more than 4000 posts and spanning more than one year. An average thread is composed of 5-6 pages (100-120 posts), and might last a few months. 9 PvP stand for Player versus Player, a type of gameplay in which players compete directly with one another. 10 The in-game observations have been useful for acquiring knowledge about how players relate to each other and with Non-Player Characters, including for example the differences between characters' roles, the geography of Tibia, and knowledge about the different monsters and quests in Tibia. 11 The forum threads were collected using the Web-archiving software Scrapbook; see http://amb.vis.ne.jp/mozilla/scrapbook/. Scrapbook provided us with organized storage and easy retrieval of the data. Scrapbook is an extension (add-on) for the web browser Firefox that allows one to save and manage collections of web pages and web sites in a convenient way.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

ongoing activities related with the key disruption of the existing stable market relationships between cheating companies and cheaters, occurred at the beginning of the anti-cheating campaign. The process of research and analysis of the Tibia case study is ongoing, and while in this paper we follow closely the approach proposed by Latour we are also, in the current phase, conducting a Grounded Theory (Charmaz, 2006) to the main forum threads and documents (including Tibia legal documents and official articles). With Grounded Theory the theory emerges thorough a recursive and inductive iteration between data and theory. Thus, this paper provides an overview of one part of a much larger project which we hope will contribute a great deal more to the empirical and theoretical understanding of cheating in MMORPGs.

The Case of Tibia and the Cheating Companies Tibia is a 2D medieval fantasy MMORPG that was first released in 1997. Tibia is played on more than 70 servers located in Germany and the USA, with an estimated total subscriber base of 300,000 players, 100,000 of which have premium accounts (CipSoft, 2008). In Tibia there are two types of accounts: free and premium, and one player may have several accounts. The price of a Premium account varies depending on the length of the period paid for. Currently, buying a Premium account for 12 months costs EUR 4.99 per month, whereas only one month costs EUR 7.45. Premium accounts benefit from additional advantages compared to Free accounts, including, for example, premium areas that cannot be accessed with a Free account, a large number of abilities for premium characters, large storage spaces for items, and also the possibility to become the leader of a guild, something that is not allowed for players with Free accounts. Although Tibia does not possess powerful 3D graphics such as those you can find in other MMORPGs, its role-playing elements and the Player Versus Player features are what make it attractive to players. Tibia players can choose among four different types of roles (called vocations) that include Knights, Paladins, Sorcerers, and Druids. A character's vocation determines her characteristics in many ways, which it would not be possible to describe here in just a few words. The different vocations allow different types of gameplay, especially concerning attacks and combat with both monsters and other characters. Knights, for instance, are stronger in using 'melee' items (such as swords or axes) and are therefore more powerful in close combat. On the other hand, Druids are stronger in casting spells and healing. In Tibia, players can engage in different role-playing activities, including quests that can be solved by a single player, or by forming a team of players composed of characters with different vocations. The killing and looting of Tibia monsters is certainly one of the main activities of the game, since this provides 'experience points' that enable a character to make progress in the game rankings.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

Figure 1. Tibia screenshot that shows a character (Talah Teon) engaging in combat with monsters (Slimes and Bats). We can see the game interface with the characterâ&#x20AC;&#x2122;s items on the right, the game map on the upper right and the game chat at the bottom of the screen. (From http://www.tibia.com/abouttibia/?subtopic=screenshots&screenshot=cathedral)

Another relevant feature of the role-playing in Tibia is that players can form guilds and take part in wars among these guilds. The rewards for winning a guild war lie in the ability to exercise forms of domination over a server, as powerful guilds are regarded as having "more influence on the events and politics in a world than any single player could possibly have, and few will be foolish enough to mess with a member of a strong guild" (CipSoft, 2009b). Guilds can rent houses in the game cities and create their own headquarters where characters belonging to the same guild can meet; in these houses players can also store items or restore lost points faster, after losing them in fights.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

Figure 2. Tibia screenshot that shows the medieval fantasy atmosphere of the game. In the picture several characters fight each other in a guild war. (From http://www.tibia.com/abouttibia/?subtopic=screenshots&screenshot=guildwar)

Tibia was chosen for this case study on cheating because CipSoft, the company that develops and distributes the game, started a campaign against cheaters at the beginning of 2009. Since then Tibia players have experienced mass bans of cheaters, changes in regulations, and the introduction of new software (including both cheating and anti-cheating tools). In Tibia, cheaters, especially so-called 'botters', were considered quite widespread by the player community, which had asked CipSoft several times in the game forums to take action to solve the problem12. 'Botting' is the practice by which a player uses an external computer program, known as a bot, to automate certain gameplay tasks. These 'bots' operate via "artificial intelligence routines pre-programmed to suit the game map, game rules, game type and other parameters unique to each game" (Computer Game Bot, 2009). As in many other MMORPGs, Tibia players must perform certain actions such as killing and looting monsters in order to acquire special items or virtual currency, or to increase their ranking and levels. In most MMORPGs, accumulating items and currencies and leveling up a character13 can be a long and 12

See for example this long thread in which players asked for the deletion of cheater accounts: http://forum.tibia.com/forum/?action=thread&threadid=1978162 13 'Levelling up' means enabling a character to move to a higher level of competence, which gives him/her more value in the game.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

time-consuming process (Kolo and Baur, 2004), which many players find tedious. Killing and looting monsters are indeed often repetitive and boring activities, and bots can assist or even totally replace the players (so called Away From Keyboard play, or AFK) in performing these tasks (Golle and Ducheneaut, 2005). As Joshi (2008) mentioned, bots can run forever without getting bored or tired like human players. CipSoft has never directly asserted the possible relationships between its revenue and the campaign against cheaters/botters. However, on the game forums several players declared their intention to stop paying for their Premium game accounts because of the presence of cheaters. It is also clear that the use of bots has a direct influence on gameplay, the negative impact of which is clearly perceived by fair players in many ways: For too long, the botters have ruined our economy, our society, our enjoyment of this game. We the few, the noble, the honest stand here before CipSoft today and demand a change. (From http://forum.tibia.com/forum/?action=thread&threadid=1978162&pagenumber=99 Post #19615799, July 18, 2008) Therefore CipSoft's anti-cheating campaign is probably a response to complaints made on the forums14 by many within the player community about the spread of cheaters, and to player requests for a stronger policy against cheaters. A manifesto article that summarizes the company's anti-cheating strategy states: In short, we do not want cheaters in Tibia. We are of the opinion that they directly destroy the economy and have a negative influence on the peaceful gameplay of fair players. (CipSoft, 2009a) On the other side, two cheating companies, BlackD and NGSoft (which operate within the law in their home countries), are well known to Tibia players for providing bots, and they sell licenses for their bot programs in exactly the same way as any commercial software company does. Their programs include several different bots (BlackDProxy, elfbot, TibiabotNG), all of which offer different types of cheating features. The price of the bot license varies depending on the number of computers on which the bots are used and the length of the purchase period15. What follows is an advertisement for the bot TibiabotNG on the NGSoft website: TibiaBotNG is a professionally crafted client modification for the massive multiplayer online role playing game called Tibia. It is the first product around to offer the benefits of full integration into the Tibia client, making any addition to it both natural and powerful. (From http://forums.Tibiabot.com/, Retrieved September 28, 2009) As we can see this software is described as a "professionally crafted" modification of the Tibia game client, and is portrayed as "natural and powerful." This bot comes with several features16 that facilitate gameplay including, for example, assistance during battles, scripting 14

See again this huge thread, where players asked for the deletion of the account as punishment for cheating http://forum.tibia.com/forum/?action=thread&threadid=1978162 15 The licence for the bot BlackDProxy, for example, is worth EUR 10 for one computer for a one-year period. See http://www.blackdtools.com/purchasefull.php 16 For TibiabotNG features, see http://www.tibiabot.com/features.php

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

facilities, or AFK play that in itself includes features such as auto-healing (restoring points lost in fights) and auto-looting. To counter them, the ongoing anti-cheating campaign by CipSoft has included the mass banning of game cheaters' accounts (one mass ban per month since the end of January 2009, with approximately 5,000 accounts being affected each time), new anti-cheating tools, and changes to the game's regulatory policies. During this period one of the most talked-about moves was the introduction of an anti-cheating tool. Anti-cheating tools are software devices that automatically enforce the rules contained in the End User License Agreement (EULA) or the Terms of Service. Consalvo (2007, ch. 6) identifies and describes three different types of tools17: (1) tools that seek to prevent cheating (for example by the mean of encrypted communication between server and clients), (2) tools that seek to render cheating ineffective (for example by disconnecting the cheater once detected) and finally (3) tools that seek to detect the use of third party software (such as bots) that tamper with software clients18 and that, as an outcome, allows game companies to ban the cheaters on the basis of the detection. The anti-cheating tool introduced in Tibia is of this third type and aims to detect unofficial software used to play the game. One of the mass bans (April 2, 2009) carried out by CipSoft was announced on the forums as: Today, 5103 Tibia accounts have been punished for using unofficial software to play during the last weeks. These accounts have been identified by our automatic tool. (From http://www.tibia.com/news/?subtopic=newsarchive&id=962&fbegind=4&fbeginm=3&fb eginy=2009&fendd=3&fendm=4&fendy=2009&flist=11111111) In this message CipSoft clearly emphasizes that the banning action was undertaken on the basis of information on the use of unofficial software gathered by the anti-cheating tool. This same emphasis is also placed on the banning messages sent to cheaters and displayed on players' accounts, as the following figure shows.

Figure 3. Example of a banishment notification on a cheater's account, showing the automatic detection of unofficial software.

The new automatic anti-cheating tool clearly interferes with both the practices of cheaters and the business of the external cheating companies. Indeed, the campaign against cheating and the introduction of the anti-cheating tool are elements that change the current configuration of the situation: it is a real moment of breakdown for cheating companies. Before this anti-cheating campaign, it was common knowledge that using bots in Tibia was easy. On the official game forums several players, in different threads, described the plague of the diffusion of botters on

Known examples of anti-cheating tools for Online Games are Punkbuster or GameGuard. For a discussion, see Consalvo (2007), Chapter 6. 18 The use of a Tibia bot is a modification of the game client that is forbidden by the gameâ&#x20AC;&#x2122;s legal documents.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

game servers and in hunting areas19. Meanwhile, on the cheating forums cheaters shared images-or even videos--of what they called projects: the creation of powerful main characters (the projects) leveled up by using bots20. The introduction of the anti-cheating tool has, however, radically modified the situation for cheating companies and cheaters and has broken the existing stable market relationships between these groups. It is especially clear that these relationships were strongly based on the ability of bot programs to remain undetected. This breakdown has also lead cheating companies to declare their ambition to develop a new detection-safe version of their bots as a way to re-stabilize market relations with their customers. Thus, the development and deployment of an anti-cheating tool--and the resulting breakdown--have triggered a new process of learning and innovation for both cheating companies and cheaters.

Cheating as a Supply and Demand Relationship CipSoft introduced the first mass ban at the end of January 2009, one month after the publication on their website of the manifesto article describing their new anti-cheating strategy. This mass ban was unexpected by all concerned: honest players, cheating players, and cheating companies. Many honest players described the bans and the introduction of the anti-cheating tool as a good starting point in the campaign against cheaters. By contrast, for the cheating companies the mass ban constituted a serious threat to their cheating business, while cheaters have often described the new situation as the end of botting. After the mass ban many bot customers were particularly worried about the new situation. What follows is an example, among many, taken from a cheating forum: I did not get banned i'm merely pissed off at LoW claiming its safe, its a fucking hoax that works only because you're a bunch of brainless monkeys. (From http://forums.tibiabot.com/showthread.php?t=111778 Post #9, February 9, 2009).21 In this message a customer complains to LoW (Lord of War, who we take to be one of the owners of the cheating company NGSoft) about his claims that the use of bots is safe, despite the mass bans and the introduction of the anti-cheating tool. After the mass bans many bot customers became afraid to use these programs when playing Tibia, as the following example demonstrates: I'm kinda afraid of loggin it on this computer with bot installed... (From http://www.blackdtools.com/forum/showthread.php?t=35826 Post #1, March 1, 2009)22 Although many other cheaters declared their will to continue to use bots despite the mass bans, it is also clear from the above message that cheaters were facing a challenging situation. In 19

See for example this discussion: http://forum.tibia.com/forum/?action=thread&threadid=1978162 See for example this discussion: http://www.blackdtools.com/forum/forumdisplay.php?f=47. 21 This message comes from a thread that has been removed from the forum by the cheating company. Indeed, several threads have been removed by the administrators of the forum and appear to be accessible only with administrative rights. All the data presented here and not available online can be received by specific request to the authors of this paper. 22 This thread has been officially removed from the forum by the cheating company. What is reported here is the original URL. See footnote 21 for an explanation. 20

Journal of Virtual Worlds Research – Economy of Cheating

particular they had to decide whether to continue botting or not. What follows is a poll that was launched on one of the cheating forums after the first mass ban, which asked "Are you botting?”

Figure 4. Poll – on BlackD forum – about the use http://www.blackdtools.com/forum/showthread.php?t=36002, February, 02 2009)23

bots

(From

Although this poll does not have statistical validity, it shows (in the last line) that almost one third of respondents (34/107) declared that, at the time of the poll, they were not using bots as consequence of the first mass ban. The introduction of the anti-cheating tool has changed the relationship between cheating companies and cheating players: botting went from being a safe and rarely punished activity to a very dangerous activity, with a high risk of being banned. It is clear that many players are still botting but just over a third are not, and if CipSoft further increases the risks for players this could lead to a decrease in the demand for bots and consequently a decrease in revenues for cheating companies. However, this new configuration of things is also what triggers new dynamics in cheating companies' business practices, since they need to respond to changes in customer demand: i have the utmost faith in blackd and i am certain that he will get a completely undetectable bot in the near future...but, you all must give him some time. (From http://www.blackdtools.com/forum/showthread.php?t=39151 Post #1, April2, 2009) Indeed, bot users now have the expectation that companies will create a new generation of undetectable bots. The actions undertaken by cheating companies in order to cope with the breakdown--and with the new customer demand--are described in the following paragraphs.

This thread has been removed from the forum too. See footnote 23 for an explanation.

Journal of Virtual Worlds Research – Economy of Cheating

Figure 5. A change in market demand: A poll from a BlackD forum that shows the demand from cheaters for bots with 'undetectability' capabilities. The poll has no statistical validity but shows the high request rate (174/189 respondents) for undetectability of bots (From http://www.blackdtools.com/forum/showthread.php?t=41398 June 3, 2009)

Cheating as a Learning Process – Player/Firm Interactions One of the key issues of this story is that the cheating companies do not know how the CipSoft anti-cheating tool operates, and this creates a problem for the development of new undetectable bots. This is not just an accident; it appears to be part of the CipSoft strategy, as the following message by a Tibia Community Manager shows: Concerning the speculations and rumours about our automatic tool: We won't comment on all those speculations since any hint would only help cheat tool developers and cheaters. Likewise, we won't reveal or discuss our criteria. (From http://forum.tibia.com/forum/?action=thread&threadid=2478964&pagenumber=29 Post #22067302, February 2, 2009) So, as a general strategy against cheating companies, CipSoft does not want to reveal anything about the anti-cheating tool. For cheating companies, however, in order to meet the new customer demand for undetectable bots it becomes essential to acquire some knowledge of how the anti-cheating tool works. Fields and Kafai (2009) describe how cheating in online games is often a learning process in which cheaters collectively learn how to use cheats. In the case of Tibia, the cheating companies and players who are their customers are involved in a collaborative learning process, and there is a clear relationship between cheating and learning. We have a process through which real software companies, helped by cheating players, try to learn how an anti-cheating tool works. The goal of their learning process is to develop a way to defeat a cheating counter-measure: the CipSoft anti-cheating tool. On the Tibia cheating forums this learning process is pursued by making deductions based on the behavior of the game client (after the tool's introduction), or based on the companies' and cheaters' knowledge of computer systems. What follows is a forum post by the cheating company BlackD that describes what the company owner calls a possible 'theory' on how the anti-cheating tool works: THEORY 1: […] 16

Journal of Virtual Worlds Research – Economy of Cheating

My guess is tibia client can obtain the list of your installed programs, and it can send the list to tibia servers, probably only on request, when a scan wave happens, maybe only once each month (because it causes big lag, kicks and deaths for everybody) If tibia client sended [sic] that always at start then it would bee [sic] too easy to catch that packet. I will appreciate help from people who can read hex, and know about the API24 who can obtain the list of installed programs. The call is probably somewhere in the code of the tibia client. That would confirm my theory (From http://www.blackdtools.com/forum/showthread.php?t=35800, Post #1, January 30, 2009) It is interesting to see how cheating is a socio-technical process that involves a learning process, in which various technological elements (for example installed programs, APIs, calls to functions) form cheating business practices. In this case BlackD guesses that the anti-cheating tool operates by searching for well-known strings (such as bot programs’ installation names) on users’ computers. If these strings are found, then the tool will report this information to CipSoft. As we can see, cheaters with technical knowledge (people who can read hex and know the API) are invited by the cheating company to contribute to this learning process and provide knowledge to confirm/refute this theory. What follows is an example of this learning process, with a cheater providing some feedback as to the inner activities of the Tibia client: It is also possible that Cip changed some server packets (1 byte is enough I believe) and updated the client to use the new packets...so when the bot uses the old packet, account is logged and banned. (From http://www.blackdtools.com/forum/showthread.php?t=35800&page=5 , Post #45, January 30, 2009) Here we see how cheaters contribute to the learning process. In this example, the cheater assumes that the tool checks communication packets between the client and the server and that CipSoft has slightly changed some packets so that detecting the tampering activities of bots becomes easy. What follows is a second 'theory' on the inner workings of the anti-cheating tool, again proposed by BlackD: THEORY 2: they search strings "blackd" "ng" "elfbot" in your chat logs (private or not) If string is found more than 10 times in the log of the last 6 months then that would be "enough" proof and you get an automatic ban. (From http://www.blackdtools.com/forum/showthread.php?t=35800, Post #1, January, 30 2009) In this case the company proposes the idea that the anti-cheating tool scans the players’ chat logs searching for known strings (for example "blackd" or " tibiabot") related to bots. The idea is that if a player has written certain strings several times in the chat while communicating with others players (see Figure 6 for an example that clarifies this point), in a given period of time, then this is detected by the anti-cheating tool. The decision to ban cheaters will be based on

Application Programming Interface - the details of how a programming language is to be used. Programmers wishing to change or add to existing code need to know these details.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

checking this information. What follows is a comment by a cheater on a possible reason why this proposed second theory is not correct: Theory two doesn't work because I have said such things thousands of times in tibia and no banishment. (From http://www.blackdtools.com/forum/showthread.php?t=35800&page=5, Post #45, January, 30 2009) In this case we have a positive deduction based on the consideration that the cheater has used the strings numerous times in chats but he/she has not been banned. On the contrary, what follows is a negative guess: The second theory has to be false... I was banished but I didn't talk about bots ingame. (From http://www.blackdtools.com/forum/showthread.php?t=35800&page=7, Post #61, January, 30 2009) The second theory is therefore contradicted by the consideration that cheaters got banned even if they had never used those strings in the chat while playing the game.

Figure 6. Example of a chat log with the name of a bot (TibiabotNG) repeated several time. From http://www.tibiapic.com/show.php?v=fPSwcgTzTTTT

The evidence gathered and presented above would lead us to agree with Fields and Kafai that cheating can be conceptualized as a learning process. However in our story, the focus of the learning process is not on playing and winning the game, but rather on learning how the anticheating tool functions and how it detects the cheating software: the process is as social as it is technological. It is also crucial to see how this learning process involves close interactions between cheating companies and the cheaters that are invited to contribute to the learning process. In other words, cheating companies try to mobilize external human resources for their technical knowledge of the game client and the gameplay, in their goal of creating a new generation of bots.

Cheating as Part of an Innovation Process Cheating in Tibia results in multiple and ongoing innovations by a range of different actors. CipSoftâ&#x20AC;&#x2122;s anti-cheating campaign since January 2009 has involved the introduction of two innovations: the anti-cheating tool and new governance policies. These have forced the cheating companies to start a process of research and development which is resulting in 18

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

incremental product innovations (a new generation of bots) to combat the anti-cheating tool. For the cheating firms, this process involves them gathering feedback from players about their use of cheating products in the marketplace, and about competing technologies, and subsequently using this information to assist in the development of new cheating technologies. Thus the cheating firms are not just involved in an information-gathering and learning process, they are also involved in a highly iterative innovation process to develop new software products and thus maintain their business. For cheating companies the innovation process is attempting to do two things: develop undetectable bots and reassure customers so as to stabilize relationships with them. The following message by NGSoft clearly aims to reassure those customers who have become afraid to use bots because of the mass bans, and predicts the creation of a new generation of undetectable bots: Our response instead will be to research and create a new type of undetectable bot that does not modify the Tibia client and therefore will be safe to use under all circumstances even if Tibia does implement a client-side bot detection routine. (From http://forums.tibiabot.com/showthread.php?t=110349, February 01, 2009) As we can see, the company (NGSoft in this case) clearly declares the will to initiate an innovation process based on research and development activities. Moreover, the customers are reassured that this new generation of bots will be safe to use. A similar attitude is maintained by the other cheating companies, as the following message taken from the BlackD website shows: No matter how many changes CipSoft do, we don't surrender. We keep updating our bot and we keep improving the stealth25 functions. We will always be 1 step ahead of them. (From http://www.blackdtools.com/news.php?p=2 March 23, 2009) In BlackD the innovation process toward a safe, undetectable bot has taken on the specific name of 'stealth'26. This definition of innovation recalls military efforts to make war technologies less visible, if not undetectable, by enemies. Moreover, as part of an overall strategy, BlackD has decided not to release to the public any information on the bot that might help CipSoft create counter-measures: We have decided that we will not release the code of Blackd Proxy core anymore: we won't release an updated Free Proxy. That way CipSoft won't be able to spy our new technology. [sic] (From http://www.blackdtools.com/news.php?p=2 March 23, 2009) In fact new versions of bots were released shortly after the first mass ban (January 30, 2009), incorporating several enhancements that were supposed to counteract the anti-cheating tool. These enhancements included for example several forms of randomization of gameplay actions in order to make the bot acting more like a human player, or the removal of bots installation names from the client machines27. These incremental innovations were also based on 25

'Stealth' specifically refers to the property of undetectability in bots. See, for example, this thread, post #358 for further details: http://www.blackdtools.com/forum/showthread.php?t=35800&page=36 27 Some of the stealth capabilities of BkackDProxy are listed here: 26

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

the information provided by cheaters via public forums. Interestingly, the first mass ban has been followed by others (one each month since January 2009, with approximately 5,000 accounts banned each month28 and more than 45000 accounts banished in total so far). These subsequent bans constitute a dynamic situation in which the new bots were being tested in the marketplace. For example on BlackD forums, cheaters were asked by the company to provide feedback on characters created after the first mass bans and played with the new stealth bots: In order to get proof of the new safety...Please bot a new character only using new updated version. We will see the results in the next mass ban day. Note that your old characters might have been already marked to deletion in that next day, even if you don't login them again from now. [sic] (From http://www.blackdtools.com/forum/showthread.php?t=36243 Post #1, February 6, 2009)29 As we can see, the company makes an explicit request to its customers: to create new characters and to play them with the new version of the bot. This explicit request is made because deletion information might have already been gathered for characters that were played with bots before the (first) mass ban and before the introduction of the anti-cheating tool. On March 03, 2009, CipSoft carried out a second mass ban. While many cheaters reported that their newly created characters were not banned in this second wave, some did report banishments, as the following case clearly exemplifies: YES I GOT BANNED WITH ONE. Created AFTER the proxy improvements (From http://www.blackdtools.com/forum/showthread.php?t=37571, Post #6, March 3, 2009)30 The new enhancements to the BlackD bot, introduced after the first mass ban, were therefore not effective. In March, after the second ban, the company BlackD was still declaring on its website that the use of bots was safe and that they were still working on a stealth approach. However, at the beginning of April, after a third mass ban, the advice from the cheating companies changed, as the following message demonstrates: Using any bot seems to be very risky nowadays until we know how bots are exactly detected. We keep investigating on this but we should recommend to avoid botting with main characters. Anyways you can still get profit from farmers and transfer that gold to your main character later. (From http://www.blackdtools.com/news.php?p=2 April 2, 2009)

http://www.blackdtools.com/forum/showthread.php?t=11&highlight=stealth&page=7, message #63. 28 For some players the impact of each mass ban is relatively low, accounting for only 2-3 botters banned each day in each server (5000 accounts / 74 servers, with therefore an average of 68 accounts banned on each server in a month), see http://forum.tibia.com/forum/?action=thread&threadid=2712834 29 This thread has been removed from the forum too, see footnote 21. What is reported here is the original URL with the date of publication. 30 This thread has been removed from the forum. The URL provided is the original. See footnote 21.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

So far, therefore, the incremental technological innovations developed by the cheating companies do not appear to have generated the required result, and cheaters are being given specific advice on how to use bots. In particular, the company BlackD has invited cheaters not to use bots for their main characters. Instead, BlackD has suggested that the bots might be used for secondary characters (gold farmers) that can subsequently transfer their loot to the main character. It is clear that having a main character banned from the game because of cheating is a major loss for cheaters, whereas risking a ban on a secondary character--created with an account different from that of the main character--is sometimes an acceptable risk. In any case it is clear that so far no secure and undetectable bot (a stealth bot) has been created and that the use of bots in Tibia remains a very risky activity for cheaters. At the moment cheating companies appear to have lost their fight against the Tibia anti-cheating tool, and cheaters are being banned on a regular basis by CipSoft and the tool. Therefore, while cheating companies have been innovating as an answer to a mutation in market demand from their customers, they may not succeed in the marketplace.

The Economy of Cheating in MMORPGs: Reflections for Virtual Worlds Research In this paper we have explored how one form of in-game cheating (botting) can lead to innovations in the real-world economy, and how these innovation processes are triggered by a mutation of conditions in a marketplace. We think that this paper provides a useful contribution to our understanding of the relationship between virtual worlds and the real economy, insofar as it has unveiled and described an 'underground' economy and its socio-technical practices. In particular the adoption of an emergent approach based on ethnomethodology (Garfinkel, 1967; Callon, 1986; Latour, 2005) has proved to be a promising avenue for this type of qualitative investigation into virtual worlds. While we are unable to quantitatively assess the extent of cheating in the game, this approach allows for an in-depth assessment of particular sociotechnical practices over time and accords equal status to the different perspectives of a range of actors. In the case of Tibia what we have is a clash between the business of a MMORPG company and the business of cheating companies. Indeed, this case study reveals that cheating companies do their business 'just' within the boundaries of the Tibia game. The business of developing and marketing bot programs that tamper with game clients exists because the MMORPGs exist. In particular this study has shown that cheating innovation is a dynamic and productive process which is based on research and knowledge-acquisition activities as well as on incremental results based on market testing. Cheating innovations in Tibia are a collaborative process of learning and knowledge-development which increasingly takes place in sociotechnical networks, rather than purely internally in companies, and involves a range of social and technical factors. Therefore, in this study we have tried to unveil both how cheating can be productive in a very real sense and also to show the underlying socio-technical complexity of the relationship between cheating companies, their customers, and Tibia. In this case study we have described how cheating companies have faced a breakdown in their business and how these companies have tried to cope with this breakdown and with the subsequent user demand for undetectable bots. As Callon (1999) pointed out in his contribution to the study of the market as a socio-technical phenomenon, responding to this kind of rupture 21

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Economy of Cheating

requires a new configuration, a new framing, of the existing network of socio-technical relations: this is necessary because a certain amount of work has to be done and investment made in order to make relations calculable again. And indeed the breakdown introduced by the anti-cheating tool has required cheating companies to work towards the reshaping of a new set of relationships among themselves, their customers, and their products in order to re-frame a certain order and stability. The concrete answer to the breakdown is the creation of a new generation of bots with stealth capabilities, totally secure from detection by the anti-cheating tool. The goal of this technology (the stealth bot) is to recreate a new set of stable market relationships between the cheating companies and the bot customers. So far, however, this innovation and the new generation of bots have not been successful and CipSoft's anti-cheating campaign seems to be effective in counteracting certain types of automatic cheating in Tibia. At a more general level, while cheating conveys an unfair advantage to some players in virtual worlds, it can also be said to generate productive activities and value in the real economy. In the case examined in this paper cheating generated the production and ongoing innovation of anti-cheating and botting tools. Castronova (2005), in his inquiry into the social and economical dynamics of synthetic worlds, has pointed out that MMORPGs have important implications for labor markets and for the creation of revenues. Complex economies are behind--and embedded in--these games, and they create jobs and wealth in ways that were perhaps unexpected and largely not understood. In our opinion cheating companies that focus on MMORPGs constitute an unexplored dimension of how MMORPGs can generate revenues and labor markets. By saying this, we do not mean to justify the existence of any cheating business that creates jobs and revenues. However, it is important to recognize that cheating companies such as those described in this paper operate exactly as 'normal' software companies do. These companies sell cheating software on the real-world market in exactly the same way as any other software companies: users need to pay a license fee for limited use and on a limited number of machines. In our opinion, the activities of producing, selling, and using cheating software to tamper with game clients or to intercept server-client communications--in contravention of the games' EULAs--are not justifiable per se. However this position cannot deny the empirical evidence that there is a complex economic dynamic in place. In particular, as we have seen, we have companies that have a business, we have customers that demand innovative products, and in general we have networked market dynamics that emerge at the boundaries of MMORPGs. Therefore some forms of cheating practices, such as developing, selling, and using bots are productive processes that lead to value creation in the real world. We are convinced that a better understanding of the productive nature of cheating may lead to more acceptable solutions to the problem of cheating in MMOPRGs for all the actors involved.

Acknowledgements The authors would like to acknowledge the support of the Irish governmentâ&#x20AC;&#x2122;s Higher Education Authority under the PRTLI 4 programme and their partners on the 'Serving Society: Future Communications Networks and Services' project (2008-2010). We also thank the two anonymous reviewers for their insightful comments.

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Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Born Virtuals and Avapreneurship: A case study of achieving successful outcomes in Peace Train – a Second Life organization Robin Teigland, Stockholm School of Economics

Abstract Borrowing from the international entrepreneurship business literature that uses the term “Born Globals,” I label organizations that have been created to discover and exploit opportunities primarily within virtual worlds as “Born Virtuals.” While relatively easy to establish, the challenge for Born Virtuals and avapreneurs, or entrepreneurial avatars, is to accomplish the critical task of coordinating the actions of multiple actors to achieve important outcomes – a challenge that has been repeatedly documented in research on virtual teams and organizations with geographically dispersed members. As such, this paper’s intent is to investigate two research questions: RQ1) What are the challenges for avapreneurs to achieving successful organizational outcomes in Born Virtuals? and RQ2) How can collective competence be developed such that these challenges can be overcome? To answer these questions, this paper presents a study of Peace Train, one Born Virtual organization created in Second Life. Peace Train was founded by three social avapreneurs interested in promoting peace in the world, and together with more than 100 volunteers, Peace Train organized during the course of eleven months PeaceFest 08, one of the largest fund-raising events to date in virtual worlds. This event attracted 8,000 to 10,000 unique avatars and raised 870,000 Linden dollars from approximately 3,000 individuals from across the globe, which were then donated to 10 real world charitable organizations. Keywords: virtual world; entrepreneurship; virtual organization; born global; collective competence; Second Life; not-for-profit. This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

Born Virtuals and Avapreneurship: A case study of achieving successful outcomes in Peace Train – a Second Life organization Robin Teigland, Stockholm School of Economics

An organization is a vehicle for cooperative endeavor, one in which the purpose is to coordinate the members’ various activities in order to accomplish a goal that could not be achieved by any of its members individually. Through recent decades, most attention from organizational researchers has focused on investigating bureaucratic forms of organizing and not too surprisingly within more traditional physical, real world settings (O’Mahony & Ferraro, 2007). However, new forms of organizing are rapidly arising due to Internet-based communication technologies and in particular due to 3D environments. For example, through virtual worlds a group of geographically dispersed strangers from diverse national and demographic backgrounds may now relatively easily come together through their avatars and self-organize around common interests and even create for-profit and not-for-profit organizations that exist solely in the virtual world. Borrowing from the international entrepreneurship business literature that uses the term “Born Globals” to label organizations that from their inception discover and exploit opportunities in multiple countries (Autio et al., 2000; Knight & Cavusgil, 1996), I label these organizations “Born Virtuals” to specifically indicate that these organizations have been created by avatars to discover and exploit opportunities primarily within virtual worlds. In addition, I introduce the term, avapreneurship, or the act of entrepreneurship in virtual worlds. While relatively easy to establish, the challenge for Born Virtuals and their avapreneurs is to accomplish the critical task of coordinating the actions of multiple actors to achieve important outcomes. The literature on virtual teams and organizations (e.g., Ancona & Caldwell, 1992; O’Mahony & Ferraro 2007) has suggested that this is quite a challenge as individual members may have different underlying goals and there are considerable practical difficulties in organizing activity due to differences in language, culture, and time zones among the members. Further research has shown that groups that are successful in achieving outcomes are those that develop collective competence among group members (Hansson, 1998; Sandberg & Targama, 1998). As we know relatively little about how social groups accomplish the critical task of coordinating the actions of multiple individuals to achieve important outcomes (Heath & Sitkin, 2001; O’Mahony & Ferraro 2007; Weick, 1979) and that virtual worlds are growing rapidly in terms of members, organizations, and economic activity (Castranova, 2007; Sivan, 2008; Spence 2008), it is pertinent that we investigate the organizing processes that enable Born Virtuals to overcome these challenges and to achieve successful organizational outcomes. As such, in this paper, I investigate two research questions: RQ1) What are the challenges for avapreneurs to achieving successful organizational outcomes in Born Virtuals? and RQ2) How can collective competence be developed such that these challenges can be overcome? In so doing, I follow Heath and Sitkin’s advice (2001) that more attention be devoted to general organizing processes such that we may deepen our understanding of how groups of people carry out their goals.

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

To address the above, I turn to the literature on virtual teams, virtual organizations, diverse teams, and project management as these provide valuable insights into organizing activity by groups of dispersed, diverse individuals. After developing the research questions from this literature, I then present the research site of Peace Train – a Born Virtual within Second Life. Peace Train was started in October 2007 when two avatars met in Second Life and discovered that they both shared a passion for peace: “an abiding hope and desire to advance the cause of peace in the world” (Peace Train). Interested in developing a new and effective means to promote peace, Peace Train’s first major activity was to gather followers and organize PeaceFest 08, “a global, interfaith, cross-cultural effort to create lasting peace through mobilizing dialogue, support and learning with real life peace organizations” (ibid). One of the largest fund-raising events to date in virtual worlds, PeaceFest attracted 8,000 to 10,000 avatars and raised 870,000 Linden dollars from approximately 3,000 individuals from across the globe that were then donated to 10 real world charitable organizations including UNICEF and Amnesty International (figure 1).

Figure 1. Donation to Uthango Social Investments by Peace Train raised during PeaceFest 08

To investigate the research questions, data collection for this study includes 1) interviews and surveys of the Peace Train core and extended members as well as PeaceFest 08 event facilitators, performers and participants and 2) extensive documentation during the eleven months leading up to and including the PeaceFest 08 event, such as e-mail correspondence, wikis, blogs, and SL notecards, text chat, snapshots, and machinimas. After presenting my findings based on the above, I then conclude the article with a discussion of these findings as well as areas for future research. Background and Development of Research Questions With the development of Internet-based communication technologies during the past years, diverse individuals from across the globe now have the ability to interact, build communities, and even create virtual organizations for commercial or other purposes. Virtual organizations have been defined as geographically distributed organizations “whose members are bound by a long-term common interest or goal, and who communicate and coordinate their work 5

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

through information technology” (Ahuja & Carley, 1999: 742). Researchers are increasingly turning their attention to emergent virtual organizations such as those involved with the production of open source software since they are becoming ever more prevalent (e.g., O’Mahony & Ferraro, 2007). Of late, virtual worlds have developed to the point that they now present yet another organizing platform as they are “online immersive ‘game-like’ environments where participants engage in socialization, entertainment, education, and commerce” (Mennecke et al., 2007). In these virtual worlds, individuals come together in a rich environment and experience a feeling of “nearness/togetherness” (Ives & Junglas, 2008: 155) in which they assume an identity as an avatar and interact with other avatars via computer-based chat and/or more recently, voice over IP. In some instances, individuals may even self-organize around their interests and create a Born Virtual–a virtual organization created by avapreneurs to discover and exploit opportunities primarily within virtual worlds. Virtual worlds, such as Second Life and Entropia Universe, continue to grow both in size and sophistication (Spence, 2008) and as such are attractive platforms for Born Virtuals as they enable economic activity through their own virtual currency. Individuals and organizations may develop and sell their own virtual products and services to others in the virtual world, receiving payments that can then be extracted and converted to real world currency (Sivan, 2008). The range of a financial transaction is from a micropayment of less than one U.S dollar to the recordbreaking payment of USD 100,000 for the Asteroid Space Resort in Entropia Universe in 20071. Adding up these transactions within one virtual world is quite substantial. For example, in 2008 the ‘GDP’ of Entropia Universe was USD 420 million (in the range of the gross domestic products of smaller developing countries)2. Of further interest is that in March 2009 the Swedish government granted a real life banking license to the Swedish virtual world provider, Mind Ark, thus guaranteeing all financial deposits by Entropia Universe members. The above indicates that virtual worlds provide great promise as platforms for organizing economic activity and thus deserve attention from researchers, particularly in terms of what is necessary for Born Virtuals and avapreneurs to achieve successful organizational outcomes. Previous research on organizational groups has identified the concept of collective competence, a concept that is very relevant to our research question. Collective competence has been defined as the ability of a group to work together towards a common goal and results in the creation of a collective outcome, an outcome that could not be accomplished by one member alone due to its complexity (Hansson, 1998; Sandberg & Targama 1998). This competence is argued to be not at the individual level but at the group level and as such is a collective competence that integrates both practical as well as interpersonal competence. Practical competence refers to the group members’ ability to integrate their individual competences and solve problems together and includes a combination of learned skills, working routines, and processes as well as thinking chains and reasoning. Interpersonal competence refers to the ability of group members to interact and collaborate with other members while accomplishing the group’s tasks. Collective competence is constituted while group members collaborate in the course of joint action or practice and creates a set of inter-subjective meanings that are expressed in and through their artifacts (Cook & Yanow, 1993; Ruuska, 2005; Sandberg, 1994, 2000). Thus, collective 1 2

http://www.marketwire.com/press-release/Entropia-Universe-770780.html, accessed August 10, 2009. Conversation with Christian Bjorkman, MindArk, 2009.

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

competence is based on a shared understanding by the members of the group as a whole that enables the group to successfully achieve its ultimate organizational goals (Ruuska & Teigland, 2009). Yet various, related bodies of literature suggest that groups of individuals from across the globe interacting through Internet-based communication channels are faced with significant challenges to achieving collective competence and thus successful organizational outcomes. First, the research on teams with members from diverse demographic backgrounds has found underlying differences in team members’ behaviors, values, and attitudes and that members not only notice different information but also perceive the same information differently (Maznevski, 1994). As a result, team members tend to lack a shared social reality and may even fail to have a common “here-and-now” perspective (Blackar, 1984). This research has also found that such organizations often suffer from ineffective communication leading to obstacles to effective performance and in some cases even failure (Lerpold, 2003; Maznevski, 1994). Second, research on virtual teams has found that even though virtual teams are commonly used by traditional real world organizations to organize activity across geographic locations, they quite often run into problems of team conflict that lead to considerable difficulties in achieving outcomes (Armstrong & Cole, 2002; Hinds & Mortensen 2005). For example, when commonalities among members are removed, e.g., location, culture, a team’s mutual awareness of individual members is disrupted. As a result, the ability to develop shared understandings among members is inhibited (Cramton, 2001) and may result in team members misunderstanding each other when communicating electronically, thus leading to conflict (Wakefield et al, 2009). Moreover, practical challenges such as different time zones create coordination difficulties (Ancona & Caldwell, 1992). Third, the research on virtual, community-based organizations has found that just as in any organizational form there is a constant tension between fulfilling individual goals and integrating them with a common objective (O’Mahony & Ferraro, 2007). Conflict tends to arise when members are unable to resolve problems of power, authority and governance thus inhibiting the linking of individual efforts to community goals and the coordination of these efforts to fulfill these goals. Each of the above bodies of literature on various organizational forms has identified potential challenges for Born Virtuals. Thus, the above thus leads us to two research questions: RQ1) What are the challenges for avapreneurs to achieving successful organizational outcomes in Born Virtuals? and RQ2) How can collective competence be developed such that these challenges can be overcome? Research Site and Data Collection To address our research questions, we conducted an in-depth qualitative study of Peace Train and its first large-scale event, PeaceFest 08 (figure 2). The reason for choosing Peace Train is that it is an organization entirely conceived of and founded within the virtual world of Second Life, a true Born Virtual. While the two founding avapreneurs of Peace Train met in a jazz club in world, they did not disclose each other’s real life identities until several months into the organization’s activities. A second reason for choosing Peace Train is that it is a fundraising charitable organization and these organizations play an important role in society – raising and 7

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

donating large sums to organizations and individuals in need across the globe. For example, USD 203 billion were raised by U.S charitable organizations in 2000 (Andreasen & Kotler, 2003). Generally speaking, charitable organizations that have a global reach tend to be large, more formal organizations such as the International Red Cross, United Nations Childrenâ&#x20AC;&#x2122;s Fund (UNICEF), Amnesty International, and the Peace Corps, while more local charities tend to have a more local reach with volunteers and recipients generally within the same geographic vicinity. However, with the penetration of virtual worlds such as Second Life, individuals who share the same social interests from across the globe may now join together to participate in joint charitable activities regardless of geographical, cultural, or organizational boundaries (Teigland, 2010).

Figure 2. Presentation slideboards and information about PeaceFest 08

As noted above, Peace Train was founded in October 2007. Preparations were initially organized within the virtual world of Second Life as the Peace Train group was formed and began to attract membership informally. Eventually, formal planning meetings were scheduled, drawing attendees primarily from countries in Europe and the Americas. The Peace Train team expanded to around 100 members, and it relied on technologies beyond Second Life to finalize planning (e.g., Google docs and calendars, team wiki and event blog). It is also important to note that at no point in the planning did the members of Peace Train ever meet physically in person.Taking advantage of technologies that allow real-time communication and presentation of visuals as well as a growing network of performers and artists in the space, the Peace Train team organized over 100 live events during the three/day PeaceFest from August 15 to August 17, 2008 (figure 3). While some of these events were live interviews and presentations with representatives of various charitable organizations around the world, the bulk of these events were of an artistic natureâ&#x20AC;&#x201C;live music, poetry, visual (two- and three-dimensional works), theatrical performances and even guided meditations and a virtual sailing contest. After an analysis of the attendance at the events, it was estimated that between 8,000 and 10,000 avatars from across the globe attended some portion of PeaceFestâ&#x20AC;Ś way above the expectations of the Peace Train organization. In fact, some Peace Train members even stated that they were overwhelmed by the outpouring of avatars for PeaceFest. While it was difficult to get any demographic data on these avatars due to the nature of SL, it became clear through means such as discussions with other avatars and reading of avatar profiles that these individuals were truly

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

spread out geographically across continents. In addition, individuals performing or participating in the panels came from across the globe, e.g., Croatia, Uganda, South Africa (figure 4).

Figure 3. Virtual Africa location for PeaceFest 08

Figure 4. Worldwide locations of PeaceFest 08 participants

To reach interested individuals and avatars, a number of communication methods were used both in the real world and in Second Life. PeaceFest 08 volunteers learned about the event and the organization primarily through Second Life: group e-mails, word of mouth from other avatars, being part of communities, and seeing posters for the event at various Second Life venues, reading avatar profiles, and attending an information session in Second Life. The PeaceFest 08 panelists were primarily contacted out of world through more traditional means such as e-mail, Skype, and telephone, while the performers were primarily contacted through in world channels. An important note is that despite the global reach and numerous languages, applications exist in Second Life that help overcome the challenge of avatars not all being able to speak the same language. For example, Babbler is a heads-up display (HUD) that translates between various languages in text chat. While translators are constantly being developed within virtual 9

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

worlds, Babbler enables an avatar to choose 1) a language to be translated from and 2) a language to be translated to. This is only a text chat translator, and while sometimes sketchy in its accuracy, it provided an essential capability allowing communication across cultures that otherwise would not have happened.

Of the 8,000 to 10,000 participants, some 3,000 contributed Linden dollars, the inworld currency, to Peace Train and the proceeds from the event were then donated to 10 real-world charitable organizations including UNICEF and Amnesty International as well as smaller, less well-known organizations in Ghana, Croatia, and South Africa (table 1). Table 1. List of Participating Charitable Organizations

Organization Amnesty International UNICEF World Conference of Religions for Peace Kids4Peace International Centre for Conflict and Human Rights Analysis (ICCHRA) Centro de Estudios Para la Paz (CEPPA) Uthango Social Investments Coalition for Work with Psychotrauma and Peace (CWWPP) Media for Peace and Religious Tolerance Organisation (MPRTO) UMUSEKE

Location New York, NY, USA New York, NY, USA New York, NY, USA Atlanta, GA, USA Accra, Ghana San Jose, Costa Rica Cape Town, South Africa Vukovar, Croatia Kampala, Uganda Kigali, Rwanda

Data collection for this study consisted of 1) semi-structured, thematic interviews, 2) an online survey, and 3) secondary data for the period of October 2007 to December 2008. I first conducted a set of semi-structured interviews of Peace Train and PeaceFest 08 participants: three persons from Peace Trainâ&#x20AC;&#x2122;s steering group and two from participating organizations. Second, I created a short online survey with both closed and open-ended questions that was directed towards those individuals who had participated in organizing and helping out during PeaceFest 08. I received 17 completed surveys; however, it is difficult to calculate the response rate. Similar to many online communities, membership is fluid with people coming and going, making it difficult to draw a membership line around the organization and determine the total number of members. Third, I had access to a substantial amount of secondary material in the form of e-mails and documentation in more traditional formats, such as Word and PowerPoint, in addition to new formats available through Second Life, such as notecards, snapshots, and machinimas (films made in Second Life). To conduct the analysis, I used an abductive research approach, implying that I started by identifying a particular phenomenon and then related that phenomenon to broader concepts (Coffey & Atkinson, 1996; Dubois & Gadde, 2002). It is appropriate to use the abductive approach when there is a high level of novelty in the research area and the researcher is investigating a new phenomenon and the underlying variables and their relationships (Ruuska, 10

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2005). Of interest is that much of the virtual team research focuses on virtual teams that have been formally designated by management within one or more organizations and are not of an emergent nature. In addition, little research has been conducted focusing on charitable organizations and their activities within online environments. Thus, applying the abductive approach to the study of the relatively novel phenomenon of emergent charitable organizations within virtual worlds seems most appropriate. Results RQ1) What are the challenges for avapreneurs to achieving successful organizational outcomes in Born Virtuals? With the collective competence concept in mind, I analyzed the Peace Train data looking for challenges to developing collective competence by Peace Train members. I found two primary challenges. First, the high fluidity of organizational membership in terms of avatars joining and leaving the project as well as varying levels of avatar commitment and engagement to achieving the goals impeded the group’s ability to develop practical competence. Second, the ability to build and maintain trust among members affected the development of the group’s interpersonal competence. I discuss each of these challenges in turn before presenting my findings regarding research question two - how these challenges were overcome within the Peace Train context. Challenges to achieving practical competence. As noted above, practical competence refers to the group members’ ability to integrate their individual competences and solve problems together and includes a combination of learned skills, working routines, and processes as well as thinking chains and reasoning. In the case of Peace Train and the PeaceFest 08 event, the leadership team of avapreneurs primarily consisted of three individuals who labeled themselves Engineers surrounded by an extended group of around 100 individuals who were labeled Conductors or Passengers. However, when it came down to the number of people actually participating from start to end, there was a core group of around ten people who were “regulars” who would do things. In addition, there was a tremendous degree of fluidity in this group, which led to difficulties in distributing tasks and responsibilities and created insecurity as to whether tasks would be completed on time and to a sufficiently high degree of quality. Analysis of the interviews revealed that this fluidity was due to two main causes: 1) the fluid nature of community organizations – or social groups and 2) differences in communication and technology skills and preferences. The fluid nature of community organizations. With any community organization, individuals become involved of their own freewill and may come and go as they more or less choose while deciding to what degree they are committed and engaged throughout. The benefit of this is that those who do decide to commit and engage are those who share the overarching goal of the organization, thus there is less conflict at the group level resulting from conflicting individual goals. This may even be even more so in the case of community organizations in Second Life. In this virtual world while individuals may come from all kinds of backgrounds and geographic locations across the globe, they may step out of their real world lives and find others with very similar social interests. One interviewee noted the following, “One thing I would like to add that I found with people involved in this is that people feel so constrained in their real life 11

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with jobs, kids… everything is so well defined in RL and then they go into SL and see that here I can do anything…and then find something like this and can make a meaningful contribution and they probably would not do so in real life.” Yet as all the interviewees mentioned, the fluidity of members was one of the biggest problems to achieving Peace Train’s goals. One interviewee noted, “There were so many people in the group, some would stay in the group while some kind of faded away. It was really difficult to say anything about who was in the project and who was not…there were people who contributed a whole lot in the beginning who weren’t there at the end, but there were people who had not been there for the long haul but who put in blood sweat and tears at the end.” ” Another person commented that people would come up with ideas or take on responsibilities, but then they would just disappear. One even noted that there were people “who did really let us down…they lost interest and did not believe that something was going to actually happen and that this was something they would want to be affiliated with …” ” Similar to community organizations in the real world, an individual’s engagement and commitment could be affected by personal and professional matters occurring outside of the community organization in addition to issues related to the dynamics of the community organization. For example, in the case of Peace Train one of the core team members was completely offline for a considerable period due to a real life natural disaster (a hurricane), issues at work, and a computer meltdown. And another of the more engaged Conductors quit six to eight weeks after the project’s inception due to a feeling of alienation and lack of effort appreciation by the other Peace Train members. However, Second Life presents another challenge due to its more transient nature. As many are exploring this new environment and even new personas, people may easily create an avatar, log in, come to an event, provide some ideas, take on some responsibilities, and then just as easily disappear - never to return again. So, the issue of identity is a challenging one to understand in this new world. People may choose to reveal or keep hidden their real life identities in addition to creating completely new avatars, making issues of accountability extremely difficult. For example, one individual who revealed his real life identity was very involved in PeaceFest 08, but due to personal issues, this person suddenly disappeared – never logging on again as that avatar. Another person met an avatar who was under 18 years old but who had logged in using his mother’s SL account. One interviewee summarized this challenge in the following statement, “Getting people to be accountable is really difficult in world since they are avatars – it depends on who they are as people, but you can not stop someone from drifting around…you have to prepare yourself that that can happen…it is the absolute reality of the situation.” Differences in communication and technology skills and preferences. Virtual organizations within the Second Life environment have an overwhelming number of in-world and real world communication technologies that their members can use to communicate. As in any virtual organization, there is the issue of choosing the right communication technology for the task. In general, there are issues of skill and experience in using the different communication technologies as well as one’s being able to locally fulfill the hardware requirements that determines which technology to use. This was not the case for Peace Train as the members of Peace Train were all at more or less the same technological level since 12

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they were all active in Second Life before becoming involved. However, members of the leadership team did not always agree on which communication technology to use and at times this led to conflict. For example, one member preferred to use voice to discuss the issues at hand in meetings while one other member preferred to use the chat function. In addition, the former member preferred to use a combination of Second Life and out-of-world technologies, e.g., wiki, Google docs, while the latter preferred to use primarily Second Life technologies, e.g., notecards and chat logs, for project planning, documentation, and tracking decisions. Several reasons were offered for these differences in preference. First, there is the issue of identity and the willingness of an individual to expose himself/herself and to “reduce the boundary” between his/her avatar and his/her real life self. Moving to voice from chat reduces this boundary and exposes more of an individual’s real life self. To take an example, a real life man may choose to be a woman in Second Life; however, using the voice function would clearly remove this difference. Second, there may be an experiential issue–the team member wanting to combine Second Life with outside technologies was more experienced with these out-of-world technologies and less comfortable with Second Life technologies than those members wanting to use primarily Second Life technologies. This member made the following comment, “Communicating in text-only shorthand (alphanumeric), with run-on sentences complete with onomatopoeia was a real bear to comprehend.” The third reason offered was related to differences in working styles. The member wanting to use voice and combined Second Life and real world technologies had more of a traditional, structured working style in which status reports and spreadsheets with timelines and milestones would be kept and on which changes would be entered after meetings. The preference by the other team members for using Second Life technologies was a source of frustration and confusion as expressed in the following quotation, “For me personally, it was confusing when versions of notecards had been passed around, all with the same name. There is no filing structure within Second Life or easy way to manage versions.” However, one interviewee called the spreadsheet the “spreadsheet from hell”–commenting that keeping this spreadsheet up to date only took more time than just sharing the information directly, especially since the whole process was such a fluid one with changes occurring constantly. Moreover, using the chat function instead of the voice function, while taking longer to communicate, facilitated the keeping of a log. Challenges to achieving interpersonal competence. Turning to the second challenge, interpersonal competence refers to the ability of group members to interact and collaborate with other members while accomplishing the group’s tasks. As presented above, the ability to build and maintain trust among members affected the development of the group’s interpersonal competence and here we found two primary causes: 1) the relationship between real life and Second Life identities and 2) issues related to virtual world access. The relationship between real world and Second Life identities. As noted above, Second Life offers the opportunity for individuals across the globe to explore different personas. As a result, different people approach Second Life in different ways. For some individuals, it is seen as an extension of who they are in the real world–using it as a means to further their real life professional career. For others, Second Life may offer the opportunity to escape from the real world. Each individual has his or her own reasons yet all may meet in Second Life. However, this environment in which the meeting is between avatars as opposed to more traditional face-toface, physical meetings may present challenges to the ability to build and maintain trust between 13

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members of the same virtual organization. One interviewee made the following comment, “In some interesting ways, it feels like it is easier to connect to people in Second Life, especially when you have the ability to read profiles before speaking/chatting with them. However, there is a fragility to that trust, I think, derived from the limited depth of interactions, and the sense that Second Life is a place where people will explore personas. So in some cases I saw great levels of trust quickly erode as suspicions related to an avatar’s relationships with others, personal explorations in Second Life, etc. came to the surface and put things into question.” In the case of Peace Train, members never met in any real world, face-to-face situation– all interactions were conducted through Second Life or other Internet-based technologies (e.g. email, Skype). As mentioned above, the members of Peace Train did not know anything about each other’s real life, such as first or last name, background, or profession. It was several months into the project before the members started to reveal parts of their real world identities. One interviewee commented, “We did not automatically throw down the gauntlet and say who we were in RL (real life). Peace Train was not part of our real life dynamic so it took a while for trust to be established. I did not know their real life names for a long time… several months into the project we started talking about it and this is my first name and last name and this is what I do in real life.” Issues related to virtual world access. In addition to the issues discussed above related to technology skills and preferences, another issue related to technology arose. As all activities primarily occurred through Second Life, members were dependent on their computer hardware and software and Internet connections to work 100 percent of the time in order to participate. Problems arising in any of these areas could lead to one’s avatar being absent from important meetings and communications as well as conducting his or her Peace Train tasks and responsibilities. Related to the above issue of the boundary between real world and virtual world identities, individuals experiencing such technical problems may be completely cut off since they may hesitate to share alternative methods for connecting (e.g., cell phones, instant messaging, email addresses) as this reduces the boundary between their virtual and real world identities. Thus, a technical issue could completely strand an individual and leave the team without a method to know what the issue is or how to fill in for them in the project work. This lack of communication can also lead to suspicion and mistrust among the other members as was experienced in Peace Train. One interviewee commented, “I had a computer meltdown–I downloaded a new viewer and it was conflicting with another driver… I was out of commission for three weeks…it created a lot of tension and suspicion… you’re only as good as your technology.” In summary, I found several challenges to collective competence. On the one hand, challenges related to the development of practical competence led to conflicts that were more at the task level while on the other hand, challenges related to the development of interpersonal competence led to conflict in which individuals had more difficulty in separating the task conflict from personal conflict. RQ2) How can collective competence be developed such that these challenges can be overcome? As noted above, collective competence is created while group members collaborate in the course of joint action or practice and creates a set of inter-subjective meanings that are expressed in and through their artifacts (Cook & Yanow, 1993; Ruuska, 2005; Sandberg, 1994, 2000). 14

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Thus, collective competence is based on a shared understanding by the members of the group as a whole that enables the group to successfully achieve its ultimate organizational goals (Ruuska & Teigland, 2009). With this in mind, I analyzed the data looking for the underlying factors that facilitated Peace Train in overcoming the challenges noted above in the first research question. I found the following: 1) co-development of a clear and inspiring vision and goal at the very beginning of the project, 2) a guiding critical mass of individuals with complementary skills at the core, 3) an empowered and trusted group of engaged individuals surrounding the core, 4) joint problem solving through boundary objects, 5) regular and effective communication through multiple channels in world and out of world, and 6) a flexible and cooperative mindset among members. Co-development of a clear and inspiring vision and goal at the very beginning of the project. The leadership team of avapreneurs of Peace Train drafted a vision statement and goal at the beginning of the project that was then discussed with a small group of involved individuals before a final version was agreed upon. The final statement related to the PeaceFest 08 event: “Destination Peace: PeaceFest 08 is a global, interfaith, cross-cultural effort to create lasting peace through mobilizing dialogue, support and learning with Real Life Peace organizations.” The goal as specified in the following statement was to orchestrate “a three-day event to be held in August of 2008, featuring artists, performances, panel discussions, and more. The PeaceFest will run around the clock in Second Life and will be integrated with Real Life events. The goal will be to raise funding and volunteerism for a variety of peace-related organizations that serve our global community.” First, the co-development of this vision and goal ensured that all those involved felt that they were part of the process and encouraged their commitment and engagement. Second, being able to communicate this on the Website as well as in all communications in world facilitated the ability to attract others with similar interests to the effort. As with any community organization, you cannot force people to join, rather you have to ignite their passion, yet this can only be achieved if one can easily communicate the vision and the goals of the organization. A guiding critical mass of individuals with complementary skills at the core. The leadership team of avapreneurs worked hard on creating a high level of collective competence among themselves (figure 5). One of the ways in which they achieved this was through continuous discussion and a renegotiation of each individual’s roles based on their interests and skills while overcoming conflict through revisiting the vision of Peace Train. In terms of skills, the core team consisted of individuals who had varying levels of the following skills: • • • •

Second Life technical skills–to build, communicate, manage resources in Second Life, etc. Technical skills with other technologies–to conduct activities in Skype, shoutcast audio streaming technology, image editing software, Website management, blog posting. In world communication skills–to inspire people to join Peace Train, and to keep the information flowing internally within the group and externally to performers, contributors, and the public. Out of world communication skills–to ensure the real life to Second Life connection, explaining the event in understandable terms to various stakeholders. 15

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• • •

Conflict resolution skills–to keep the team together through working through interpersonal issues and implementing “crisis management.” Project management skills–to offer the right questions and process that will lead to a shared understanding of the project’s goals, scope, key milestones, tasks, etc., and to identify some norms for how the team operates. Execution skills–to figure out how to execute the ideas that the team develops.

Figure 5. Peace Train’s avapreneurs

While all individuals had some level of these skills, what was critical for Peace Train’s success was that one individual was particularly strong in one of these skills and as such would often take the lead in this area. Empowered and trusted group of engaged individuals surrounding the core. While Peace Train had created a vision and an overarching goal, the operationalization of these created considerable challenges as noted above. For example, in the planning meetings, many individuals who came to the meetings were full of suggestions, yet clearly the group could not realize all of these suggestions. While the core team was open to new ideas, they found that quite often individuals who made the suggestions were not always willing to make those suggestions happen. Thus, as time progressed, the leadership team realized that they needed to empower others and trust and support them to make their ideas happen while not micro managing them. Individuals were encouraged to take on as much responsibility as they so desired as well as to work in the way they felt most comfortable, i.e., independently or in teams. One avapreneur commented, “We were open to those ideas, but we tried to let people make them happen themselves. For instance, one of our members had so many ideas, and at first wanted us to make them happen. We empowered this member to do them in her own venue, gave her kudos and support and publicity. Also, because of the transient nature of SL, we decided that we were not going to hound people…I feel strongly that this is the way to go…..to allow people to live out their own ideas and connect them to a great cause, but don’t take the ideas on as a task yourself.” Another avapreneur noted, “I had to (and I think each of us to some extent had to) let go of certain things, trusting that the ones in charge would get things done.” Moreover, as the nature of the project was very fluid and subject to change, the avapreneurs had to trust the

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

surrounding group of individuals to be flexible in terms of taking on new roles and responsibilities “on the cuff” as well. Joint problem solving through boundary objects. Similar to findings in the community of practice literature (e.g., Wenger 1998), we found that the creation of collective competence was greatly facilitated when the members of Peace Train conducted joint problem-solving tasks. Early in the project, the members sat down and decided to create a logo for PeaceFest 08. They thought that this would be a simple task; however, it resulted in quite some discussion related to their underlying assumptions and backgrounds. What is of interest in this particular example is that the logo served as a boundary object that facilitated the development of a shared understanding between the different project members. Boundary objects are objects that inhabit several intersecting worlds, satisfying the informational requirements of each of them (Star & Griesemer, 1989). Boundary objects facilitate the development of collective competence as they help project members to create a common language and make different views visible for discussion. They can be used as a common point of reference for conversations (Harvey & Chrisman, 1998) since individuals can all agree they are talking about the same issue, yet people attach different meanings to the issue. For the Peace Train core team, three concepts for the logo were developed. One of the avapreneurs wanted to go with the more conservative logo while two of the other avapreneurs did not want such a corporate image (figure 6). One avapreneur noted, “This was a music festival–we did not want a corporate image–we wanted bright and sunny and people to think of being happy and dancing.”

Figure 6. PeaceFest 08 logo

Regular and effective communication through multiple channels in world and out of world. Regular and effective communication was a key element in gaining people’s involvement and commitment to the project. First, the avapreneurs decided to run weekly Monday meetings open to the Conductors and the extended group of other interested individuals (figure 7). These meetings were scheduled in the afternoon U.S time such that individuals within Europe could also attend. To prepare for these meetings, the agenda was communicated via Second Life notecards attached to group announcements. The agenda was a fairly standard one: welcoming new members, going through the current list of tasks, seeking volunteers, and discussing issues. Second, the core team took additional measures to ensure that the meetings were run efficiently. They often met just prior to the larger group meeting--enabling them to coordinate themselves 17

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

before discussing with others. They also developed the practice of simultaneously conducting a private voice conference call at the meetings with the purpose of coordinating the typing of messages and fielding of questions from the attendees who were using text chat. Moreover, this private conference call allowed for verbal handoffs between the Engineers that the extended group did not need to hear and even to discuss and to stop unwanted behavior by some of the attendees.

Figure 7. Weekly Peace Train planning meeting

In addition to the above, communication between meetings and to the extended group as well as out of world individuals occurred through several channels, e.g., chat, IMs, notecards, group notices, rezzable invitations, posters that gave notecards, and the Peace Train blog. Finally, for the events in PeaceFest 08, notices were placed on the Second Life community forum and at each of the various landing points of the PeaceFest 08 event, there were greeters (individuals tasked with welcoming attendees) and a free Heads Up Display (HUD) distributed to attendees. The HUD allowed the attendees to view a list of events and landmarks to those, enabling them to quickly choose what they wanted to attend, and teleport there efficiently. When the HUD needed updating, notecards were rapidly created and distributed, containing updated event information and landmarks. Table 2 provides a summary of the different channels and their purpose.

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

Table 2. Overview of multiple channels of communication Channel E-mail

Web conference In-world voice In-world chat In-world notecards In-world slideboards Greeter HUD Nicecast/ Shoutcast

Out of world instant message Skype Project Website / blog Google docs Google calendar Phone calls

Purpose For coordinating meeting times and nearly all communications with panelists or external providers of services (e.g. logo work) For the Engineers to work through the project task list For the Engineers when coordinating (live) during weekly group meetings For informal and formal meetings with performers, group members, etc. For communicating large volumes of information to others who are off-line, and for sharing meeting agendas For showing presentations as well as connecting to RL through showing pictures of real life activities and individuals For presenting a list of events and their landmarks to attendees For bringing the Skype conversations during the panels into SL For quick check-ins and coordination For discussions with panelists not familiar with Second Life For promotional postings, and project updates and info for public consumption To list and share the PeaceFest agenda with a core set of contributors, to enable viewing of the latest information To schedule actual PeaceFest events For solving emergencies

A flexible and cooperative mindset. Finally, perhaps the most important factor in overcoming the challenges was a flexible and cooperative mindset held by the avapreneurs and by many of the group’s other members. As this was one of the first times that many of the members had participated in an in world fundraising event, numerous technical issues and practical challenges arose. One individual stated, “we were on a steep learning curve big time…we were flying blind those first few months…but we shared a common vision as a concept.” To overcome these challenges and move forward towards the goal, members were open to experimenting and trying new things--to learn by doing, as well as were lexible when the need for change presented itself. Another person said, “In Second Life you can do anything… you just figure out a way to do it… no one told us that these should be your best practices … we did not know what we could do but we did not know either what we could not do.” In addition, individuals were open to different ways of working, communication preferences, and opinions– focusing instead on the task and encouraging others to complete their tasks in their own way. As 19

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

one person mentioned, “In many cases, I have a specific point of view, but I know the process, and I know that not everyone is going to agree. But we have a collaborative vision, and I knew better than to take it personally.” In the end, the project was a success and became “something extraordinary and connected people from many ethnicities and geographies who all share a common goal.” Another person noted, “It worked well that the engineers, conductors and other members brought their unique skill set to the project. The only competency we all needed was work ethic and the desire to be peaceful.” Discussion

Before concluding, a few further findings related to the following issues deserve discussion: 1) choice of communication technology, 2) conflict in organizations, and 3) structural characteristics and collective competence. Choice of communication technology The findings here draw into question previous research findings that individuals tend to match the communication technology and its level of media richness to the complexity of the task at hand. In other words, the higher the complexity of the task, the richer the communication channel is. For example, the telephone is richer than e-mail (Maznevski & Chudoba, 2000). However, in the case of Peace Train I found that this was not necessarily the case as other issues came into play such as that of the reluctance of individuals to reveal their real life identities– preferring to stay with text chat over moving to voice. A second issue related to different work styles–with individuals viewing the use of text chat as a more efficient medium in terms of project documentation than voice. However, the most interesting finding is that at no time throughout the 11 months leading up to PeaceFest 08 did any of the Peace Train members ever physically meet face-to-face in the real world… further calling into question previous findings that individuals have to meet face-to-face to achieve successful outcomes (ibid). Conflict in organizations When comparing our findings from Peace Train to research on projects in more formal or bureaucratic organizations, we find that the conflict experienced by Peace Train members was more at an operational level than at a strategic level. This operational conflict was largely related to resource allocation and the interdependence of tasks. In more formal organizations, conflict may arise due to conflicting member goals, i.e., individuals do not have the same shared vision or understanding of the vision nor share the same goals with the project (Ruuska & Teigland, 2009). One of the primary reasons for this lack of strategic conflict may be that through virtual worlds such as Second Life, individuals may seek out and form a community or organization with others who share similar social interests and goals regardless of where they physically are located.

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

Structural characteristics and collective competence Comparing the structure of the Peace Train organization to that of other community organizations, we find a similar structureâ&#x20AC;&#x201C;a critical mass of tightly knit insiders surrounded by decreasing rings of decreasingly engaged committed participants. Our findings can be compared to the work on communities of practice that suggests that there are different levels of community of practice participation: 1) full participation (insider), 2) peripherality (legitimate peripheral participant), and 3) full non-participation (outsider) (Wenger, 1998). In full participation, the person is an inclusive community member. He or she has gained legitimacy through engaging with other community actors in common actions and has acquired the formal and informal ability to behave as a community member (Lave & Wenger, 1991). Peripherality connotes legitimate partial participation in the community. Full non-participation is total exclusion from the community and occurs because the individual either does not desire to participate or the individual is not allowed to participate by the community. Further research on electronic communities supported through listserv technology (Teigland & Wasko, 2004) found that the network is structured as a star with a critical mass surrounded by peripheral connections emanating outwards. There are no cliques, rather the core actively responds to many unique and overlapping individuals, and the periphery engages in both receiving and providing advice to others. However, the primary difference between the structure of electronic communities and that of communities of practice is that individuals in the core of electronic communities are not as closely tied to each other as they are in communities of practice. Interestingly, our findings then are more similar to the community of practice literature that is based on research of face-to-face communities than to research on electronic communities supported through listserv technology as we found a group of tightly knit individuals in the core. Of importance to future efforts similar to that of Peace Train, one takeaway from this study is that not all individuals need to be equally involved in the virtual organization. Rather, successful outcomes may be achieved if there is a core of individuals who have a burning passion for the goals of the organization, who develop a high degree of collective competence, and who are then surrounded by layers of individuals with decreasing levels of engagement and commitment. Thus, success is achieved even though the degree of collective competence weakens as one moves away from the core. Conclusion and Future Research In conclusion, while Born Virtuals and avapreneurs face certain challenges to developing collective competence, these can be overcome through leveraging the communication and immersion features that are particular to virtual worlds. I hope that researchers and practitioners involved in the organization of economic activity in virtual worlds find this research of interest. In terms of limitations however, I would like to note that this study is very limited in the generalizability of the results. It is difficult to assess how representative the findings are for other Born Virtuals than those similar to the one examined here. Clearly more in-depth studies comparing types of Born Virtuals is necessary as well as research focusing on comparing Born Virtuals across other dimensions such as virtual worlds is suggested. While virtual worlds are a relatively new organizational platform, there is much to do in terms of investigating issues such as leadership and power, organizational commitment, and organizational structure. Additionally, as noted in the beginning of this paper, Born Virtuals share similarities with Born Globals. Clearly, further research should be conducted comparing Born Virtuals with Born Globals and 21

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

entrepreneurs and avapreneurs such that cross-fertilization between the two areas would be possible. Finally for practitioners, I hope that the findings are helpful in enabling them to develop collective competence in their own Born Virtuals. This research also reveals that virtual worlds such as Second Life do provide tremendous potential for organizing economic activity. For example, these worlds provide numerous opportunities to real world organizations such as the local charity organizations involved in PeaceFest 08 to expand their global reach or increase their awareness with others across the globe who have shared interests. Moreover, Born Virtuals may have the ability to mobilize a workforce more easily than organizations in the real world as they reach out to individuals with similar interests across the globe. One interviewee commented that the ability to participate in virtual world charitable activity made people who otherwise felt powerless feel empowered as noted in this statement, â&#x20AC;&#x153;This is a way of empowering people who otherwise feel powerless, they see what is going on in the world, but there is nothing they feel they can do locally, perhaps do not want to be part of a mob protesting. Rather they want to be part of a solution and through SL they have this opportunity.â&#x20AC;? Several of the volunteers also mentioned that while they were not active presently nor did they plan to be active in charitable activities in their real life, they were quite active in Peace Train and in some cases in other charitable activities in SL. Second Life provided these individuals with an opportunity to contribute to a charitable organization without having to leave the comfort of their home. On a final note, Peace Train continues to be an active organization since PeaceFest 08. The momentum of PeaceFest 08 has carried the original Peace Train Engineers to form a 501 c, or federally recognized non-profit organization, in the United States. The group continues to sponsor events in Second Life that raise awareness of peace-related efforts globally, and it successfully ran PeaceFest 2009. With its official non-profit status, the group will be able to further legitimize its presence, promote its cause, and provide its donors, at least those who are U.S. taxpayers, the benefit of tax-deductible contributions. Acknowledgement The author would like to acknowledge the organizers of Peace Train, Cotton Thorne, Siri Vita, and Tonks Akina, for their extensive help in preparing this article. (These are the avatar names.)

Journal of Virtual Worlds Research - Born Virtuals and Avapreneurship

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Maznevski, M.L. & Chudoba, K. M. (2000). Bridging space over time: Virtual team dynamics and effectiveness. Organization Science, 11 (5), 473-492 Mennecke, B. E., E. M. Roche, et al. (2007). Second Life and Other Virtual Words: A Roadmap for Research. Twenty-Eighth International Conference on Information Systems, Montreal, Canada. O’Mahony, S & Ferraro, F. (2007). The emergence of governance in an open source community. Academy of Management Journal, 50 (5), 1079-1106. Peace Train, http://slpeacefest.wordpress.com, cited March 1, (2009). Ruuska I. (2005). Social Structures as Communities for Knowledge Sharing in Project-based Environments. Published doctoral dissertation. Helsinki: Helsinki University of Technology. Ruuska, I. & Teigland, R. (2009). Ensuring Project Success through Collective Competence and Conflict Management in Public-private Partnerships: A Case Study of a Swedish Triple Helix e-government Initiative. International Journal of Project Management. Sandberg, J. (1994). Human Competence at Work: An Interpretative Approach. Göteborg: BAS. Sandberg, J. (2000). Understanding human competence at work: An interpretative approach. Academy of Management Journal, 43 (1), 9-25. Sandberg, J. & Targama, A. (1998). Ledning och förståelse. Lund: Studentlitteratur. Second Life, http://secondlife.com/whatis/marketplace.php, cited March 1, 2009. Sivan, Y. (2008). 3D3C Real Virtual Worlds Defined: The Immense Potential of Merging 3D, Community, Creation, and Commerce. Journal of Virtual Worlds Research, 1 (1). Spence, J. (2008). Demographics of Virtual Worlds, Journal of Virtual Worlds Research, 1 (2). Star, S.L. & Griesemer, J.R. (1989). Institutional ecology, ’translations’ and boundary objects: Amateurs and professionals in Berkeley’s Museum of Vertebrate Zoology, 1907-1939. Social Studies of Science, 19, 387-420. Teigland, R. (2003). Knowledge Networking: Structure and Performance in Networks of Practice. Published Doctoral Dissertation. Stockholm: Stockholm School of Economics. Teigland, R. (2010). What benefits do virtual worlds provide charitable organizations? A case study of Peace Train – a charitable organization in Second Life. In Wankel, C. & Malleck, S. (Eds.). Emerging Ethical Issues of Life in Virtual Worlds, Information Age Publishing. Teigland, R. & Wasko, M.M. (2004). Extending Richness with Reach: Participation and Knowledge Exchange in Electronic Networks of Practice. In P. Hildreth & C. Kimble (Eds.), Knowledge Networks: Innovation through Communities of Practice. London: Idea Group Inc., 230-242. Wakefield, R., Leidner, D, and Garrison, G. (2009). A Model of Conflict, Leadership, and Performance in Virtual Teams. Working Paper. Weick, K.E. (1979). The social psychology of organizing, (2nd ed.). Reading, MA: AddisonWesley Publishing Company. Wenger E. (1998). Communities of Practice: Learning, Meaning, and Identity. Cambridge: Cambridge University Press.

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Virtual Commerce (V-Commerce) in Second Life: The Roles of Physical Presence and Brand-Self Connection By Seung-A Annie Jin and Justin Bolebruch, Boston College

Abstract Second Life, in a form of advergaming (a portmanteau of “advertising” and “gaming”), can be an innovative venue for marketing communication and brand management in virtual commerce (v-commerce). Virtual shopping malls in threedimensional (3D) environments provide interactive and immersive settings that complement strong offerings of electronic commerce. The ability to offer vivid and engrossing social interactions with spokes-avatars within 3D environments is the key advantage of interactive marketing in Second Life. This study particularly focused on the “physical presence” (i.e., the degree to which consumers feel as if virtual products and retail settings were real) dimension of interactive brand marketing in 3D virtual environments and its impact on brand-self connection and consumers’ evaluation of a spokes-avatar’s credibility. Data analyses show that an increased level of physical presence positively influences consumers’ brand-self connection and evaluation of spokes-avatar credibility (expertise and trustworthiness) in 3D virtual environment-based brand marketing. Keywords: V-commerce; Second Life; advergaming; brand marketing; physical presence; brand-self-connection.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research – V-commerce in Second Life

Virtual Commerce (V-Commerce) in Second Life: The Roles of Physical Presence and Brand-Self Connection By Seung-A Annie Jin and Justin Bolebruch, Boston College The term “virtual world” describes an electronic environment that visually mimics physical spaces where people can interact with virtual actors and virtual objects (Bainbridge, 2007). In three-dimensional (3D) virtual environments, users are represented by animated characters (avatars) and communicate with others by typing messages in a chat channel or through optional voice communication (Damer, 1998). Second Life (SL) is a virtual environmentbased social networking site (SNS). In addition to being an entertainment medium for multiplayer online gaming and social networking, SL is a bustling forum of online shopping and e-commerce (Jin, 2009). SL’s website contains detailed economic statistics, including users’ monthly spending, resident transactions, total dollar supply, land sales by residents, land for sale, and so forth (Second Life, 2009). The in-game environment has its own currency, Linden Dollars, and an exchange rate that fluctuates against the US dollar. Given its rapid growth and capacity to reach such a diverse population on the Web, SL is an innovative terrain for interactive marketing and advergaming (Jin, 2009; Jin & Bolebruch, 2009). This study examined the impact of avatar-based brand marketing in the 3D virtual environment of SL on consumers’ brand evaluation. Conceptual and Theoretical Frameworks Brand Marketing in Virtual Environments-Based Commerce (V-Commerce) A brand primarily functions as an indicator of quality or some feature that differentiates the product or service from that of a competitor (Chen, 2001). While the Internet was originally seen as a threat to brands, the key features of e-commerce (e.g., widespread availability of information, price depth and quality, and seemingly unlimited choice) have had quite the opposite effect. Instead of reducing the value of brands, the Internet has rendered the successful establishment of brands on the Web more important. Building e-brands has become the key to the success of online business. In the novel retail setting of interactive brand marketing in 3D virtual worlds, the majority of consumers are “inexperienced” shoppers in a new, sometimes intimidating environment. Faced with uncertainty arising from imperfect and asymmetric information in many product markets, consumers look to brands when making choices in any marketplace (Erdem, Swait, & Louviere, 2002). Thus, in the unfamiliar terrain of virtual shopping centers, consumers rely on brands more heavily than usual. Web-based shopping allows for a completely different experience than shopping in a physical store. Online retailers such as Amazon.com differentiate themselves from other online marketers as well as traditional brick-and-mortar stores by offering complex recommendation systems in the form of text-based lists that aid consumers in the search-to-purchase process. In doing so, Amazon has not only created their own powerful Web brand but also forced marketers to adapt to new consumer purchasing patterns. Two important aspects of online shopping that marketers must bear in mind are (1) different buying patterns for different types of products and different types of customers, and (2) the strong influence of non-rational factors such as emotional attachment on purchasing decisions (Chen, 2001). Virtual reality shopping malls such as SL have pushed the envelope even further. The idea that consumers are purchasing not just the 4

Journal of Virtual Worlds Research – V-commerce in Second Life

product but also the packaging, image, and other additional values can now be fully realized online just as in physical stores. In fact, virtual shopping malls in 3D environments provide a heightened interactive and immersive experience. Brands assume an even greater swaying significance, as consumers sometimes experience information overload; the virtual “shelf” of products often seems unlimited and overwhelming (Chen, 2001). The use of recommendation avatars and immersive, realistic interactions with them increase favorable brand attitudes and brand-self connection among consumers. In avatar-based 3D virtual environments, corporations can establish locations as information databases for their companies. The ability to offer vivid and immersive multi-modal social interactions with spokesavatars is the key advantage of brand management in 3D virtual environments (Jin, 2009). This study specifically focused on the “physical presence” dimension of brand marketing in virtual worlds and its impact on consumer experience. Physical Presence in V-Commerce This study proposed that physical presence is a perceptual sensory antecedent factor that influences brand-self connection in online shopping environments. Physical presence is “a psychological state in which virtual (para-authentic or artificial) physical objects are experienced as actual physical objects in either sensory or non-sensory ways” (Lee, 2004). Physical presence occurs when consumers do not notice either the para-authentic nature of mediated objects and environments or the artificial nature of simulated objects and environments. In brand marketing in 3D virtual environments, physical presence refers to the degree to which consumers feel as if virtual products and retail settings were real. The promise of e-commerce is based on the effective utilization of graphic representations in the 3D interface that mimic the real world (Huizingh, 2000). Physical presence in 3D virtual environments is a key factor that induces not only consumers’ perceptual/social realism in their online shopping experience but also their transportation to a virtual world where e-commerce transpires. 3D virtual environments enhance social realism by providing realistic or plausible portrayals of the real world inside a virtual world and inducing perceptual realism through lifelike creations of the physical world with rich sensory stimuli (Lee, 2004). Ultimately, physical presence in brand marketing in 3D virtual environments can positively influence brand-self connection and other subsequent outcome variables such as source credibility (expertise and trustworthiness). H1: Physical presence positively influences consumers’ brand-self connection in brand marketing within 3D virtual worlds. H2: Physical presence positively influences consumers’ evaluation of spokes-avatars’ (a) expertise and (b) trustworthiness in brand marketing within 3D virtual worlds. Brand-Self Connection in V-Commerce Brands become linked to the self when a brand helps consumers achieve self-motivated goals (Escalas & Bettman, 2005). The strength of the cognitive and emotional bond connecting the brand with the self reflects the extent to which consumers view the brand as integral to their identity (Chaplin & Roedder, 2005). The ultimate impact of a brand is contingent upon the quality of consumers’ experiences (Escalas & Bettman, 2003; Fournier, 1998). One facet of the 5

Journal of Virtual Worlds Research – V-commerce in Second Life

brand relationship quality (BRQ) construct is strength properties of the attitudinal connection between consumers and brands (Fournier, 1998). The concept of brand-self connection explains the strength of the consumer-brand relationship and investigates this emotional bond. Prior research has shown that brand-self connection significantly influences consumers’ brand evaluations, attitude strength (Moore & Miles, 2008), and behavioral intentions (Escalas, 2004). Brand-self connection captures the strength of the “connection” between perceived brand meaning (including image and brand personality) and the consumer's self-concept (Moore & Miles, 2008). This study aimed to identify the exogenous variable (physical presence) and endogenous variables (source credibility) of brand-self connection in e-commerce within 3D virtual worlds. Source Credibility and the Mediating Role of Brand-Self Connection in V-Commerce Spokes-avatars employed in brand marketing in 3D virtual environments are perceived as the source of the promotional message. Perceived credibility of spokes-avatars is an important endogenous variable in e-commerce and virtual environment-based interactive marketing. Credibility, a key element of success in web-based information, agent-assisted shopping, and emarket contexts (Citera, Beauregard, & Mitsuya, 2005), has two main components: trustworthiness and expertise (Erdem & Swait, 2004). In order for a source to be credible, consumers must perceive that it has the ability (i.e., expertise, companies’ perceived capability to deliver on promises) and willingness (i.e., trustworthiness) to deliver continuously and consistently what has been promised (Erdem & Swait, 2004). Expertise refers to the extent to which a communicator is perceived to be a source of valid assertions and the degree of confidence in the communicator’s intent (Hovland, Janis, & Kelley, 1953). Trustworthiness, referring to consumers’ perceptions of companies’ willingness to carry through on promises made, also exerts a significant impact on consumers’ brand consideration and choice (Erdem & Swait, 2004). This study proposed and examined the effects of brand-self connection on source credibility in brand marketing within 3D virtual worlds. H3: Brand-self connection positively influences consumers’ evaluation of spokes-avatars’ (a) expertise and (b) trustworthiness dimensions of source credibility in brand marketing within 3D virtual worlds. Despite the importance of brand-self connection in marketing, little is known about the mediating mechanism that explains “how” brand-self connection ultimately leads to brand evaluation. This study proposed that brand-self connection functions as a mediator in linking the effects of the external exogenous variable (increased level of physical presence in 3D brand marketing) with brand communication in virtual stores. H4: The effects of physical presence on the dependent variables are mediated through brand-self connection. Method Participants, Procedure, and Manipulation stimuli The sample consisted of 58 (N = 58) undergraduate students (30 males and 28 females) at a university in the United States. Participants were told that they would use SL and be given a promotional message about a brand and its products from a spokes-avatar representing the brand inside the 3D virtual retail store. The author created a fictitious brand, promotional messages 6

Journal of Virtual Worlds Research – V-commerce in Second Life

about the brand, and a spokes-avatar that represented the brand and delivered the promotional message (Figure 1). When the participant entered the virtual retail store, the spokes-avatar representing the fictitious brand welcomed the participant. After a brief greeting message, the spokes-avatar (avatar controlled by a human experimenter) delivered the promotional message.

Figure 1. Snapshot: Interaction Between a Female Consumer Avatar (Left) and the Brand’s Spokes-Avatar (Right) Measures Physical presence was measured with the following four items using a 7-point Likert scale ranging from not at all [1] to very much [7]: While you were shopping in Second Life, how much did you feel as if (1) the objects on the screen were real? (2) you and the objects on the screen were in the same place? (3) you were inside the company’s retail store? (4) you had visited the company’s retail store? (Cronbach’s α = .78). Brand-self connections were measured with the following seven items using a 7-point Likert scale ranging from strongly disagree [1] to strongly agree [7]: (1) This brand reflects who I am; (2) I can identify with this brand; (3) I feel a personal connection to this brand; (4) I use this brand to communicate who I am to other people; (5) I think this brand helps me become the type of person I want to be; (6) I consider this brand to be “me” (it reflects who I consider myself to be or the way that I want to present myself to others), and; (7) This brand suits me well. (α = .96). Expertise of the spokes-avatar was 7

Journal of Virtual Worlds Research – V-commerce in Second Life

measured with the following five items using a 7-point semantic differential scale: (1) not an expert to expert; (2) inexperienced to experienced; (3) unknowledgeable to knowledgeable; (4) unqualified to qualified, and; (5) unskilled to skilled (α = .92). Trustworthiness was measured with the following five items: (1) undependable to dependable; (2) dishonest to honest; (3) unreliable to reliable; (4) insincere to sincere, and; (5) untrustworthy to trustworthy (α = .92). Results Linear regression analyses were conducted to test H1, H2, and H3. Physical presence was a significant predictor of brand-self connection, F (1, 56) = 16.35, p < .001. The regression of brand-self connection on physical presence resulted in the following regression equation, Y’ = .54X + 1.32. A standardized regression equation was Z Brand-self connection = .48 Z Physical presence. About 21 % of the variability for brand-self connection was accounted for by physical presence (Adjusted R² = .21). Physical presence was a significant predictor of the spokes-avatar’s expertise, F (1, 56) = 7.01, p < .05, Y’ = .33X + 4.06, Z Expertise = .33 Z Physical presence (Adjusted R²= .10) and trustworthiness, F (1, 56) = 6.39, p < .05, Y’ = .33X + 3.49, Z Trustworthiness = .32 Z Physical presence (Adjusted R² = .09). H1 and H2 were supported. Brand-self connection was a significant predictor of the spokes-avatar’s expertise, F (1, 56) = 12.56, p < .001, Y’ = .38X + 3.93, Z Expertise = .43 Z Brand-self connection (R²= .17) and trustworthiness, F (1, 56) = 20.36, p < .001, Y’ = .47X + 3.09, Z Trustworthiness = .52 Z Brand-self connection (Adjusted R² = .25). H3 was supported. A path analysis was conducted to test H4. Brand-self connection functioned as a mediator because it met the following five conditions specified by Baron and Kenny (1986): (1) physical presence significantly predicted the mediator (β = .48, p <.001), (2) the mediator significantly predicted the dependent variables (expertise, β = .43, p <.01; trustworthiness, β = .52, p <.01), (3) when the dependent variables were regressed on physical presence without the mediator, the regression equations were significant (expertise, β = .33, p <.05; trustworthiness, β = .32, p <.05), (4) when both the independent variable and the mediating variable were used as predictors, the effect of the mediator remained statistically significant (expertise, β = .35, p <.05; trustworthiness, β = .47, p <.01), (5) but the effect of the independent variable declined and became non-significant. H4 was supported, as demonstrated in Figure 2.

Journal of Virtual Worlds Research – V-commerce in Second Life

Figure 2. Path Diagram: The Mediating Role of Brand-Self Connection Discussion This study examined the effects of physical presence, a newly added characteristic of interactive brand marketing in 3D virtual environments, on consumers’ brand-self connection and source credibility. Results show that an increased level of “physical presence” positively influences consumers’ brand-self connection, as well as their evaluation of spokes-avatar credibility. Consumers’ brand-self connection mediated the effects of external media characteristics (physical presence) on source credibility. These results demonstrate that positive relationship building with a brand and increased brand-self connection are important determinants of brand credibility. The newly-added characteristic of immersive brand marketing in 3D virtual environments can induce brand-self connection and positively affect brand credibility. Perceived vividness/realism of virtual environments increases physical presence, thus leading to more positive brand evaluations. Additionally, technical sophistication of avatar designs and advanced designs of realistic retail settings can increase consumers’ feelings of physical presence and contribute to positive brand communication.

Journal of Virtual Worlds Research – V-commerce in Second Life

In addition to vivid avatar-mediated interaction and technical sophistication made possible by 3D computer graphics, this study examines consumers’ perception of and relationship with brands. The present study suggests that consumers can form a brand-self connection even after a brief interaction with a brand’s spokes-avatar, which in turn increases brand credibility. With the emergence of 3D multimedia technologies, companies can invest in the design of spokes-avatars that represent their brand favorably (Donath, 2007). They can experiment with a wide variety of sales-avatars to maximize the effectiveness of brand communication and customer interaction in the novel context of interactive marketing and ebrand management. In addition to examining the effects of external media characteristic of virtual worlds (i.e., increased physical presence), this study explored the mediating role played by consumers’ brand-self connection in avatar-based brand marketing. Ultimately, consumers’ brand-self connection mediated the effects of external media characteristics (physical presence) on their evaluation of the brand’s spokes-avatar’s source credibility (expertise and trustworthiness) in virtual shopping environments. One of the limitations of the current research is that the sample recruited from U.S. undergraduate students did not consist of real SL users. A majority of participants were novices in virtual environments. Future studies can benefit from recruiting real SL users who frequently visit and shop in SL. Employing this particular population in future studies would provide helpful insights into actual shopping behaviors in virtual worlds. Giving consumers Linden Dollars (SL’s currency) and prompting them to actually engage in transaction behaviors would enrich our understanding of purchasing behaviors in the virtual retail setting. A researcher can create a scenario in which real SL users are prompted to buy items for their own avatars. Given the unlimited possibility to design virtual creations, online virtual worlds offer great potential as sites for advertising and marketing research.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; V-commerce in Second Life

Bibliography Bainbridge, W. S. (2007). The scientific research potential of virtual worlds. Science, 317(5837), 472-476. Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical consideration. Journal of Personality and Social Psychology, 51(6), 1173-1182. Chaplin, N., & Roedder, J. D. (2005). The development of self brand connections in children and adolescents. Journal of Consumer Research, 32(1), 119-129. Chen, S. (2001). Assessing the impact of the internet on brands. Journal of Brand Management, 8(4&5), 288-302. Citera, M., Beauregard, R., & Mitsuya, T. (2005). An experimental study of credibility in Enegotiations. Psychology & Marketing, 22(2): 163-179. Damer, B. (1998). Avatars: Exploring and building virtual worlds on the internet. Berkeley, CA: Peachpit Press. Donath, J. (2007). Virtually trustworthy. Science, 317, 53-54. Erdem, T., Swait, J., & Louviere, J. (2002). The impact of brand credibility on consumer price sensitivity. International Journal of Research in Marketing, 19, 1-19. Erdem, T., & Swait, J. (2004). Brand credibility, brand consideration, and choice. Journal of Consumer Research, 31, 191-198. Escalas, J. E. (2004). Narrative processing: Building consumer connections to brands. Journal of Consumer Psychology, 14, 168-180. Escalas, J. E., & Bettman, J. R. (2003). You are what they eat: The influence of reference groups on consumer connections to brands. Journal of Consumer Psychology, 13(3), 339-458. Escalas, J. E., & Bettman, J. R. (2005). Self-construal, reference groups, and brand meaning. Journal of Consumer Research, 32, 378-389. Fournier, S. (1998). Consumers and their brands: Developing relationship theory in consumer research. Journal of Consumer Research, 24, 343-73. Hovland, C. I., Janis, I. L., & Kelley, H. H. (1953). Communications and persuasion: Psychological studies in opinion change. New Haven, CT: Yale University Press. Huizingh, E. K. R. E. (2000). The antecedents of Web site performance. European Journal of Marketing, 36, 1225-1247. Jin, S. A. (2009). The roles of modality richness and involvement in shopping behavior in 3D virtual stores. Journal of Interactive Marketing, 23(3), 234-246. 11

Journal of Virtual Worlds Research â&#x20AC;&#x201C; V-commerce in Second Life

Jin, S. A., & Bolebruch, J. (2009). Avatar-based advertising in Second Life: The role of presence and attractiveness of virtual spokespersons. Journal of Interactive Advertising, 10(1), http://www.jiad.org/article124 Lee, K. (2004). Presence, explicated. Communication Theory, 14, 27-50. Moore, D. J., Miles, H. P. (2008). Self-brand connections: The role of attitude strength and autobiographical memory primes. Journal of Business Research, 62, 707-714. Second Life. (2009). Second Life: Economic statistics. Retrieved on October 5, 2009, from Second Life Web site: http://secondlife.com/statistics/economy-data.php

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Understanding "Gold Farming" and Real-Money Trading as the Intersection of Real and Virtual Economies By Richard Heeks, University of Manchester, UK

Abstract This paper has three purposes. First, it extends the range of economic ideas that have been applied to massively-multiplayer online games (MMOGs), drawing on scale economies, exchange rates, and information failure. It does this, as its second purpose, by deepening the analysis of one relatively-neglected aspect of virtual economiesâ&#x20AC;&#x201D;gold farming (the production of MMOG virtual currencies, items, and services for financial gain) and tradingâ&#x20AC;&#x201D;in order to understand in-game, out-game, and hybrid aspects of this activity. Third, the paper draws conclusions about two key real/virtual issues on which earlier literature has disagreed. One is the extent to which standard/real-world economic models are applicable to virtual economies. The paper argues a strong fit of standard models for analysis of gold farming and trading with little need for modification, but that MMOGs may be better understood through the lens of development economics rather than mainstream economics. The other issue discussed is the nature of the relation between the real and the virtual. On this, the paper concludes that gold farming is part of a dynamic that has eroded the real/virtual dichotomy. At the least, gold farming and trading represents the intersection and blurring of the real and the virtual. At most, it reflects their indistinguishability. Finally, the paper ends by identifying alternative systemic models for understanding gold farming specifically, and MMOGs more generally. Keywords: gold farming; virtual economics; real-money trading; MMOG.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Intersection of Real and Virtual Economies

Understanding "Gold Farming" and Real-Money Trading as the Intersection of Real and Virtual Economies By Richard Heeks, University of Manchester, UK

Virtual worlds have arguably existed since the dawn of human imagination (Bittarello, 2008), but those with their own currencies and economies are a much more recent arrival. Roughly, they began in very simple terms in the 1980s with the arrival of multi-user dungeons but really took off in the 1990s as massively-multiplayer online games (MMOGs) that had full currencies, banks, trading, etc. Virtual worlds such as MMOGs have attracted economic interest due to their increasing popularity and size (including their potential impact on the real economy) and their novelty, which has meant that they both exhibit new phenomena and offer new ways to investigate existing phenomena. Research to date on virtual economies can be divided into two main approaches. Some work has sought to use economics to understand virtual worlds. This has looked at the microeconomics of play utilizing, for example, rational choice theory and ideas of utility and disutility (Castronova, 2003), transaction cost economics (Lehdonvirta, 2005), game theory (Smith, 2006), and cost/benefit analysis (Kelly, 2007). It has also studied the macroeconomics of whole virtual world economies employing, for example, gross domestic product equations (Castronova, 2001; Gudmundsson, 2007; Lehtiniemi, 2009), cost/benefit analysis of externalities (Castronova, 2006), welfare economics and supply/demand curves (Castronova, 2006), and the quantity theory of money (Castronova et al, 2009). Other work has been the converse, seeking to use virtual worlds to understand economics. Such work is at an early stage, so papers identifying the potential and requirements (e.g. Bloomfield, 2009; Castronova et al, 2009) appear rather more numerous than those reporting use (e.g. Atlas, 2008 on economic decision-making). Looking at the former body of work, two sets of viewpoints can be distinguished: sometimes expressed as premise, sometimes expressed as conclusion, as summarized in Figure 1. The first relates to the applicability of standard economic models to virtual economies. Viewpoints differ. Some see very limited applicability and the need for quite new principles and models: "Macroeconomic theories are not applicable in the virtual context. â&#x20AC;Ś Any analysis of a virtual economy carried out on the macro level must rely on its own concepts and models instead of borrowing from the ultimately dissimilar real economy" (Lehdonvirta, 2005, p.4) (see also Simpson 2000). Others see the underlying principles of standard economics applying to virtual economies, but seek a requirement for some modification or redefinition of component parts. Castronova (2003), for example, speaks of the need for "slightly different tools and approaches" when analyzing virtual economies. Gudmundsson (2008), Castronova et al (2009), and Lehtiniemi (2009) similarly identify modifications they have had to make to standard models in order to get those models to work in a virtual economy. But finally, another viewpoint finds that the same models with the same components used to understand real economies can be used to understand virtual economies (e.g. Kelly, 2007).

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

The second set of viewpoints expressed in earlier work relates to the relationship between the real and the virtual. Some express a clear sense of separation between the two; this is a view also reflected by some players who want no intrusion of the real into the virtual (Yee, 2004; Castronova et al, 2009). Some maintain the dualism of real and virtual but see them as abutting; for example, Castronova (2005) speaks of the "membrane" between real and virtual which provides a limited permeability and the potential for osmotic transfer between the two. Others go further and argue for an overlapping or intersection between the real and the virtual such that at least some blurring or hybridity exists (Bell, 2006; Calleja, 2008). Finally, some argue that the real and the virtual are indistinguishable, and all part of the same (Shaviro, 2007). Different Principles Applicability of Standard/"RealWorld" Economics to Virtual Economies Different Components/ Definitions

Direct "As Is" Application Separate

Osmotic

Hybrid

Indistinguishable

Relation of Real and Virtual Figure 1: Viewpoints about Real and Virtual Economies

• •

On the basis of this background, the current paper has three purposes: To extend the range of economic ideas that have been applied to MMOGs. To do this, it will select scale economies, exchange rates, and information failure. None of these has particularly been used to date but each of them has relevance to the topic under investigation. To extend the range of virtual world activities to which economic ideas have been applied. To do this, it will select gold farming—the production of MMOG virtual currencies, items, and services for financial gain—and its associated real-money trading (RMT). Gold farming is of intrinsic economic interest given its trade and employment size but also because it draws together real and virtual elements (Heeks, 2008). This has occasionally been studied (e.g. Castronova, 2006; Huhh, 2008), but gold farming and trading has not had the same degree of scrutiny as other aspects of virtual economies such as utility/disutility of play and macroeconomics. The paper will cover a range of issues associated with gold farming from those which are largely in-game (impact on utility and prices) to those that are largely out-

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

•

game (the process and structure of currency trade) via those that straddle both arenas (scale and strategy of production). To provide its own view on the basis of this analysis about the two dimensions identified in Figure 1.

To fulfil these purposes, the paper undertakes a review and analysis of current evidence about gold farming and real-money trading using economic tools. The next section provides an overview of what is known about gold farming and trading. The paper then moves to a deeper understanding of the economics of gold farming and trading. It reviews existing evidence on utility/disutility and inflation/deflation before moving to application of scale economies, exchange rates, and information failure. Finally, the paper will analyze these findings; seeking particularly to reflect on the viewpoints expressed in Figure 1.

Gold Farming and Real-Money Trading Gold farming is a more recent sub-component of the longer-standing activity of realmoney trading (RMT): the trading of virtual world currency, items, and services for real money. RMT can be traced back to at least 1987 and the first cash payments between players for items or for improving characters within text- and basic graphics-based multi-user dungeons (Hunter, 2006). It can be divided into two elements: primary RMT that takes place in-game or besidegame as part of the sanctioned design of the game by the game company, and secondary RMT that takes place partly out-game and is not sanctioned by the game company (Lehtiniemi, 2007). Gold farming and secondary RMT are often used synonymously (as sometimes in this paper). However, in a strict sense, they form two parts of the same value chain: the former being the production and the latter being the trade. • • •

The origins of modern gold farming can be traced back to three key events of 1997: The launch of Ultima Online, which became the first true massively-multiplayer online game. The launch of eBay, which provided a low-cost mechanism for the offer and sale of virtual items. The Asian currency crisis in which Asian governments sought to spend their way out of the crisis by investing heavily in broadband infrastructure. Some of those who became unemployed set up new businesses such as PC kiosks in which games could be played, and others among the unemployed turned to games playing to fill their empty hours. As a result, a strong games culture including gaming skills and entrepreneurship took root in East Asia.

Respectively, these three events put in place the demand, trading channel, and supply that led gold farming to take off as a mass service activity. As noted, some form of gold farming – perhaps better called "gold market gardening" – had existed for at least ten years prior to this point. After 1997 it first emerged as a cottage industry; a typical model being an individual US gamer – sometimes assisted by a friend or two – making currency or items in their spare time; that "spare time" gradually expanding as the profitability of this enterprise became apparent.

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

Up to this point, production for virtual worlds had therefore already followed the standard capitalist chronology (Bernstein, 1983): from subsistence production for personal use, to informal barter between players, to "monetisation" (exchange for real money), to small-scale commodity production. It was thus no surprise when, during the first years of the 21st century, gold farming adopted three final features that are typical of late-phase capitalism (ibid., Porter, 1980): • Wage labor: expansion beyond informal arrangements such that an entrepreneur pays someone else to farm gold on their behalf. In time, and as per the full capitalist commodity production model, some of the hired workers did not own the means of production: the PCs and software and even accounts were owned by the entrepreneur. • Offshoring: given that wage labour forms by far the single largest cost component of gold farming, it not-unexpectedly migrated to low-wage locations. Thanks to its combination of gaming culture and skills, broadband infrastructure, low costs, and relatively good overseas trading connections, East Asia—and China in particular—was the obvious choice. • Automation: the cutting of time and financial costs by use of bots that can imitate the actions of real players and can be used for some gathering of in-game items and currency (Kushner, 2007). e-Commerce has also been central to gold farming. Almost all currency transactions are undertaken via web portals, with the player-buyers making their purchases using online payment systems such as PayPal. The current picture of gold farming is one on which data is frustratingly uneven. There are few certainties at an aggregate level. Heeks (2008) provides a best estimate, based on other estimates, that something like 400,000 people are employed in gold farming, of whom perhaps 85% are based in China. Globally, the secondary real-money trade associated with gold farming may well be worth in excess of US$1 billion. But the true figures could be much more; Ryan (2009) for example cites one million gold farmers working on a global trade worth more than US$10 billion. The foundation for all this is the gold farming archetype: a Chinese "playborer" who spends time in-game killing non-player characters for their drops, undertaking quests, gathering rare items, or arbitraging in order to build up virtual currency (Chan, 2006; Gilmore, 2009). These different roles form the basis for an in-game division of labor: some gold farmers will fight individually, others will assist fighters, some will gather valuable resources, others will produce items, some will "mule" and bank currency, and others will produce currency through trade. Although overall numbers are imprecise, the specifics of playborers' working conditions are less so. They are almost entirely males aged around 18-25 years; existing gamers or college students seeking additional income in the early days but increasingly unemployed rural migrants seeking work in urban areas. They earn something like US$150 per month working a 10-12 hour daily shift with (often rather poor-quality) food and accommodation thrown in. Payment is typically for currency produced rather than a set wage (though some workers will be undertaking power-levelling: building up the levels of a client's game character). The playborers typically work in one of the tens of thousands of gold farms or "gaming workshops" as they known in China, which might employ a few dozen such farmers. But there are other roles found in such enterprises:

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

• • •

Management: just one or two people (typically the owner-managers) would handle administration, management, and HR management tasks. Research: one or two staff might be employed to seek more effective ways of gold farming or power-levelling, though the gold farmers themselves may also cover this. Technical: there are staff who purchase, install, and maintain the workshop's ICT infrastructure.

Some would also add a fourth role: • Customer relations: responsible for all activities that involve contact with potential and actual customers, usually undertaken by email or online chat. We can put all this together to build a picture of the internal value chain within a typical full-service gold-farming-and-trading firm (see Figure 2). Administration and Management (e.g. Finance, Planning, Communication) Human Resource Management

Support Activities

Research Technology Management Margin

Procurement

Marketing

Customer Handling

Operations (Production of Goods/Services)

Delivery

After-Sales Service

Primary Activities Figure 2: Gold-Farming-and-Trading Firm Internal Value Chain

Looking at the external supply chain, gold farming firms may sell direct to player-buyers via their own web portal or they will sell via a number of brokers. The brokers, usually based in China as well, also have web portals and just employ customer-relations staff who undertake all of the non-operational primary activities shown in Figure 2. The brokers are classic intermediaries, producing and consuming nothing themselves but earning a living from the difference between buy and sell prices for virtual currency and services. (One or two exchanges exist; these put producers and consumers in touch with each other but, unlike brokers, do not directly participate in the trade). Data is also imprecise about the client market for gold farming and power-levelling. There are likely to be several million buyers worldwide. However, the uncertainties here and over other aggregate figures arise because very little data is available on what may be a major constituent of the trade: purchases by East Asian— particularly Chinese—players, including purchases on games using the "free-play, item-pay" model (no subscription fee but a need to pay real money to buy in-game items) that is popular in Asia.

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

Understanding Gold Farming and RMT Economics There was a clear sense above in which the "industrial development" of gold farming and real-money trading had quite closely followed the same pattern that one finds in other sectors of the economy. Perhaps the key difference that virtuality— or, more accurately, the pervasive involvement of information and communication technologies—has brought is to help speed the cycle. For instance, while it took centuries—millennia, even—for real-world farming to move from subsistence through barter to small-scale and then large-scale capitalist production, gold farming moved through the same steps in less than two decades. Basic Economics and In-Game Issues: Utility and Prices Just as the models of capitalist development have been applied to analyze the history of gold farming so have basic economic ideas been applied, such as utility/disutility. This has been applied to the notion of play more broadly within MMOGs (see Box 1) but also to the specifics of gold farming's impact. At root, gold farming is utility-maximizing for both parties, gold farmer and player-buyer. Otherwise, of course, it would not take place (Castronova, 2003). Castronova (2006) further argues that there are negative externalities of gold-farming sufficient to justify the imposition of controls upon it; although Heeks (2008) questions some of the assumptions about externalities. Box 1: Play and Work, Utility and Disutility, and Gold Farming One of the difficulties of applying economic ideas in MMOGs is that they are both games and virtual economies, and there may be some tendency to conflate the features of these two. Certain economic peculiarities of MMOGs arise from the game aspect but are not intrinsic to the MMOGs' virtuality. For example, Castronova (2003) has written on the "puzzle of puzzles": that real-world assumptions associating constraints with disutility do not hold for MMOGs because they involve play, and players derive satisfaction (i.e. utility) from some level of challenge (i.e. constraint). But we can readily undermine any simple notion that real-world work is a disutility while virtual-world play is a utility (Lehdonvirta 2005). Gold farming does this par excellence by showing that players will pay others to play for them. At least some aspects of "play" thus have a disutility to players and resemble work rather than non-work. Through analysis of gold farming and other examples, the whole notion of separable – as per Huizinga's "magic circle" – worlds of work and play breaks down into a messy blur in which play looks more like work and, potentially, work looks more like play (e.g. Dibbell 2006, Shaviro 2007). Likewise, the idea that principles of utility apply differently to MMOGs' play component may also crumble away (Kelly 2007).

Gold farming is argued to reduce the utility of other players (those not involved in realmoney trading) by negatively impacting on prices (see below) or game-play; it may also reduce the utility of game companies by imposing costs such as those of dealing with complaints. On the other hand, the real working gold farmer behind the avatar means gold farming has positive as well as negative externalities: the financial externalities of a created, paid livelihood and the economic merit externalities of transferring surplus through RMT from rich (often industrialised country) consumers to poor developing country workers who might otherwise be unemployed. Gold farming also helps the virtual value within MMOGs be "real-ized": converted from an unseen, unmeasured phenomenon into real economic activity, thus addressing some of Castronova's (2003) concerns about potential losses to real GDP of more and more human activity being undertaken in virtual worlds.

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

Castronova focuses on the negative externalities to demonstrate some level of control on gold farming is desirable, but Heeks' counter-points could equally be used to argue that some level of gold farming is desirable in utilitarian terms. Overall, these authors' work shows the applicability and relevance of the economic principles of utility and disutility. It suggests some difficulties in applying those ideas that arise due to the virtuality of gold farming and trading. This virtuality means, for example, that gold farming is unrecognizable: it is impossible to distinguish with certainty a gold farmer from any other player (notwithstanding the "ten signs he's a gold farmer" nonsense that circulates on game forums). Likewise, it is very hard to observe real-money trading. Their hidden nature means it is the perceptions of farming and trade more than their experienced actuality that create disutility, and means that true supply-demand curves cannot be calculated. Another basic economic idea that has been applied to gold farming is that of money supply and demand. This has been invoked to argue—at times, complain bitterly— that gold farming fuels in-game inflation (e.g. Bell, 2006; Castronova, 2006; Ward, 2008). The economics of this are apparently straightforward: increase in the supply of any item—assuming constant demand—causes its value to fall. As gold farmers pump additional currency into the virtual economy, it is argued, this is the equivalent of increasing real-world money supply. The value of the currency falls. It therefore requires more of the currency to purchase any item. In other words, prices rise and there is in-game inflation. However, we may question this simple reasoning. In-game inflation has undoubtedly been seen in the short-term (e.g. Castronova et al, 2009) but there seem to be few long-term records. One data set for a game in which gold farming is present is EVE Online from October 2005 to June 2007 which shows deflation, not inflation (Lehtiniemi, 2008). Yee (2005) claims in-game deflation in World of Warcraft and similarly Castronova's (2001) study of EverQuest showed deflation over time. Other evidence is mixed. Players themselves report both inflation and deflation (Kaminski, 2006). More objectively, comparing prices over time for a basket of different items on the Runescape Price Guide (http://www.zybez.net/priceguide.php) indicates a mix of inflated and deflated prices. Overall, inflation between September 2006 and November 2009 was just 5% within which was a period of deflation up to late 2007 (when gold farmers were likely to be relatively more active), and a period of subsequent inflation up to late 2009 (during a period when game redesign had made gold farming more difficult). There is, thus, little evidence as yet to support the supply-demand claims of gold farming causing in-game inflation. Some of the explanations are entirely consistent with supply-demand economic principles: that demand is not constant but rises and falls, for example, due to changing numbers of players in the game; and that gold farmers represent only a minority of players and thus have a limited impact on currency supply (Woodcock, 2008). Other explanations rely more on the particular characteristics of virtual economies, hinging on the fact that gold farmers do not create anything tangible. Gold farmers make money by doing the things that all other players do: mining ore, picking herbs, killing monsters for their drops, and so on. Where another player would have, say, mined the same ore vein, gold farmers are not creating new value within the virtual economy, they are merely diverting it. They,

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

therefore, do not affect supply. (Where another player would not have farmed the item, gold farmers may be increasing the supply—but of items, not currency—hence having a deflationary price effect.) Over and above all this lie two further issues. First, a core premise about what makes virtual economics different is the question of scarcity, abundance, and cost of production (e.g. Lehdonvirta, 2005; Kelly, 2007; Shaviro, 2007). Parts of standard economics rest on the notion that items are scarce and have production costs. This is close to untrue for game companies; they can produce an infinite number of mithril ore veins at close to zero cost. At times, this has been used as an argument to justify the need for different economic models for virtual economies. But most virtual items are "produced" twice before they enter the economy: first by the game company, and then by the player. At least for gold farmers, the element of difference is absent. Resources are scarce, not abundant; there are not an infinite number of ore veins or bosses, and they are rivalrous: whoever gets them denies others. Indeed, gold farming overall exists only because it combines virtual-world scarcity of currency and items with real-world scarcity and unequal distribution of time and money. Gold farming arose because those in the world with more money than time (player-buyers) can trade a scarce resource (gold, or items, or high-level characters) online with those in the world with more time than money (gold-farmers). In this sense, there is nothing particularly different or unusual about the economics of gold farming. Second, there is the game company: the virtual world's economic gods who ultimately control all inflows and outflows of currency and items, and impact demand. Game patches and redesigns may introduce new sources of in-game currency (such as daily quests in World of Warcraft), or new sinks (e.g. costly items like epic flying mount training in World of Warcraft); they may also increase or decrease the demand for certain items and for currency. These impacts are likely to far outweigh those of gold farming on prices. The company's ready ability to do this arises because they control the code that creates the world and its economy. In many ways, they resemble a national economy's central bank although they have transcendent powers compared to their real-world equivalents (and also different purposes – game companies care relatively little about the core role of a real central bank: the control of inflation and economic growth). In applying the simple idea of supply and demand to gold farming, then, we find relatively little evidence for a reality behind the perception of inflation. We find a picture of more complexity than the initial "headline" narrative, and we find a mixture of some standard application of economic ideas including those of scarcity and central banking, combined with some particular features of the virtuality of production and in the overriding control of the game company. What can we find from application of other economic tools? Here, I select three gold farming and RMT issues, to each of which an economic tool is applied. As noted above, they are chosen because they have not yet been much used in discussions of virtual economics. Gold Farming Production and Scale Economies To understand the nature of gold farming production and enterprise, one useful tool will be scale economies. Economies of scale exist "where a firm can lower the cost of each unit of output by producing more units" (Sayer, 1985, pg10), meaning that firms producing larger amounts have a competitive advantage because they can produce each item more cheaply than a

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

smaller producer. They can do this where there are fixed costs: input costs which do not rise proportionately for each extra unit produced. The alternative is variable costs: which rise proportionately for each extra unit produced and which do not provide the basis for scale advantage. Basic in-game gold-farming appears to have few scale economies. Variable costs dominate as each additional production unit (i.e. individual or pair of players if they are working back-to-back shifts) requires one PC, one Internet connection, and one account. Playborers are typically paid incrementally based on output, so wage costs are fully variable. Productivity per worker is also constant: one person kills a monster or chops wood or crafts an amulet just as quickly whether or not twenty other co-workers are doing the same. The virtuality of gold farming has thus made little difference here; the rules apply as they would for a real production line worker or real wood-cutter. Step back, though, and some economies of scale do start to emerge, mainly in relation to all the non-operations activities identified in Figure 2: • Indivisible-cost items: some investments, although their input cost does vary with size of output, are discrete items ("lumpy investments"). For example, if it requires one manager to manage 20 gold farmers, or one technician to manage 20 PCs, this creates scale economies on the assumption that it is hard to purchase twentieths of their services. They only come in discontinuous amounts: zero, one, etc. There can also be an equivalent indivisibility in game-play. Some high-level monsters such as bosses can only be killed by groups working together; hence the items or currency they drop have a scale economy. • Fixed-cost items: some gold-farming firms will have fixed-cost investments in a web portal, in setting up payment and security systems, and in marketing their services. These create scale economies. • Divisions/specialization of labor: as described above, gold farmers play various different roles in-game, and staff in gold-farming firms undertake different out-game activities. On the assumption that there are efficiencies gained from specializing in particular roles, then there will be scale economies for those firms that have enough workers to allow this specialization. The last two items on the list help explain why individual gold farmers may likely work via brokers/exchanges rather than seeking to sell direct to player-buyers since they thereby avoid fixed costs and the need to adopt multiple roles. If all three items in the list were economically overwhelming, then one would expect medium and large-sized enterprises to emerge. But there appear to be relatively few signs of this from on-the-ground reports (e.g. Johnson, 2006; Wang, 2008), suggesting that fixed, indivisible costs do not dominate. Again, there are few signs here that virtuality of production has had much impact. It is very real items like staff and hardware infrastructure that underpin the fixed costs. The divisions of labor imitate those found in many other forms of production. The only possible echo of virtuality we may find lies in one final factor—potential scale diseconomies. These could arise from perceptions that the sector is too volatile to justify large-scale investment, or from growing costs of coordinating a large operation, or from the inability to cut regulation-related costs as informal sector small enterprises can. But they might also arise from dangers of "becoming noticed," e.g. for taxation and regulation purposes by local government or

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

for legal action by game companies. The only sense of virtuality is that it may allow firms to remain somehow hidden if they do not become too large.1 Enterprise Strategies and Exchange Rates Exchange rates between real-world and virtual currencies impact neither regular players nor game companies in subscription-based games. They do, though, impact gold farmers and their customers, both affecting and being affected by enterprise strategies. Calculations from available data on leading games show that in-game currencies, on average, devalued against the US dollar by roughly 85% between June 2005 and November 2009, using a weighted average based on 2008 subscriptions (see Table 1). Table 1: Change in Exchange Rate of In-Game Currencies to US$ Over Time Game World of Warcraft Runescape Lineage II Final Fantasy XI EVE Online Everquest II Everquest Star Wars Galaxies

June 2005 rate 10

November 2009 rate 0.84

Devaluation 92%

Unit (US$ per) 100 gold

2008 subscriptions 10m

10 5 24

4.5 0.11 28.3

71% 98% -18%

1m gp 1m adena 1m gil

1.2m 1m 500,000

3 150 40 5

0.5 2.8 24 0.55

83% 98% 39% 89%

10m ISK 10 plat 100k plat 1m credits

235,000 200,000 175,000 100,000

March 2009 rate 113

Lord of the 99 12% 100 gold Rings Online Warhammer 30 19 36% 1000 gold Online Source: GameUSD (2005) for the June 2005 figures, checked with historical search of IGE web site: http://web.archive.org/web/*/http://www.ige.com; averaging across several gold-farming web sites for the November 2009 figures. Subscription figures are drawn from Woodcock (2008).

Let us begin with the minority trend: appreciation rather than devaluation. There are claims that anti-gold-farming campaigns by game companies do temporarily revalue currencies (Dibbell, 2007). There is some evidence to support this idea but particularly the notion that effects are only temporary. Square Enix put a very strong effort into curbing gold farming within Final Fantasy XI during the latter half of the 2000s (e.g. Davis, 2009a), a period during which currency appreciated (though using an earlier start point changes this picture). Taking before and after valuations (October 2007 and June 2008) relating to the point where Jagex undertook a major redesign of Runescape to try to reduce gold farming, there was no currency devaluation (but devaluation did occur subsequently). During 2009, hundreds of gold farmers and then a major real-money trader were banned from EVE Online by CCP Games causing a significant impact (Davis, 2009c; de Zwart, 2009). Over that same period, EVE Online currency 1

The overt signs of real-money trading – especially advertising – therefore tread a difficult line between attracting the attention of customers, and not attracting the attention of those seeking to control gold farming.

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

ISK appreciated by 72% against the US dollar, rather than devaluing (but the longer-term picture for ISK has been devaluation). So we have a little evidence for temporary effects resulting from game company actions taken against gold farming. But the overall and fairly relentless picture is one of devaluation. Even more-recently-designed games are affected. Lord of the Rings Online (launched in 2007) and Warhammer Online (launched in 2008) show an unweighted average 24% devaluation of their virtual currencies over just an eight-month period in 2009 (a similar average to that of all games over the same period). Currency exchange rates, of course, represent a foundational connection between the real and the virtual. So what can be learned from the ongoing devaluation? First, that devaluation has real causes. The main offered explanation for the devaluation is competition, with new entrants undercutting existing firms in order to try to win business (Heeks, 2008). Interviewed gold-farming entrepreneurs are quite clear that new firms have moved into the sector particularly since the mid-2000s and that both entry and survival are based on a simple competitive approach: "those companies have to reduce prices" (Carless, 2007; see also Debatty, 2008). Second, that devaluation has real effects. It has been cited as the reason behind the collapse of the high-wage (e.g. US-based), cottage-industry model of the early 21st century (Concernedeq, 2006). And it has also changed the way gold farming is undertaken in East Asia, with three main effects: •

•

Revenue adjustment: changing the profile or distribution of income. In the first half of the 2000s, "super-profits" were being made from gold farming. Zhe (2006) suggests profits at that time were 265% of operating costs, and Dibbell (2008) reports the dominant real-money trading firm of the time, IGE, making US$ tens of millions per month, with multi-milliondollar payments to its senior staff. As a result of competition and devaluation, that superprofitability disappeared in mid-decade to be replaced by more normal or even tiny profit levels (Terdiman, 2007; Salyer, 2007). Increased productivity: finding ways to make more in-game currency per hour. In the first half of the 2000s, for example, a typical in-game earning rate for World of Warcraft was 200300 gold per 12-hour shift (e.g. He, 2005; Zhe, 2006). By the latter half of the 2000s, it was possible to make 100 gold per hour relatively easily, with several hundred per hour being feasible for the highest-level players (e.g. Voodex, 2008). There may also be greater use of bots to raise productivity levels (e.g. Allen, 2008). Cost-cutting: in the first half of the 2000s, a few brokers were dominant; notably IGE which is claimed to have had a 60% market share (Salyer, 2007). Since then a number of gold farming firms have disintermediated the supply chain, selling directly to customers in order to reduce the costs of dealing via a broker, and taking advantage of the relatively low costs of setting up a "cookie-cutter" e-commerce portal. They have looked to reduce overhead costs; for example, relocating outside major city centres as broadband infrastructure has diffused (Gilmore, 2009). There are also reports of relocation outside China to lower-cost locations such as Vietnam (Davis, 2008b).

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

All of this, then, seems to reflect the ready application of economic rules showing that virtual currencies behave like real ones. Prices have gone down as supply has increased. Where supply is constrained by game company actions, there is some evidence of prices holding firm or even appreciating. And temporary supply constraints also have an effect: real-to-virtual currency rates on a wide range of MMORPGs spike in late January/early February when the Chinese New Year holiday reduces supply (Davis, 2008a; WoWMine, 2008). Reaction to devaluation has been what one would expect to see in any real-world company or country facing the same situation: squeezing profits, increasing productivity, and cutting costs. Real-Money Trading and Information Failure Having looked at in-game issues and production scale/strategies, we move lastly to look at the process and structure of real-money trading. In some ways it is a minor miracle that gold farming can exist as a sub-sector given that RMT is such a textbook case of information failure. Information economics shows that trading generically relies heavily on information during each of its three steps (Norton, 1992; Casson, 1997): • Information acquired prior to trading (on general items/services available, on the existence of traders, on their reputation and trustworthiness, on typical prices). • Information communicated during trading (on specific items or services offered and money sought, on quality of items/services offered, as part of negotiation). • Information acquired after trading (on whether or not the terms of the agreed trade contract have been fulfilled). Availability, quality, cost, other characteristics of information, and the ability to communicate that information, are thus critical foundations for all trade and all enterprise (Porter and Millar, 1985; Stiglitz, 1988). Given that everyone playing MMOGs and all gold farmers have web access, and given the huge quantities of data available on gold farming2, then information failure might, at first sight, seem odd. The key problem is at least three-fold: the virtuality of trade (buyers and sellers never meet physically), the anonymity of online activity, and data quality (the snowstorm of data available that could be good, bad or indifferent). Data available online may be good for providing buyers with certain information—the virtual existence of sellers, typical prices, specific items, and services offered. But the following information failures still occur: • •

•

Information absence: both buyers and sellers may be completely unable to find out who, in reality, they are trading with. Information uncertainty: buyers and sellers will be uncertain about each other's trustworthiness; buyers particularly will be uncertain what—if anything—will really be delivered if they pay; buyers report being uncertain about whether or not partially-completed deals will ever be fully-completed; both sides will be uncertain about whether or not their trade is under surveillance from game companies. Information asymmetry: absences and uncertainties affect both sides of real-money trading but there is a typical asymmetry since key items of information about the trustworthiness and quality of items/service are known to the sellers but not the buyers.

As a cheap example, Google produces 5.7m results for a search on 'wow gold'.

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

•

Communication problems: sellers typically offer online chat and email contacts but buyers report problems with communication relating to issues like language, time difference, nonresponse, and being fobbed off with excuses (e.g. mmobux, 2008).

Information economics demonstrates that characteristics such as these failures in turn shape both the process and structure of commerce (Williamson, 1975; Stiglitz, 1988). The informational characteristics just described indicate the build-up to trading may be relatively quick and easy. However, trading overall has the characteristic that it is risky, far more so than typical real-world trading. That risk can be instantiated as both opportunism and adverse selection. Opportunism would refer to actions such as overcharging for goods or agreeing to a contract knowing it cannot properly be fulfilled. One can seek evidence for this from those who post online about the experience of buying gold-farmed items/services. They are generally negative (e.g. Jamie, 2007; Allen, 2008; PowerLevelingReviews, 2008). Of course one must allow for the profile of those who post being different from the average buyer profile and the possibility that posts are made by those with vested interests for and against gold farming or particular suppliers. However, the level of detail provided in some posts suggests they represent real experiences and that a proportion of purchasers are disappointed. Examples of reported problems include: • • • • •

Late delivery: rather than the instant service and large stock promised, purchasers find currency being delivered piecemeal over a long period of time; other actions promised quickly do not occur for days or even weeks. Partial delivery: full amounts of currency are not delivered; characters are returned having been only partially-levelled. Currency loss: currency is impounded by the game company. Account suspensions and banning: particularly for power-levelling. Disputes: as purchasers try to get their money back. Underfulfilment and opportunism thus do seem to be present.

Adverse selection would mean actions such as unwittingly selecting either a trade partner or trade items of poor quality. The quality of virtual trade items can readily be determined on their delivery but the risks of poor trade partner selection do appear to be present. They are present for sellers (e.g. defraud by players: see Aiken, 2007; Floozle, 2008). And they are present for buyers. For example, out of more than 400 real-money traders reviewed by mmobux3, only five got a rating of more than 7 out of 10, sufficient for them to be deemed "extremely reliable" (Carebear, 2009). The vast majority of traders got very low ratings indicating a poor quality of trade. On the basis of these information failure-shaped characteristics, one would predict the following outcomes:

This site provides what appears to be the most comprehensive review of gold-farming firms: http://www.mmobux.com/shops.

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

•

Suppression of trade: the level of trading is likely to be below that which would occur if the various informational challenges were mitigated or removed. One possible indicator is the gap between the US$10 average annual spend per player on gold farming and the US$46 spent when Sony set up Station Exchange for Everquest II: a system that legitimised realmoney trading on two servers and thus addressed most of the information failures indicated here (see Heeks, 2008 for calculations). That suggests a possible 78% suppression of trade due to information failures (though issues of legitimacy and effort would also have an effect). Localization of trading: as traders seek to deal only with those they physically know. RMT did begin on this basis. It still seems to be the starting point for individual developing countries as MMOGs take off. However, the online nature of the games, including their globalization, has encouraged trade to move beyond the local, impelled by buyers and sellers not knowing enough other players to match their respective demand and supply. Presence of intermediaries: intermediaries address information absences and uncertainties by holding information about both buyers and sellers; for example, reputational/trustworthiness and quality information. They can reduce the information-gathering costs of all stages of trading. They can make trade less risky, or at least make it perceived to be less risky, because of their informational resources and reputation. It is not easy to judge the extent to which intermediaries exist in RMT – separating intermediaries from end-producer gold farms on the basis of just their web sites is hard; judging volume of trade is even harder. Some do undoubtedly exist (Gilmore, 2009) but there are countervailing tendencies. Pressures for disintermediation thanks to the virtual nature of trade, and pressures from game companies are a partial explanation. The shifting and anonymous nature of buyers is another. And the brokers have their own reputational problems (e.g. PJ, 2007). Reputational portals: given the importance and scarcity of information on reputation and trust, it should have a high value, and this should encourage information brokers to emerge who would gather and disseminate such information. In practice, there appear to be relatively few such brokers, most likely because they also struggle to establish their own trustworthiness and that of the information they provide. The one exception appears to be: http://www.mmobux.com.4 Exchanges of which, again, there appear to be very few (e.g. http://www.playerauctions.com/, http://www.markeedragon.com), typically provide this information as an integral part of their service (though the last appears to have so few suppliers that its exchange function is unclear). Reputational tactics by sellers: given information uncertainties and the importance of trust, sellers would be expected to try to provide a lot of information about their reputation and trustworthiness. Overt tactics include the presence of customer testimonials (e.g. http://www.guy4game.com/about/customer-testimonial/); graphics of reputed global firms such as MasterCard, Visa, PayPal (e.g. http://www.gmlvl.com/); links to reputation rating sites such as BizRate (e.g. http://www.igegolds.com/); guarantees of fast, safe service and refunds if unsatisfied (e.g. http://www.mmoempire.com/); and demonstrations of altruism/corporate responsibility through donation programmes to charities (e.g. http://wow.vcsale.com/). Other tactics include advertising methods for easier communication such as live chat; detailed explanations of the process (e.g. http://www.wowgoldwow.com/FAQ.asp); and imitation of the names of well-known traders (e.g.

Problems with other reputation-and-review sites include the following: they make their money from links to realmoney traders and all reviews are positive (e.g. http://buywowgold.co.uk/; http://www.warcraftgoldreviews.com/gold_seller_reviews.php); they are very limited in coverage (e.g. http://powerlevelingreviews.wordpress.com/); some combination of the above (e.g. http://wowgoldbuyer.com/; http://wowgoldhunter.com/); all reviews are negative (e.g. http://www.powerlevelingsucks.com).

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

•

http://www.igewow.com/). The main problem is that, by and large, all these tactics are perceptual rather than real. They may have a marginal impact on some customers but they have no more actual value than a would-be real trader telling you "I am not a fraudster." One should also mention the potential for "anti-tactics:" providing false negative information about competitors. This means that even where companies are rated—for example, IGE has more than 25,000 ratings on BizRate—it is difficult to trust either the positive or the negative ratings. Repeat business: those purchasers who buy repeatedly are likely to stick with one supplier if they are satisfied with its service. Given the lack of data on purchasers, it is not clear if this happens in practice.

From all this, we see that the ideas of information failures are applicable to gold farming and real-money trading. They show a whole set of information failures which lead to opportunism and adverse selection. Those characteristics, in turn, shape this activity in a powerful manner. For example, they probably significantly suppress the level of trade, and they trigger a whole raft of reputational tactics. However, because of virtuality, the outcome is not exactly that which one would predict from real-world experiences. In particular, trade is more globalised and perhaps less intermediated than an offline equivalent with similar information characteristics. Analysis and Conclusions Since the foundational work of Castronova and others, we have known that is possible to address virtual worlds from the perspective of economics, and to study various phenomena from a micro- or macro-economic perspective. In this paper, we have extended that study in two initial ways. First, we applied a set of economic ideas that have not yet been much used: scale economies, exchange rates, and information failures. Second, we applied these ideas not to the virtual economies alone but to gold farming and real-money trading, which can be argued to represent the intersection of the real and the virtual. We have seen economic effects of real-world elements. The offshoring of gold farming to China and other Asian nations, and the location of gold farming within China, reflect tangible factors: the availability of labour, the cost of labor, and the availability and cost of technological infrastructure. The nature of scale economies is significantly determined by tangible factors of production including divisions of labor. Game-world currencies have devalued against realworld currencies due to new businesses entering the sector and their competition driving down prices. We have also seen some economic effects of virtual-world elements. The virtuality of production impacts the effects of money supply. The virtual and hidden nature of gold farming perhaps acts as a disincentive to getting too large, as IGE did in the early 2000s. The virtuality and hidden nature of trading causes a series of information failures that have both suppressed and shaped that trade. The shaping of that trade has occurred in ways that—again due to virtuality— one would not quite predict from the experiences of other types of trading: for example causing brokers and other intermediaries to be less powerful but more globalized than one might anticipate. But what has this analysis told us about the viewpoints summarised in Figure 1?

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

On the question of applicability of standard economics, there is no support for the extreme view that we need different economic models let alone different economic principles. At most, we might perceive some minor issues as having arisen—due to the hidden nature of production and trade, the different powers and purposes of the MMOGs' "central bankers", and the ability to bypass the local and the intermediating. But really, this has been more about developing a proper understanding of virtual economies and RMT and their fit to current economics, rather than about a necessity to change that economics. The overriding message is how relevant and applicable standard economics is, rather than vice versa. Castronova et al (2009, pg. 702) offer a somewhat throw-away but intriguing comment: "the implicit real-world benchmark in this study has been a developed post-industrial economy. Perhaps virtual economies are very precise analogs for other kinds of real-world economies, such as frontier, developing or black market economies". There is certainly something in this. Looking in-game, we can see a number of features reminiscent of a developing country economy: • A subsistence economy in which many goods and services never enter the trading system and the formal economy, being consumed by those who produce them (resulting in GDP estimators for virtual worlds likely significantly undervaluing their economies since they are based on visible trade; just as one sees with GDP estimation for developing countries (Castronova et al, 2009)). • An assumption that human time/labor has a relatively low value and is in relatively abundant supply. • A system of governance described as a dictatorship (Castronova, 2003) and strong centralized control over the economy in the form of the game company; the pinnacle of which was Jagex in the post-2007-redesigned Runescape, epitomizing the kind of developing country command-and-control economy that was common before neo-liberalism took hold. • A large amount of informal and unregulated activity that seeks to pass under the radar of central control; principally in the form of gold farming. • Significant price movements in short periods of time and a value of price controls (as exemplified by Jagex) that are not generally seen in industrialized economies but which are common in developing countries. • And, only semi-tongue-in-cheek, one may note the strong reliance within most virtual economies on primary commodities, with some small-scale production and sale of simple manufactured goods, and few services; a pattern found in most developing economies. Looking at the interface between virtual and real represented by currency exchange, features call to mind the black market trade that occurs in those developing countries with nonconvertible currencies: • It is much harder to sell the currency than to buy it: most RMT portals will only sell not buy. • The buy-sell spread is large: US$2 to US$4.5 per 1000 World of Warcraft gold when you sell; c.US$10 when you buy in early 2010 (e.g. http://www.mmofly.com; http://www.iwtsgold.com). • There is a lack of good quality information about trading, and a strong presence of information failures.

Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

•

Trade itself is much like the hasty real-world, black-market, back-alley swap with its attendant concerns from both sides—but especially the buyer—about being scammed, or about being caught. Finally, looking out-game, there are the real gold farms themselves which the fundamentals of economics have pushed to developing country locations. So perhaps the models we look to in explaining virtual economics should draw less from standard economics and more from development economics. The second dimension of Figure 1 summarized views about the relation between real and virtual. One stated reason behind selecting gold farming for analysis was that it draws together the real and the virtual. We have certainly seen examples of a hybrid, intersectional perspective. Gold farming shows ways in which the real is injected into the virtual. Not, perhaps, in relation to in-game inflation but in relation to in-game utility, to the real-ization of virtual value. Even to the real-ization of agency: any player will recognize at some level the illusion of agency (Krzywinska, 2008): your raids, your quests, your instances have no effect. You might kill the cultists to save the damsel-in-distress but turn your back for a moment and they have all returned. Gold farming makes that agency real; turning the cultists' drops into gold and gold into dollars with an effect on real lives. Above all, gold farming has arisen because it brings real-world scarcities and inequalities of time and money to bear on virtual scarcities of currency and resources. Just as nature abhors a vacuum and rushes to fill it, so capitalism is inexorably sucked in to any situation of scarcity. Thus the real-world patterns of capitalism have been mapped into the virtual world: monetisation of virtual currencies, divisions of labor, and the wage laboring, offshoring and automation of virtual activities. These are the economic parallels of more sociological evidence about the real infecting the virtual: the way in which play becomes work in MMOGs that are designed to offer "players a capitalist fairytale in which anyone who works hard and strives enough can rise through society's ranks and acquire great wealth." (Rettberg, 2008, pg. 20). So, far from representing some new and weightless economy, the grinding required to level is very "old economy"; the equivalent of assembly line work (see also Wang, 2006). And the way in which gold farming has led to realworld racism being remapped into cyberspace, with Chinese gold farmers subject to the same tropes of pestilence and the same attempts at extermination that met the Chinese laundry workers who served the 19th century California gold rush (Yee, 2006; see also Bell, 2006 and Langer, 2008). If gold farming has helped inject the real into the virtual, it has also injected the virtual into the real. Most obviously through real-money trading. There is nothing very real about RMT; it may be largely out-game not in-game but it is still heavily virtualised. Like e-commerce for other digital goods, RMT involves nothing tangible other than the hardware through which to access it: marketing, customer relations chat, payment, and trade completion—all of these are digital. Hence, in part, the information failure outcomes seen. So, there are tangible, physical entities involved: the people who produce and consume, the hardware they use, and the buildings in which they work. Beyond this, though, there is little that is unequivocally "real" in a physical sense. We can see that gold farming exists within a

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Intersection of Real and Virtual Economies

virtual world, and can thus be thought of as virtual production. The trading element too is largely virtual because of the digitisation of e-commerce portals, communications, and payment systems. Finally, consumption of the goods or services purchased also takes place in the virtual realm. At most, then, we are left not just with an intersection of the real and the virtual but with a very fuzzy sense of what is real and what is virtual. Rather than take a static view on this, we can see gold farming as part of a steady chronological erosion of the real vs. virtual dichotomy. As Shaviro (2007) notes, the notion of real/virtual has moved right along Figure 1's x-axis from separation to inseparability, in a similar way to dissolution of the work/play binary, and gold farming has been part of both dynamics. Writers have already recognized this in relation to currency (e.g. Lehdonvirta, 2005; Shaviro, 2007; Castronova et al, 2009). The reality of national currencies has always been perceptual; it has always been something of a confidence trick and one that has grown as precious metals were replaced by ever-less material tokens: first coins, then paper notes, then digitized representations. The shrinking gap between currency types is reflected in the devaluation of MMOG currencies mirroring devaluation of national currencies in terms of both causes and effects, in the growing use in some developing countries of mobile airtime as a substitute for national currency (Pickens & Richardson, 2007), and in the Chinese government's attempts in 2009 to exert control over the ever-widening use of QQ coins and similar virtual currencies to purchase real goods and services (Davis, 2009b). We can, of course, go one step further to reflect the importance of perception, which arose in the analysis above at a number of points. From that perspective, there is no real and no virtual; there is just the single stream of perception inside our heads. Disputations on what is real and what is virtual will therefore only lead the researcher to turn in ever-decreasing circles before finally disappearing up their own orifice. Following this logic, there is no "real economics" to counterpose against a "virtual economics;" there is just "economics." There are no "real economies" to counterpose against "virtual economies;" there are just "economies." Released from the tyranny of the dichotomy, we are then free to analyse gold farming, RMT and other MMOG phenomena from perspectives other than those of "virtual economics." Straight economics will do fine, as illustrated in this paper. Broader sociological perspectives will help (e.g. Lehdonvirta, 2009). But we can also seek to explain the largely-expected-butoccasionally-unexpected outcomes portrayed in this paper using a deeper and systemic view of structure, agency and technology. Orlikowski (1992) offers the expected, conservative, reproductive picture (which can be represented as Figure 3) of technology, structure, and agency as mutually-reinforcing. From this perspective, new creations such as MMOG economies and currencies reflect existing social structures and behaviors and, hence, obey standard economic principles in the ways observed above.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Intersection of Real and Virtual Economies

Social Structure

Impacts Influences

Invents, Designs, Uses Human Agency

Constrains, Enables

Technology

Figure 3: Systemic Reinforcing Relation Between Technology, Agency and Structure

Steinkuehler (2006) offers the potential for the unexpected (which can be represented as Figure 4) which we can derive from her idea of the "mangle of play:" a messy mix that means one cannot predict outcomes a priori. We can thus portray the creation of MMOGs and their economies as the intermixing of structure, technology, and agency that can sometimes produce a slightly unexpected result, of which we have seen some minor examples in relation to in-game prices and information failures. Social Structure

Technology

Human Agency Figure 4: "Mangle of Play" Relation Between Technology, Agency and Structure

The overall picture painted by the results in the paper shows the need for some combination of the two views but the last, at least, argues the need for continuing research as the field evolves and keeps throwing up the odd unanticipated outcome.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Intersection of Real and Virtual Economies

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Journal of Virtual Worlds Research – Intersection of Real and Virtual Economies

de Zwart, M. (2009). Piracy vs. control: models of virtual world governance and their impact on player and user experience. Journal of Virtual Worlds Research. 2(3) https://journals.tdl.org/jvwr/article/view/663/511 Debatty, R. (2008). Gold farmers. World Changing. 9 May http://www.worldchanging.com/archives/008018.html Davis, S. (2008a). The gold farming war - who's winning?, playnoevil. 16 Apr http://playnoevil.com/serendipity/index.php?/archives/1990-The-Gold-Farming-War-Whoswinning.html Davis, S. (2008b). Noted: power-leveling careers in Vietnam. playnoevil. 30 Jun http://playnoevil.com/serendipity/index.php?/archives/2094-NOTED-Power-levelingCareers-in-Vietnam.html Davis, S. (2009a). Square Enix's Final Fantasy XI adds deep logging and security automation tools. playnoevil,. 6 Jan http://playnoevil.com/serendipity/index.php?/archives/2348Square-Enixs-Final-Fantasy-XI-adds-Deep-Logging-and-Security-Automation-Tools.html Davis, S. (2009b). Chinese government does not ban gold farming – puts free-to-play in jeopardy instead¸ playnoevil. 30 Jun http://playnoevil.com/serendipity/index.php?/archives/2599Chinese-Government-DOES-NOT-ban-Gold-Farming-Puts-Free-to-Play-in-JeopardyInstead.html Davis, S. (2009c). The gold farmer war: Eve Online edition. playnoevil. 19 Aug http://playnoevil.com/serendipity/index.php?/archives/2657-The-Gold-Farmer-War-EveOnline-Edition.html Dibbell, J. (2006). Play Money. New York: Basic Books. Dibbell, J. (2007). The life of a Chinese gold farmer. New York Times. 17 Jun http://www.nogold.org/2007/06/19/the-life-of-the-chinese-gold-farmer/ Dibbell, J. (2008). The decline and fall of an ultra rich online gaming empire. Wired. 24 Nov. Floozle. (2008). How to get some extra free gold. MMOwned. 22 Jun http://www.mmowned.com/forums/wow-scams/136187-how-get-some-extra-free-gold.html GameUSD. (2005). MMORPG Currency Price Trend Charts: First Half 2005, GameUSD. New York, NY http://www.gameusd.com/news0730.htm Gilmore, A. (2009). Personal interview. 23 March. Gudmundsson, E. (2007). Eve Online Quarterly Economic Newsletter 3rd Quarter 2007. CCP. Reykjavik http://ccp.vo.llnwd.net/o2/pdf/QEN_2007Q3.pdf Gudmundsson, E. (2008). Eve Online Quarterly Economic Newsletter 4th Quarter 2007. CCP. Reykjavik http://ccp.vo.llnwd.net/o2/pdf/QEN_Q4-2007.pdf He, H. (2005). Chinese 'farmers' strike cyber gold. South China Morning Post. 22 Oct http://www.jlaforums.com/viewtopic.php?t=1039329 Heeks, R.B. (2008). Current Analysis and Future Research Agenda on "Gold Farming": RealWorld Production in Developing Countries for the Virtual Economies of Online Games. IDPM Development Informatics Working Paper no.32. University of Manchester, UK http://www.sed.manchester.ac.uk/idpm/research/publications/wp/di/index.htm

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Huhh, J.-S. (2008). Simple Economics of Real-Money Trading in Online Games. Working paper. Seoul National University, South Korea http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1089307 Hunter, D. (2006). The early history of real money trades. TerraNova. 13 Jan http://terranova.blogs.com/terra_nova/2006/01/the_early_histo.html Jamie. (2007). Buy World of Warcraft gold. Buy WoW Gold. 19 Jul http://buywowgold.co.uk/2007/07/19/buy-world-of-warcraft-gold/ Johnson, T. (2006). 'Gold farming' in games means real income in China. San Jose Mercury News. 18 Jul. Kaminski, S. (2006). The Impacts of Farming and Crafting on MMO Economies. Trinity University,.San Antonio, TX http://www.trinity.edu/adelwich/worlds/articles/trinity.sam.kaminski.pdf Kelly, J.N. (2007). Play Time: The Problem of Abundance in MMORPG. anthemion.org http://www.anthemion.org/playtime_abund.html Krzywinska, T. (2008). World creation and lore: World of Warcraft as rich text, in: Digital Culture, Play, and Identity. H.G. Corneliussen & J.W. Rettberg (eds). Cambridge:, MIT Press 123-141. Kushner, D. (2007). Playing dirty. IEEE Spectrum. 44(12). Dec, 32-37. Langer, J. (2008). The familiar and the foreign: playing (post)colonialism in World of Warcraft. in: Digital Culture, Play, and Identity, H.G. Corneliussen & J.W. Rettberg (eds). Cambridge: MIT Press. 87-108. Lehdonvirta, V. (2005). Virtual economics: applying economics to the study of game worlds. paper presented at Future Play. Michigan State University. 13-15 October http://virtualeconomy.org/files/Lehdonvirta-2005-Virtual-Economics.pdf Lehdonvirta, V. (2009). Virtual Consumption. PhD thesis, Turku School of Economics, Finland http://info.tse.fi/julkaisut/vk/Ae11_2009.pdf Lehtiniemi, T. (2007). How big is the RMT market anyway? Virtual Economic Research Network. 2 Mar http://virtual-economy.org/blog/how_big_is_the_rmt_market_anyw Lehtiniemi, T. (2008). Macroeconomic Indicators in a Virtual Economy. MSc thesis, University of Helsinki, Finland https://oa.doria.fi/bitstream/handle/10024/37870/macroeco.pdf Lehtiniemi, T. (2009). Measuring aggregate production in a virtual economy using log data. Journal of Virtual Worlds Research. 2(3). mmobux. (2008). Shop Profiles. mmobux http://www.mmobux.com/shops Norton, S. (1992). Transaction costs, telecommunications, and the microeconomics of macroeconomic growth. Economic Development and Cultural Change. 41(1). 175-196. Orlikowski, W.J. (1992). The duality of technology: rethinking the concept of technology in organizations. Organization Science. 3(3). 398-427. Pickens, M., & Richardson, B. (2007). Mobile wallets and virtual currencies, ICTUpdate 36,April http://ictupdate.cta.int/en/(issue)/36

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PJ. (2007). Interview with a game economist and ex-RMT-manager, mmobux, 25 Oct http://www.mmobux.com/forum/viewthread.php?tid=746 Porter, M.E. (1980). Competitive Strategy, New York: The Free Press. Porter, M.E., & Millar, V.E. (1985). How information gives you competitive advantage. Harvard Business Review. 63(4). 149-160. PowerLevelingReviews. (2008). World of Warcraft power leveling reviews. PowerLevelingReviews http://powerlevelingreviews.wordpress.com/ Rettberg, S. (2008). Corporate ideology in World of Warcraft. in: Digital Culture, Play, and Identity. H.G. Corneliussen & J.W. Rettberg (eds). Cambridge: MIT Press.19-38. Ryan, N. (2009). Gold trading exposed: the sellers. EuroGamer. 25 March http://www.eurogamer.net/articles/gold-trading-exposed-the-sellers-article?page=4 Salyer, D. (2007). Thsale.com and IGE. Virtual Economy Research Network. 29 Sep http://virtual-economy.org/blog/how_big_is_the_rmt_market_anyw#comment-9315 Sayer, A. (1985). The Geography of Industry. Milton Keynes: Open University. Shaviro, S. (2007). Money for Nothing: Virtual Worlds and Virtual Economies http://www.shaviro.com/Othertexts/MMOs.pdf Simpson, Z.B. (2000). The In-Game Economics of Ultima Online, paper presented at Computer Game Developer's Conference. San Jose, CA. 20-24 March http://www.minecontrol.com/zack/uoecon/uoecon.doc Smith, J.H. (2006). The games economists play - implications of economic game theory for the study of computer games. Game Studies. 6(1). Steinkuehler, C. (2006). The mangle of play. Games and Culture. 1(3). 199-213. Stiglitz, J.E. (1988). Economic organisation, information, and development. In: Handbook of Development Economics. H. Chenery and T.N. Srinivasan (eds.). Amsterdam: Elsevier Science Publishers. 93-160. Terdiman, D. (2007). Ex-IGE chief: margins are shrinking. CNET News. 22 Jun http://news.cnet.com/8301-10784_3-9733747-7.html?tag=bl Voodex. (2008). Gold Strategies. Voodex, Copenhagen http://www.voodex.com/showList.php?type=GoldStrategy Wang, P. (2006). A Marxian Analysis of World of Warcraft http://triciawang.pbwiki.com/f/marxvirtual.pdf Wang, R. (2008). The Truth Behind Gold Farmers. WoWMine, Wilmington, DE http://www.wowmine.com/WoWmine_The_Truth_Behind_Gold_Farmers.php Ward, M. (2008). How cash can change online games. BBC News. 6 Feb http://news.bbc.co.uk/1/hi/technology/7226818.stm Williamson, O.E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press. Woodcock, B.S. (2008). An Analysis of MMOG Subscription Growth. version 23.0, MMOGCHART http://www.mmogchart.com/downloads/

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WoWMine. (2008). WoWMine News Archive. WoWMine. Wilmington, DE http://www.wowmine.com/index2.php Yee, N. (2004). The prince and the pauper: the transaction of virtual capital for real-life currency. Daedalus. 2(4) http://www.nickyee.com/daedalus/archives/pdf/2-4.pdf Yee, N. (2005). Deflation in WoW? TerraNova. 26 Aug http://terranova.blogs.com/terra_nova/2005/08/deflation_in_wo.html Yee, N. (2006). Yi-shan-guan. Daedalus Project. 4(1). 1-18 http://www.nickyee.com/daedalus/archives/pdf/4-1.pdf Zhe, T. (2006). MMORPG’s Gold Farmers’ Groups in China. Student Essay. Computer Science Department, University of Aberdeen http://www.csd.abdn.ac.uk/~fguerin/teaching/CS5038/assessment/essays_from_2006/group E/CS5038%20ESSAY1%20TIANZHE.doc

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

World of Warcraft: The Viability of Massively Multiplayer Online Role-Playing Games as Platforms for Modeling and Evaluating Perfect Competition By Eli Kosminsky, Massachusetts Institute of Technology

Abstract The objective of the study was to determine whether the virtual economy of World of Warcraft in fact behaves like a real world economy, whether it is a competitive free market approaching the ideal of perfect competition, and if so, whether it constitutes a suitable platform for further economic research. What makes this research feasible is that World of Warcraft exists on hundreds of servers, each of which is a replica of the same world, but with its own unique player population varying in size and experience level. The research makes the following three predictions about how the economy of World of Warcraft would behave if in fact it were perfectly competitive. The predictions are: 1) Servers with larger populations will yield greater price stability; 2) Servers with a higher concentration of players of a given experience level will yield higher prices for the goods most in demand by that set of players, and; 3) Arbitrage exists only to a very minor extent across all server economies. Data was collected detailing the prices at which selected virtual goods were sold in World of Warcraft auction houses, over a period of thirty days. Using statistical methods, the predictions were tested against the data drawn from economic interactions within the game. The research concludes that the virtual economy of the World of Warcraft in most respects behaves like a highly competitive real world market, and in fact approaches the ideal of perfect competition.

Keywords: economy; perfect competition; MMORPG; World of Warcraft.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research – WOW Modeling Perfect Competition

As the world begins to pull out of a deep recession, which for a time threatened to collapse into a second Great Depression, the future of the global economy remains uncertain. Unstable prices in the real estate, oil, and stock market, frozen credit, and the perilous state of major financial institutions already have led to the spending of hundreds of billions of taxpayer dollars by the federal government in an attempt to stave off financial collapse (Creamer, 2008). Essentially, this situation of economic turmoil has resulted in a high degree of government intervention in the economy, with further involvement highly likely. For better or worse, this interaction is moving the American economy even farther away from the ideal of a free market, in which the price of goods is determined solely by consumers through the processes of supply and demand (O'Sullivan, 2007). In any modern economy, such factors as taxation, regulation, government spending and other forms of market intervention suppress free markets. As these factors increase in the U.S. and likely the other developed economies as a result of the current economic situation, it will become increasingly difficult to find ways to research pure–or close to pure–free market interactions. This paper will demonstrate that virtual economies, in particular the virtual economy of the Massively Multiplayer Online Role Playing Game (MMORPG) World of Warcraft, are promising platforms for economic research of free markets. In a free market economy, where the prices of goods are determined by buyers and sellers, a spectrum of possible competitive interactions arises, ranging from one-firm monopolies at one end of the spectrum, to perfect competition at the other end. A perfectly competitive market assumes the following: a large volume of buyers and sellers, perfect communication, homogenous goods, and no barriers to market entry (O’Sullivan, 2007). These conditions result in the lowest sustainable price for a given good. Perhaps the most important factor in such an economy is the existence of a large volume of buyers and sellers. The assumption is that buyers will behave in a reasonable manner, buying from a seller whose goods are priced the lowest, given that all goods are of comparable quality. Therefore, in order to make a sale, a seller must be offering a good for a price less than or equal to every other price on the market at the time the sale is made. The more sellers that exist in a market, the more sellers there are that need to be undercut, which drives down prices. A high volume of buyers must accompany this population of sellers in order to provide adequate demand. Additionally, a large volume of sellers is necessary for perfectly competitive low prices because small populations of sellers are able to coordinate with one another and collectively increase prices. However, if the population is large enough, this coordination becomes impossible. The next factor attributing to perfect competition is perfect communication. This means that all buyers and sellers in a market know all of the prices at which a good is available. This results in efficient undercutting by competitors and ensures that consumers always buy the lowest priced good. Additionally, perfectly competitive markets must have homogenous, or identical, goods. For this condition to be met, all companies must produce the exact same good so that no one good is more desirable than another, as this situation would allow the more desirable good to command higher prices. Finally, a perfectly competitive market must have no barriers to market entry. This means that sellers are free to move from one industry to another at 4

Journal of Virtual Worlds Research – WOW Modeling Perfect Competition

no cost. Common barriers to market entry include the cost of new machinery and the cost of acquiring new knowledge to produce a new good. These barriers to entry prevent new competitors from entering a particularly profitable market, as the change might be too costly in terms of time and capital. This decreases the number of sellers in a profitable industry, which allows the existing firms in the industry to charge inflated prices. However, if no barriers to market entry exist, then when one industry becomes particularly profitable due to increased demand for whatever reason, no company will be able to increase its profits, as more sellers will quickly enter the market. This influx of sellers into a popular market makes abnormally high profit impossible and keeps prices as low as can be. Perfectly competitive markets are the simplest ones as they are completely unregulated by government (O’Sullivan, 2007). Given the lack of confounding variables such as taxes or quotas, perfectly competitive economies are appealing to study; they are even more important to understand given that fundamental economic concepts, such as supply and demand, are assumed, in their most pure form, to operate under perfect competition. Absolutely perfect competition is not fully embodied in any current economy, although some markets come close. Nearly perfectly competitive markets include online auction sites such as eBay and agricultural markets (O'Sullivan, 2007). While each of these real-world cases matches the assumptions of a perfectly competitive economy in most ways, they break down in other, key areas. For example, eBay offers many homogenous goods and perfectly communicates its prices among users. However, if a certain good becomes profitable, sellers may have difficulty acquiring it and selling it, resulting in a barrier to market entry that drives prices up. A similar problem exists in agricultural markets. While agricultural producers, for example tomato growers, may provide products that are nearly identical, and although there are a large number of farms supplying them, it is difficult for farmers of other produce to enter the tomato market, as switching over to tomato production would involve the time and investment of growing an entirely different crop. (O'Sullivan, 2007). Since real-world markets all stray from perfect competition in some way, it becomes necessary to search other worlds for such examples. While this prospect may sound impossible, these “other worlds” can be found very simply: they exist online in the form of virtual worlds (see Figure 1). A virtual world is an environment that is created online and is accessible to people in a variety of locations. These worlds depict real-world players with a virtual, visual character known as an “avatar,” which exists within the graphically presented virtual world. Additionally, these worlds are persistent, meaning 1 EverQuest: An early virtual world that even after a player exits, the world continues to Figure Source: Sony Online Entertainment exist and is accessible by other players. Furthermore, such worlds are evolving, so players have an effect on the content of the environment. Virtual worlds also are social places, meaning that there is a high degree of interaction among players. Many of these interactions are economic interactions, and most, if not all virtual worlds have some form of economy among the players (Castronova, 2002). One virtual world that has become a popular stage for research is Second Life, which was released in 2003. Second Life is less a game than it is a social environment in which players, 5

Journal of Virtual Worlds Research – WOW Modeling Perfect Competition

represented by completely customizable in-game characters, gather to interact and obtain virtual goods, such as clothing and other objects. Second Life hosts economic exchanges through which a virtual currency known as Linden dollars can be exchanged for real U.S. dollars. Although the exchange rate between the virtual dollars of Second Life and real, US dollars, varies somewhat with supply and demand, the cost of a Linden dollar is fixed within a range against the US dollar to prevent hyperinflation (Svensson, 2007). Another type of virtual world that exists is known as a Massively Multiplayer Online RolePlaying Game, or MMORPG. These games are less socially oriented and more achievement oriented. Here, large numbers of players work with and against one another in an effort to create the most powerful avatar possible. The most popular MMORPG to date is World of Warcraft, or WoW, with over 10 million subscribers worldwide (Blizzard Entertainment, 2008, see Figure 2). Here, a player’s power is measured on three major scales. The first of these is the virtual “wealth” of the player, which is measured by the in-game currency Figure 2 Dozens of WoW players gathered together online. known as “gold.” Gold can be obtained through Source: Blizzard Entertainment trade with other players, or by killing virtual enemies, or “monsters,” which are programmed to behave in certain ways and are not controlled by other players. When a monster is killed, it yields not only gold, but also a type of currency known as “experience,” which is the second way in which a players’ power is measured. A player’s experience points are cumulative and never decrease. As a player reaches various fixed numbers of experience points, he or she acquires additional “experience levels,” or simply levels, which are visible to all players. At the time of this study, these ranged from one to a maximum of 70. In general, as one gains levels of experience, wealth (as measured in gold) increases as well. The third and final way in which the strength of a player is measured is by the “power” of his or her equipment. Avatars in World of Warcraft are equipped with a full set of armor and a variety of weapons, all of which must be constantly upgraded to increase the overall strength of the player. Enemies or monsters that are killed by a player all yield a fixed probability of “dropping” one of these pieces of equipment, or of dropping a particular “ingredient” that could be used to create one of these items. These ingredients, or materials, such as cloth or iron, can be turned into armor or weapons by players with the right skills. Every monster within WoW can only drop a pre-set group of items upon its death, and each one of these items has a pre-set chance of dropping. Through the use of external tracking websites such as Thottbot.com, players are able to learn both of these statistics for every creature within the game. It is therefore possible for a player to travel to a specific area within the virtual world to try to obtain a specific good needed to create a specific piece of equipment, which will in turn increase his or her power. For Figure 3 A tree-like “Treant” example, in order to obtain wood to create a more powerful monster from the woods of WoW shield, a player could travel to a forest in an effort to kill “tree- Source: Blizzard Entertainment spirits” (see Figure 3). 6

Journal of Virtual Worlds Research – WOW Modeling Perfect Competition

Although World of Warcraft players are constantly competing with one another for wealth and power, it is not technologically possible to host each of the over ten million players of World of Warcraft in one place at a given time. In order to prevent overcrowding, players on World of Warcraft must be split up in some way so that they are not all in one location at a time. WoW players, therefore, are divided among approximately 200 servers, each of which functions like its own separate world that cannot contact other servers. A given player must enter the same server every time he or she logs on to the game, thus giving each server a unique and relatively stable population. The game designates a server as having a “low,” “medium,” or “high” population. When they first log on under a particular account (some players may have more than one account) players are asked to make an initial decision about which population size server to play on. Higher population servers can be desirable when one wants to find other avatars to play with, but since the servers are more crowded, the competition for goods “dropped” by monsters is fiercer. Servers also vary in the dates since which they have been in use, and the level distribution of players on them. However, these data are not transparent to the player and must be obtained on outside websites. As will be seen, all of these factors may come into play when analyzing price stability and price determination within the economy of WoW. Within each server, instances of economic interactions are constantly occurring. The majority of these interactions take place through an in-game auction house where players post goods for sale which they have obtained by killing monsters or from other players. Goods are sold for “gold” (see Figure 4). When a good is won by a bid or immediate buyout, a virtual payment is made in gold to the player who is selling the desired good. Figure 4 Activity in the WoW auction house Interestingly enough, the market of WoW Source: Blizzard Entertainment has advanced to the point where gold has taken on a value that transcends that of a simple virtual object. Many companies make it their business to amass as much of this virtual capital as possible and sell it to players for real-world money (Castronova, 2002), despite the fact that this practice breaks an agreement that all players must make upon entering the game (Blizzard Entertainment, 2007). In any case, virtual World of Warcraft gold has developed into a pseudocurrency with a general exchange rate to the dollar (Castronova, 2002). Thus, the currency of a virtual game has taken on realistic characteristics without any direct exchange rate being set up by Blizzard, the producer of the game. An initial look at WoW’s virtual auction house would indicate that it demonstrates to some degree all of the aspects of a perfectly competitive, or nearly perfectly competitive, market. Again, these four assumptions are: the existence of a large volume of buyers and sellers, identical products, perfect communication, and no barriers to market entry. To begin with, all of the goods in a particular market in World of Warcraft are entirely homogenous in a way that no real-world goods can be: that is, they all are the result of the exact same coding and function identically. For example, one silk shirt is exactly the same as another silk shirt in World of Warcraft because it is composed of the same code, whereas real-world silk shirts may vary slightly from one another due to mechanical or human imperfections in manufacturing. Additionally, there is seemingly perfect communication among players, as the auction houses, 7

Journal of Virtual Worlds Research – WOW Modeling Perfect Competition

where most trades take place, list every available price for a good in question and are easily accessible by all players (Yee, 2006). Due to the large number of subscribers of World of Warcraft, there is certainly a large population of both buyers and sellers, particularly because each player must act both as a firm and as a consumer, in order to acquire gold to buy things, and to spend gold to obtain goods that are necessary to “survive” in the game. Finally, there are minimal barriers to market entry for the majority of common goods in World of Warcraft. Many goods that are commonly traded and sold are obtained simply by slaying a virtual creature through the use of a player’s avatar. These monsters and their withheld goods are normally available in a number of different locations and are relatively abundant. This makes the process of entering new markets simple and inexpensive as all a character must do to change markets is kill a different type of monster. The only real cost involved here is the minor amount of time lost when an avatar travels from one location to another. Although World of Warcraft may demonstrate many aspects of perfect competition, it is unknown how close the WoW economy comes to the ideal. One of the best quantitative indicators that an economy is perfectly competitive is that the prices of its goods remain stable. This is because individual sellers in the market do not have enough power to raise or lower prices, and the number of sellers is so large that colluding to raise prices is impossible; prices do not change very often as a result. It has been demonstrated that many of the commodities within World of Warcraft generally do maintain highly stable prices, suggesting a high degree of competition (Korth, 2006). However, given the unique populations and levels of relative wealth on each server, the degrees of price stability and competition could vary from one server to another. That is, servers with higher populations should demonstrate greater price stability than lower population servers. In real-world markets, larger numbers of firms create a higher degree of competition (Janssen, 2001). This is because the actions of a small group of people are less predictable and more susceptible to chance than those of large numbers of people. This assumption should hold true within World of Warcraft as well. When there are very few characters supplying a good, the available amount of a good at a given time should fluctuate given the random (from the standpoint of the players) drop rates of a given good by the monsters. However, as the number of suppliers increase, this randomness would becomes less relevant as the “luck” of one player would be balance out by others, and the good would remain in relatively stable supply. Therefore, servers with higher populations on World of Warcraft should demonstrate prices that are more stable, demonstrating a higher degree of competition. (see objective 1 below). A second quantitative indicator of perfect competition in WoW would be that where higher concentrations of players of a particular level exist, the prices of the goods used by that level of player would be higher than on other servers where lower populations of those players exist. That is, two servers may have the same or a similar total population, but if one has a larger relative number of high level players then the goods used by higher level players should command higher prices. This is because production levels for a good are capped by the number of monsters dropping that item. Since supply remains relatively constant and demand increases on high level-dense servers, prices should rise (see objective 2 below). A final factor that would help determine whether World of Warcraft is an example of a perfectly competitive market would be the lack of arbitrage. Arbitrage occurs when an investor is able to take advantage of price differences between two markets and turn a profit without risking the loss of any money. Arbitrage exists when a factor such as lack of perfect communication, or government regulation, interferes with economic transactions. A simple example of arbitrage in 8

Journal of Virtual Worlds Research â&#x20AC;&#x201C; WOW Modeling Perfect Competition

the real-world would be found in currency exchange rates that are not equivalent. If one were able to buy a currency in one country for a lower price than it was being sold in another, then arbitrage would exist. If WoW is perfectly competitive, the possibility of arbitrage should not exist. This could be demonstrated through freely convertible goods, such as â&#x20AC;&#x153;Planar Essences,â&#x20AC;? which are used to enhance pieces of equipment. Any World of Warcraft character is able to convert three Lesser Planar Essences into one Greater Planar Essence, and reverse the process. If WoW is a perfectly competitive market, the price of one Lesser Planar Essence would be exactly one-third that of a Greater Planar Essence (see objective 3 below). Research Objectives The objective of this study is to determine whether WoW is a highly competitive free market approaching perfect competition, and therefore a suitable platform for further economic research. If WoW is a perfectly or near-perfectly competitive market, the following testable predictions should be true: 1) Servers with larger populations will yield economies with more stable prices. 2) Servers with a higher concentration of players in a given level range will yield higher prices for the goods demanded by the group of players in question. 3) Arbitrage exists only to a very minor extent across all server economies within World of Warcraft. Methods

Due to the high degree of interest in various World of Warcraft servers from the over ten million players, there are multiple websites that track auction house data for a number of goods. One such website is wowecon.com. Using the LUA files generated by a program that runs through World of Warcraft, it is possible to track the prices of all goods available for purchase through the auction house on one WoW server at a time. The collected information is organized on the website and includes statistics such as low, median, and mean prices per good, along with their standard deviation and volume over a period of days ranging from one to thirty. In this study, the prices will be tracked on a commonly traded consumable in order to ensure that there is a consistently large demand for the good that will yield a large number of auction instances and data points. The consumable focused on in this study is netherweave cloth, an item used to craft pieces of armor and bandages. Key price statistics posted over a thirty day time period were extracted from wowecon.com for netherweave cloth across multiple servers of low, medium, and high population. In order to collect population data, the website WarcraftRealms.com is utilized. This website makes use of another program that runs through WoW known as Warcraft CensusPlus UI Mod. Essentially, this add-on runs surveys of the populations of various servers and records the level of each player that is logged on at the time. Since the add-on is only able to record snapshots of the population, it is only useful for determining relative percentages of player levels. In this study, data was collected for players with levels ranging from 58 to 70, since netherweave is obtainable only in areas not normally reachable by players below level 58 due to constraints within the game itself. This collected population data is then compared to the median price of netherweave cloth on the respective servers to determine how prices are influenced by the relative concentration of a given range of players. 9

Journal of Virtual Worlds Research â&#x20AC;&#x201C; WOW Modeling Perfect Competition

General price data was collected from a website, wow.allakhazam.com, in order to test for arbitrage. Since arbitrage should have no relationship to individual server characteristics, the average prices of goods throughout the entire game are used as opposed to the prices on a single server. This provides more numerous, and therefore more accurate, data points. The items used to test for arbitrage are known as Lesser Planar Essence and Greater Planar Essence. Planar Essences were chosen to test for arbitrage because of their interchangeability, as is discussed above. Results & Discussion Objective 1: Test whether servers with higher populations yield economies with more stable prices.

Low Server 1: Khazâ&#x20AC;&#x2122;goroth Table 1.1

Low Server 2: Hakkar Table 1.2

Medium Server 1: Trollbane Table 1.3

Value (Gold)

30-Day Statistic

Value (Gold)

12.00

30-Day Statistic Median

16.25

Median

12.00

Average

11.97

Average

12.29

Average

16.21 Std. Dev.

2.09

Std. Dev.

1.50

Std. Dev.

1.73 Volume

7440

Volume

3449

30-Day Statistic

Value (Gold)

Median

Medium Server 2: Executus Table 1.4

Volume

2709

High Server 1: Anvilmar Table 1.5

High Server 2: Illidan Table 1.6

30-Day Statistic

Value (Gold)

30-Day Statistic

Value (Gold)

30-Day Statistic

Value (Gold)

Median

14.33

Median

11.77

Median

17.50

Average

14.30

Average

11.49

Average

17.48

Std. Dev.

2.61

Std. Dev.

.92

Std. Dev.

.87

Volume

3009

Volume

2362

Volume

1364

Data retrieved from wowecon.com

Journal of Virtual Worlds Research â&#x20AC;&#x201C; WOW Modeling Perfect Competition

Tables 1.1 through 1.6 show the gathered data for the highly traded consumable netherweave cloth. Each set of data was collected on two examples of low, medium, and high population servers with information collected on at least 1000 auctions within the past 30 days. The results below represent auction data from September 13, 2008 to October 13, 2008. The following graph was constructed to analyze tendencies seen within the standard deviation data presented above (see Figure 5). Standard deviation is used as a measure of price stability.

Standard Deviation

Standard Deviation in Netherweave Cloth Prices Across Three Server Sizes 3 2.5 2 1.5 1 0.5 0 Low Servers

Medium Servers

High Servers

Server Size Server 1

Server 2

Figure 5 Data retrieved from wowecon.com

In every case, the two servers of each given type demonstrate a relatively similar standard deviation, with the servers in each pair varying by an average of 12.9% percent, whereas the average F-value is 3.76 and yields a p-value less than .001, meaning that the differences in price among server types are significant. Additionally, low population servers (average standard deviation 1.62) do hold less stable prices than high population servers (average standard deviation .895). Unexpectedly, however, medium population servers hold less stable prices for netherweave cloth (average standard deviation 2.35) than either low or high population servers. This inconsistency will be addressed later in this section. Objective 2: Test whether servers with a higher concentration of players in a given level range will yield higher prices for the goods demanded by the group of players in question. First, the percentage of players on each server in the level range of 58 to 70 was determined (see Table 2). The percentage of players at level 70 exactly is listed as well, and the relevance of this data will be seen later. Server Size Low Population Medium Population High Population Server Name Khazâ&#x20AC;&#x2122;goroth Hakkar Trollbane Executus Anvilmar Illidan Players Level 57.9% 76.6% 63.6% 71.2% 57.5% 79.7% 58 to 70 Players Level 45.6% 58.9% 51.0% 57.4% 44.6% 66.7% 70 Table 2 Data retrieved from WarcraftRealms.com

Journal of Virtual Worlds Research – WOW Modeling Perfect Competition

These percentages are then compared to netherweave cloth prices on each of the respective servers (see Figure 6).

Low

Medium

Price of Netherweave (in silver)

da n Illi

An vil m ar

Ex ec ut us

Tr ol lb

an e

20 18 16 14 12 10 8 6 4 2 0 Ha kk ar

90 80 70 60 50 40 30 20 10 0 Kh az 'go ro th

Percentage of High Level Players (58-70)

Level Distribution Versus Netherweave Cloth Price Across Six Servers

High

Server Name and Size Level Data

Price Data

Figure 6

Here, it can be seen that in each pair of servers, the one with a higher percentage of players level 58 to 70–those who have a high demand for netherweave cloth–also has a higher price for netherweave cloth. This is what would be predicted. Another interesting relationship between the percentage of players within the level range in question and the price of netherweave can be seen when the two are plotted against one another (see Figure 7).

Median Cloth Price (in silver)

High Level Player Concentration Versus Netherweave Cloth Price 20 15 10 5 0 50

Percentage of High Level Players (58-70) Figure 7

A best-fit line has been applied to the line above of y = .0110x2 – 1.25x +47.27 which yields an R2 value of .993. This suggests that, regardless of population size, an increased concentration of players in the level range of 58 to 70 results in a predictable increase in the price of netherweave.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; WOW Modeling Perfect Competition

One question raised by the data is this: If larger numbers of players in a given level range drive up the prices of related goods, it would seem to follow that larger population servers would demonstrate higher prices on the whole, since the maximum supply of goods is identical across all servers. However, this tendency is not exhibited within the data, as can be seen in Figure 6, where the bars do not progressively increase with server size. One possible explanation for this is that players self-select onto high, medium, or low population servers. Players selecting high population servers are choosing to play in more competitive environments. These players enjoy competing to obtain goods such as netherweave cloth by slaying monsters that drop netherweave. Thus, on high population servers, the level of output of netherweave may well be higher than on low population servers, even though in principle the maximum level available is the same. On low population servers, players may opt for an activity other than obtaining netherweave cloth, such as socializing or exploring. This essentially lowers the production levels, and hence the supply, on lower population servers. Through this, the overall ratio of supply to population remains relatively constant, leaving level concentration as the only factor that determines the price of netherweave cloth, and indeed this is borne out in the data. Self-selection can also explain why, in the test of price stability, medium population servers demonstrated the highest degree of price instability. Players who self-select into high population servers have a high tolerance for competition, and those who self-select into low population servers have a low tolerance for competition. Players who choose a medium population server, however, may be drawn from both groups, or are unable to predict the level of competition that they will be able to handle. Therefore, their tolerance for competition may be more variable. Some players will look for monsters to kill to obtain netherweave, and then bring it to market. Others may choose other activities instead, creating unstable, less predictable supply, and hence unstable prices. In the long run, these instabilities even out to the point where actual prices for netherweave cloth are still determined solely by level distribution within the server; prices just happen to be found in a wide range in medium population servers around these predictable, mean values, as witnessed by the higher standard deviations in these cases. Objective 3: Test whether arbitrage exists only to a very minor extent across all server economies within World of Warcraft. Auction data was collected on Greater and Lesser Planar Essences in order to test for the existence of arbitrage. Since three Lesser Essences create one Greater Essence, the mean prices were multiplied or divided by three, respectively, to obtain the predicted price of the other good in question. Error equals the predicted price minus actual price, and variation is equal to the absolute value of mean price minus the predicted mean, all divided by the mean price (see Table 3). Planar Mode Predicted Mode Mode % Mean Predicted Mean Mean % Essence Price Mode Error Variation Price Mean Error Variation Type Lesser 5.00 5.00 0 0% 6.02 5.71 -.31 -5.15% Greater 15.00 15.00 0 0% 17.12 18.06 +.94 +5.49% Table 3 Data retrieved from wow.allakhazam.com

Journal of Virtual Worlds Research – WOW Modeling Perfect Competition

When analyzing the mode prices of both goods in question, no arbitrage exists at all, as the price of a Lesser Planar Essence (hereafter LPE) is exactly one-third of that of a Greater Planar Essence (hereafter GPE), as it should be. When looking into mean prices, however, there appears to be a roughly 5% profit to be made by breaking GPE’s into their LPE’s. This can be explained by the fact that characters at level 70, which are most common in the relevant experience range, are more likely to obtain GPE’s as they come from more powerful monsters (see Table 2). Such players do not bother to break down their Essences, which floods the market with GPE’s, driving the prices down. It would be expected that servers with lower concentrations of level 70 characters would experience less arbitrage in this market; however, such data was not available for this study. Regardless of this arbitrage revealed by mean prices, the fact remains that the most common exchanges for LPE’s and GPE’s occur in a perfect 1:3 ratio, with no arbitrage, as seen by the mode results (see Table 3).

Conclusion

It has been demonstrated that, with certain caveats, World of Warcraft is an example of a highly competitive market approaching perfect competition, and a suitable platform for further economic research. Each of the three conditions studied, which one would expect to find in a highly competitive market, are present in the economy of World of Warcraft: price stability, prices of goods increasing where higher concentrations of players require that good, and a lack of arbitrage. The self-selection of players into different server population sizes is the most likely explanation for certain observed differences from what would be expected in a perfectly competitive environment, a supposition that can be tested through further research. Future researchers also can avoid self-selection issues by analyzing players within a given server population size, rather than across the entire WoW economy as a whole. Other improvements to the methods used throughout this paper could also yield more refined results. Due to the limited amount of auction house information published on the websites used to collect data, only a small number of servers could be studied in depth. Data could be obtained from a greater number of servers by taking it directly from the game. Auction house and population data could be collected in this way using the Auctioneer and CensusPlus add-ons, although additional programming would be required to parse the data. More thorough population data could be particularly useful, as the broad, qualitative server population classifications could be replaced with the actual number of characters on the server in question, allowing for more involved analysis. In either case, frequent scans of the relevant data source at regular time intervals over several weeks should be sufficient to provide more significant results. Further inquiry into the use of World of Warcraft as a means to study perfect competition seems warranted, given the results of this research. Although the methods could be expanded upon, the fact that the economies of World of Warcraft behave so predictably under the assumptions we would make about real-world economies with similar parameters is an encouraging one.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; WOW Modeling Perfect Competition

Understanding near-perfectly competitive markets can have manifold advantages in terms of understanding real-world economies. New forms of technology are constantly changing the face of our world, and our markets. To help us comprehend such advanced economies, it is important to understand their foundation, which essentially is a free, perfectly competitive market. As such knowledge becomes more relevant, however, real-world economies provide us with fewer and fewer examples of such markets. Now, such real-world examples seem less vital as we can learn from a virtual one: the World of Warcraft. Acknowledgement The author wishes to thank the Byram Hills Science Research Department and Dr. Constance Steinkuehler for their respective resources, without which this paper could not have come to fruition.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; WOW Modeling Perfect Competition

Bibliography Arthur, O., & Steven, S. M. (2007). Economics: Principles in Action. Boston, MA: Pearson Prentice Hall. Auction Pricing Info. (n.d.). In Allakhazam. Retrieved from http://wow.allakhazam.com/ Castronova, E. (2001, December). Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier. Social Science Research Network. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=294828 Castronova, E. (2002, July). On Virtual Economies. Social Science Research Network. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=338500 Creamer, R. (2008, September 30). What the Failure of the Bailout Package Means to the Presidential Race. The Huffington Post. Retrieved from http://www.huffingtonpost.com/robert-creamer/what-the-failure-of-theb_b_130534.html?page=2 Janssen, M., & Moraga-Gonzalez, J. (2001, November). Two Firms is enough for Competition, but Three or More is better. Tinbergen Institute Discussion Papers. Retrieved from http://www.tinbergen.nl/discussionpapers/01115.pdf Korth, A. (2006). Predicting Commodity Prices Using Artificial Neural Networks (Master's thesis, University of Minnesota). Svensson, P. (2007, September). Virtual Bernanke guides 'Second Life'. Retrieved from http://msl1.mit.edu/furdlog/docs/2007-09-04_apwire_second_life_bernanke.pdf Norris, F. (2008, October 20). First Birthday for the Recession? The New York Times. Retrieved from http://norris.blogs.nytimes.com/2008/10/20/first-birthday-for-the-recession/ Warcraft Census. (n.d.). Retrieved from http:///www.warcraftrealms.com/census.php World of Warcraft Auction House Price Database. (n.d.). Retrieved from http://www.wowecon.com/ World of Warcraft End User Liscence Agreement. (2007, February 2). Retrieved from http://www.worldofwarcraft.com/legal/eula.html WORLD OF WARCRAFTÂŽ REACHES NEW MILESTONE: 10 MILLION SUBSCRIBERS. (2008, January 22). In Blizzard Entertainment. Retrieved from http://www.blizzard.com/us/press/080122.html Yee, N., Ducheneaut, N., & Moore, R. J. (2006). Building an MMO With Mass Appeal. Games and Culture, 1.

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Currencies and Capitalisms on the Internet Minna Ruckenstein, University of Helsinki

Abstract The internet is a particularly vibrant arena of economical development and transformation, because it brings together producers, distributors and consumers in a highly efficient manner. By doing so, it enables the exploration of innovative concepts without having to build costly new facilities. Thus the internet has become a living lab, which is used by people all over the world for creating and developing new economical forms. Anthropology offers a rich tradition for studying processes of production, distribution and consumption. In addition, anthropological studies on money offer interesting insights for thinking about uses of currencies on the internet. New forms of economical interaction create new kinds of currencies and money is multiplying on the internet. The aim of this paper is to outline some questions that can be raised by anthropological studies on economical forms and uses of currency. In order to understand virtual economies we need to think of what â&#x20AC;&#x153;the economyâ&#x20AC;? actually means. Well-known economical forms are being replicated on the internet, but other kinds of economies are also being created that raise the question of how useful the mainstream idea of the economy is for studying them. Virtual economies often promote self-realization and creativity that have less to do with money than with being part of a vibrant community of people. Keywords: capitalism; currency; virtual economy.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research – Currencies and Capitalisms on the Internet

Currencies and Capitalisms on the Internet Minna Ruckenstein, University of Helsinki

The Internet is a vibrant arena of economical development and transformation that brings producers, distributors, and consumers together in an efficient and innovative manner. By doing so, it enables the exploration and implementation of economic transactions without having to build costly new facilities; people all over the world can use the Internet as a living lab for creating and developing new kinds of interactions for the production of value. Anthropologists, along with other social scientists, have started to pay attention to the forms of production, distribution, consumption, and contestations generated and enabled around them by interactions on the Internet (e.g. Boellstorff, 2008; Kelty, 2005; Malaby, 2008). These studies suggest that the methods and findings of classical anthropological studies can fruitfully be extended to Internet research. Anthropologists have consistently argued for a cultural understanding of the economy; economic transactions derive their forms and vitality from culturally shared aims and desires. This idea also applies to the Western ideology that promulgates the idea of the ‘the economy’ as a bounded and independent domain of human experience; the founding myth of the market economy suggests that it is somehow ‘beyond culture.’ Consequently, economic transactions are typically represented as being detached from cosmological ideas about the world. Contrary to this approach, anthropologists have demonstrated how ideas about the economy rely on Western ideas of the universe, human nature, and the individual. Thus the individualistic discourse of economic action that is personified by the rational and profit-seeking homo economicus is first and foremost a cultural discourse (Sahlins, 1996). This paper argues that because of its critical stance towards prominent notions of the economy, an alliance with anthropology can greatly benefit studies of ‘the virtual economy.’ When economic transactions are understood to be cultural, they are by definition virtual: “Through culture, humans are always already virtual” (Boellstorff, 2008, p. 249). This means that it makes little sense to analytically separate ‘the virtual economy’ from ‘the economy’ as physical-world activities. Both in physical and virtual world, offline and online, people orientate themselves through culture. It is possible to study economic forms within the Internet with the same ethnographic tools and analytical concepts used to study human cultures all over the world. The virtual nature of economic transactions suggests that processes of value production are of key importance for understanding current forms of the online economy. As I will demonstrate, well-established patterns of economic transactions are replicated on the Internet, but other versions of capitalism have also found a particularly fertile ground online. These findings suggest that if we approach the economy anthropologically, we can better understand how online economies carry on ideas central to Western ideology, while opening up new possibilities for arranging production, distribution, and consumption. These arrangements often emphasize playfulness and creativity, which makes them appear free of hierarchies and inequalities. Yet, as I will demonstrate, power relations are played out in a new manner to which studies of online economies should pay much more attention. Economies on the Internet do not erase forms of inequality, but they do redefine them in imaginative and sometimes unexpected ways. 4

Journal of Virtual Worlds Research – Currencies and Capitalisms on the Internet

The discussion that follows relies on anthropological studies of perhaps the most celebrated ‘social’ virtual world, Second Life (Boellstorff, 2008; Malaby, 2009). Second Life was launched in 2003 and it differs from other well-known virtual worlds like World of Warcraft and Everquest II in that it has no established game objects; users spend their time in Second Life in a wide variety of ways doing all kinds of things imaginable. It is estimated that Second Life would have about 600,000 active users (Malaby, 2009, p. 2): this means that other virtual worlds are much more popular. Thus the amount of users is not what makes Second Life interesting. What anthropological studies demonstrate is that the Second Life exemplifies important themes for studies of Internet economies by concentrating developments that are becoming more prominent in both online and offline worlds. From this perspective, Second Life is an important laboratory for future trends of capitalist production. In describing these trends I am also relying on my ongoing research on Finnish children’s interactions in the Habbo Hotel that brings to the fore online forms of production, distribution, and consumption from the child perspective. Business as usual online The vibrancy of economic transactions online becomes tangible in relation to money. Money is multiplying on the Internet; new currencies are constantly being invented for companycreated virtual worlds where people operate through personalized avatars. A fundamental difference between virtual worlds and the offline world is that virtual worlds can be owned by companies; this means that virtual worlds are often backed by venture capitalists who expect to make a profit. New currencies are used for managing and generating cash flows; they are designed as “special-purpose money” (Polanyi 1968) for certain forms of exchange. For instance, in Second Life, a special-purpose currency is used for purchasing clothes, furniture, land, and property for avatars. Companies have consistently tried to limit economic transactions within their virtual worlds to the special purpose currencies exclusively created for use within the games’ boundaries. Without exception, however, users have started to exchange special-purpose currencies for general-purpose money. Consequently, an informal economy around webcurrencies that typically operates through auction sites like the eBay has been created. The owner of Second Life, Linden Lab, took this into account and the company tied the value of the ‘linden dollar’ to that of the U.S. dollar. Since 2003 the linden dollar has been freely convertible through the U.S. dollar to all other currencies (Boellstorff, 2008, p. 212). Tom Boellstorff (2008), who has written a fascinating account of “the coming of age of Second Life,” describes how the linden dollar was transformed into a currency that invited people to pursue economic successes characterizing the offline world. This generated online retail, banking, real estate sales, and financial speculations in Second Life. Even though the income of residents was typically modest, fortunes were also made online through buying and selling land and property (Boellstorff, 2008, pp. 212-217). These kinds of economic activities suggest that ‘the virtual economy’ is business as usual; it can easily be explained with well-established models of supply and demand. Research suggests, however, that there are also other forms of production, distribution, and consumption online that go beyond the usual explanatory models of the economy; users and residents of virtual worlds typically seek value that derives from other sources than ‘purely’ economic transactions. One could argue that these forms are social, not economic. Yet, in an indirect manner, they are intimately linked to a pursuit of economic profit through processes of 5

Journal of Virtual Worlds Research – Currencies and Capitalisms on the Internet

production of value. Thus I suggest that it makes sense to study these forms as economic, even though they might not be easily separated from the aims and desires that people have for spending time online. This kind of approach is also in line with an anthropological perspective that approaches the economy through culture.

Creationist capitalism It is well-established that residents and users of virtual worlds seek entertainment, selffulfillment, expertise, social relations, and respect. These aims and desires are not determined by the economy, or the Internet for that matter. They are clearly motivated by cultural values. For instance, the Global Habbo Youth Survey (2008, p. 30) tells us that “being well respected” is the aspect of future life which has the most value for Habbo-users. Other important values that guide children and youngsters in their everyday lives are: “finding an interesting job” and “having lots of friends.” The definition of value suggested by David Graeber (2001, p. 254) is particularly useful for thinking about what might inspire people in virtual worlds: he argues that “value is the way actions become meaningful to the actors by being placed in some larger social whole, real or imaginary.” This means that one needs to “define things not in terms of what one imagines them to be in a certain abstract moment, outside time, but partly by what they have the potential to become” (Graeber, 2001, p. 254). In other words, people are not motivated purely or even primarily by the acquisition of things, but by the potentialities that these things might open up for them. The purchasing of clothes, furniture, and property in virtual worlds becomes meaningful if the actions required for obtaining and owning them make sense in a larger social whole. Tom Boellstorff defines the economy of Second Life in relation to such a larger social whole as capitalism that he refers to as “creationist capitalism” (2008, p. 206). Creationist capitalism is a term that attempts to capture a much more general shift towards a mode of production which is becoming globally prevalent. This move has also generated other definitions; it has been referred to as playful capitalism or “ludocapitalism” (Dibbell, 2006). In business literature the interaction between the company and the consumer is now presented as the new locus of value creation, “the co-creation” (Prahalad & Ramaswamy, 2004). In other words, creationist capitalism seems to refer to a widely recognized shift in capitalism that is not only interested in people’s creativity, but equates it with labor: “production is understood as creation” (Boellstorff, 2008, p. 206). Boellstorff (2008, p. 208) defines creationist capitalism through a Christian metaphysics that firmly ties it to the Western ideology. Instead of predestination, however, people are guided by individualistic self-fulfillment. In Second Life the resident becomes “a minor god,” who participates in the creation of new worlds for human sociality. As Boellstorff (2008, p. 207) puts it: “In creationist capitalism, selfhood is understood as the customization of the social.” Thus it is the idea of the self as the creator that is becoming a prominent way of seeing the world, including economic action. The notion of the consumer as the new locus of value creation materializes in joint ventures which are being promoted by companies and consultancies. These ventures are referred to with terms such as coproduction, co-invention, co-distribution and coconsumption that underline that “value will have to be jointly created by both the firm and the consumer” (Prahalad & Ramaswamy, 2004, p. 7). In this understanding, people are not simply selling their labor-power and consuming ready-made products, but they are actively coproducing products and services that they consume. 6

Journal of Virtual Worlds Research – Currencies and Capitalisms on the Internet

Capitalism that is founded upon the creative contribution and participation of individuals is an updated version of the well-established economic tradition that situates individual needs at the heart of economic action. Because of its emphasis on individual creativity, creationist capitalism is, however, an unusually seductive cultural translation of capitalism. It promises to make sense both economically and socially. It is to be a reassuringly fun version of capitalism: playful, dynamic, productive, individualistic, egalitarian and emancipatory. A form of capitalism that does not alienate but engages; it promises to treat consumers as “informed, connected, empowered and active” (Prahalad &Ramaswamy, 2004, p. 6). Boellstorff (2008, p. 207) locates the structuring principles of creationist capitalism in the individualistic ethos typical to Californian culture. Through innovative technologies, the Silicon Valley is an important locus for the circulation and dissemination of this ethos. For instance, the developers of Second Life, who work in San Francisco, actively promote this unique ethos which is characterized by a firm belief in the emancipatory potential of new information technologies, free-wheeling bohemian creativity and goal-oriented entrepreneurship (Malaby, 2009). Because of its intimate links to the development of technologies, creationist capitalism provides a fruitful framework for studying the economy online. The Internet offers an exceptional venue for forms of co-invention and co-creation: people can participate in creative processes much more freely than in the offline world where people typically need some credentials to become part of established creative communities. Online people are only judged on their doings: they do not need to prove themselves to be capable beforehand. This does not mean that the online world is free of power relations and hierarchies; processes of inclusion and exclusion are simply played out in new ways. Thus ethics and politics of virtual worlds rely on notions of creativity that suggest that production is possible without alienation (Boellstorff, 2008, p. 209). Creationist capitalism invites people to join in and become creators of their own worlds. In practice, this means that company-created virtual worlds rely on and take advantage of user-generated content. “Second Life depends on unanticipated uses by its consumers,” as Thomas Malaby (2009, p. 8) puts it. Similarly, the Habbo Hotel flourishes because children and youngsters from Brazil to Finland produce content for it. User-generated theme rooms in Habbo Hotel include barbershops, police stations, hospitals, cruise ships, market places, and adoption centers. Thus the cultural production of its users is crucial in order for the company to make a profit, even if it is distanced from corporate cash flows through the logic of creationist capitalism. Children participate in the production of Habbo Hotel and make it appealing to other children, even if children and parents would not refer to this production as a form of labor. In creationist capitalism creativity allows labor to acquire value as a form of leisure; children’s creative doings transform themselves into a form of labor in its own right. This reflects a more general blurring of work and play that the Internet is particularly good at enabling. Celia Pearce (2006, p. 18), a game researcher, argues for a notion of play as an act of production; paradoxically, in virtual worlds people pay money to produce their own entertainment and selffulfillment. In places like Second Life and Habbo Hotel production melts into play and leisure.

Journal of Virtual Worlds Research – Currencies and Capitalisms on the Internet

Towards new worlds of sociality I have argued for an approach that defines the economy as cultural and thereby also virtual; this means that capitalist action, whether online or offline, motivates people because it opens up possibilities to become a part of some larger whole, real, or imaginary. From the perspective of creationist capitalism, this means that people become users and residents of online worlds because they want to participate in creative processes either by generating content for online worlds or by consuming the products of other people’s creativity. I have also suggested that it makes little sense to think of the ‘virtual economy’ as an independent form of economy. This point becomes further emphasized by the fact that capitalism that benefits from and builds on the creativity of people is not merely a characteristic of virtual worlds. The idea that creation is part of the capitalist process has a well-established history in Western ideology, but it has become more prominent and is now being convincingly disseminated in the corporate world through management consultancies that argue for the centrality of co-creation in the production of economic value. The Internet offers an unusually open venue for further disseminating and implementing this idea because information technologies both facilitate and make possible processes of creationist capitalism. Precisely because the Internet is so relevant to current economic processes, researchers should actively avoid reinforcing the idea that ‘the virtual economy’ is somehow qualitatively different and separable from ‘the economy.’ The production of value that takes place through information technologies will have an increasing cultural impact worldwide: it will affect both actual flows of money and new worlds of sociality benefiting from forms of production, distribution, and consumption. This impact can remain unrecognized if important cultural continuities between online and offline worlds are not empirically verified and analyzed in research. Such continuities are a key to the study of the Internet because they can underline how online worlds represent, concentrate, and accelerate cultural forms and movements. Through their interactions in Habbo Hotel Finnish children are, for instance, producing childhoods that have not existed before. A prominent idea of modern childhood as a non-productive area of leisure becomes efficiently questioned by children’s participation in processes of co-creation. Similarly, in the case of the creationist capitalism, it is important to tie it to the Western ideology and culture of Silicon Valley, which is characterized by a distancing of hierarchy and the endorsement of individuals pursuing an enlightened self-interest as they use technologies for creative expression. Cultural continuities and disruptions offer the potential for a deeper understanding of what inspires and motivates productions of value in virtual worlds. In order to identify continuities, disruptions, and transformations, it is important to explore how people circulate their ideas in virtual worlds in order to create something new. In terms of the economy, it is crucial to study people, including children, who eagerly take part of in processes of co-creation. From the perspective of a notion of a rational and profit-seeking homo economicus, people are doing something counter-intuitive. They are giving away the products of their own creativity, being openly altruistic. Virtual worlds make visible people’s needs to participate in networks of giving and receiving, and this makes these worlds so useful for thinking through key questions concerning the economy and society.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Currencies and Capitalisms on the Internet

The Internet is a huge shopping mall and a place for making money, but it also promotes self-realization and creativity motivated by being part of vibrant, creative, productive communities of people. All this suggests that we need to explore capitalism as a cultural process which takes advantage of what came before it, but also pushes forward new worlds of human sociality. As Malaby (2009, p. 11) argues: â&#x20AC;&#x153;technology is more and more directly confronting human sociality, with effects that are not determined by either existing social patterns or the impact of the new.â&#x20AC;? While technologies increasingly saturate our experiences, engagements with technologies are never entirely separable from physical-world activities. Through culture, the Internet shapes offline worlds, including those of people who have nothing to do with the Internet. With its focus on playfulness and creativity, creationist capitalism has the potential to become a new master narrative for the economy. From this perspective, virtual worlds are at the heart of processes by which important future projects are being defined; people worldwide are being influenced, even shaped by new forms of production, distribution, and consumption. These are the processes that we need to understand in order to contribute to them.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Currencies and Capitalisms on the Internet

Bibliography

Boellstorff, T. (2008). Coming of age in second life: An anthropologist explores the virtually human. Princeton: Princeton University Press. Dibbell, J. (2006). Play money: Or, how I quit my day job and made millions trading virtual loot. New York: Basic Books. Global Habbo Survey (2008). Helsinki: Sulake Oy. Graeber, D. (2001). Toward an anthropological theory of value: The false doin of our own dreams. New York: Palgrave. Kelty, C. (2005). Geeks, social imaginaries, and recursive publics. Cultural Anthropology. 20(2), 185-214. Malaby, T.M. (2009). Making virtual worlds: Linden lab and second life. Ithaca: Cornell University Press. Pearce, C.(2006). Productive play: Game culture from the bottom up. Games and Culture. 1(1), 17-24. Polanyi, K. (1968 [1957]). The semantics of money-uses. In G. Dalton (ed.), Primitive, archaic and modern economies: Essays of Karl Polanyi. Boston: Beacon Press. Prahalad, C.K., & Ramaswamy, V. (2004). Co-creation experiences: The next practice in value creation. Journal of Interactive Marketing. 18(3), 5-14. Sahlins, M. (1996). The sadness of sweetness: The native anthropology of Western cosmology. Current Anthropology. 37, 395â&#x20AC;&#x201C;415.

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Licensing Considerations for OpenSim-Based Virtual Worlds By Shenlei E. Winkler, Fashion Research Institute, USA

Abstract Content creators and owners of OpenSim-based virtual worlds alike struggle with issues surrounding licensing and usage of content in these immersive spaces. The Fashion Research Institute (FRI) is specifically addressing these issues and more as part of the process of licensing its Shengri La regions to enterprise. This use case is the basis of ongoing legal research by FRI’s sister organization, Fashion Research Foundation, which has created a legal steering committee formed of attorneys volunteering from the American Bar Association’s Virtual Worlds and Online Gaming committee. A practitioner’s view of our strategic perspective is presented in the context of licensing of content in OpenSim-based virtual worlds.

Keywords: virtual worlds; licensing; OpenSim; content creators.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

Licensing Considerations for OpenSim-Based Virtual Worlds By Shenlei E. Winkler, Fashion Research Institute, USA

Figure 1: The noted Shengri La Spirit build, shown on the ScienceSim grid as hosted by Intel Labs.

The coming diaspora of content creators from 'walled garden' platforms to the open source grids run on the OpenSim platform offers both exciting opportunities as well as dangerous pitfalls for the unprepared. Opening new marketplaces to content creators has the ability to add appreciably to the global marketplace, with virtual goods accounting for $2.6 billion in sales in 2008 (Virtual Goods News, 2009), and that number expected to increase exponentially. Content creation for these OpenSim-based grids requires an appreciable input of time and dedication by content creators. Most of these creators must currently develop the same content for each grid where they wish their content to be available. The current state of the art OpenSim Archive Resource (OAR) files does enable content creators to develop content once on their own regions and extract the content included in the regions as OAR files. However, most content creators lack the ability to generate OAR files, so they are limited to developing on each grid or region where they want their content to be available. Coming technology advances will enable these content creators to readily move their content around and make it more widely and readily available. But before content creators will accept these new technology solutions, and make their content available to commercial grid operators, legal considerations governing the licensing of their content need to be addressed. These include the functional legal definition of terms which are generally accepted by the legal community, the development of content quality standards against which content may be assessed and qualified, the deployment of development frameworks to help ensure that content creators can issue certificates of originality and produce documentation to prove authenticity of their content, and finally, the standardization of contractual agreements between content creators and users, content creators and grid operators, and grid operators and users.

Journal of Virtual Worlds Research – Licensing Considerations

The following article focuses on these considerations in the context of an existing test case between the content developers at Fashion Research Institute (FRI) and engineers at Intel® Labs, where large-scale, complex builds and creations are developed on both FRI and Intel hardware and moved back and forth between the hardware servers of the two companies. The existing FRI-Intel agreement defines the use of this content for performance research by the Intel team. The agreement and transfer of content serves as a test case to help determine how additional aspects of content development, content curation, and management need to be considered in addressing some of the missing components of content licensing by entities for commercial purposes.

Figure 2: Another view of Shengri La Spirit, on the ScienceSim grid, hosted by Intel Labs

Background Licensing content into virtual worlds is often compared to the settling of the American ‘Wild West.’ Content developers are claiming new space and pitting themselves against content thieves and other, often unforeseen, risks to their intellectual property. There is considerable confusion within the content developer community about how the terms of service (TOS) and end user licensing agreement (EULA) of a given platform may have an impact on their intellectual property ownership and protection of their rights. Many content producers, who develop virtual goods for sale and use in these immersive spaces, are understandably leery of exposing themselves to the risk of loss of their intellectual property. Specifically, they are concerned about this loss when moving their product onto a new platform where the TOS and EULA that governs the end use of their content may be widely variable in scope and not well written or executed. With the advent of low barrier-to-entry worlds, such as Second Life and OpenSim, licensing considerations for managing a recognized brand and protecting brand extension become even more pressing.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

Figure 3: Details of the Shengri La Chamomile build Saltwater House garden.

Content Licensing and Distribution Fashion Research Institute is working with a selected committee of attorneys to explore how licensing is best addressed in a metaverse of OpenSim-based virtual worlds. Using a specific FRI use case with Intel Labs as an exemplar, this paper will examine licensing considerations for content producers who wish to extend their content into the very wildest of all the new immersive space frontiers, OpenSim. OpenSim (http://www.opensimulator.org) is an open source, virtual world platform which originated in 2007. The source code is developed and maintained by a loosely organized group of developers, and the platform uses client viewers in common with another popular virtual world, Second LifeÂŽ. The backend functionality of OpenSim is much broader than Second Life and enables users and operators of OpenSim-based virtual worlds to have access to a much wider array of functionality into backend systems, such as enterprise resource planning, business intelligence, and other database driven applications. OpenSim itself is a platform on top of which applications may be built. Owners and operators of these grids have full control over all content once it is placed on the individual grid's asset servers. Currently, owners and operators do not have any control over what sort of content gets uploaded to their region, although they can remove content after it has been uploaded. Grid operators such as Linden Lab are currently sheltering behind the 'Safe Harbor' provision of the Digital Millennium Copyright Act to protect themselves against claims of infringement by IP owners. However, it is unclear what the legal status of a grid operator actually may be in cases where the grid operator receives material benefits through fractions of ancillary sales of stolen intellectual property made by third parties using the grid operator's servers and micropayment systems. Entities which have opted for platforms run behind their own firewall have control over their own intellectual property to the extent that it is loaded into the virtual world regions behind the enterprise firewall. In licensing content, these entities will of necessity be concerned with two things: first, that all content which is licensed to them is has clean provenance, meaning the content provider can issue a Certificate of Originality thus ensuring that all content provided under the agreement is the original, authentic work of their content developers. This will assure the entity that it is legally protected against claims of infringement, but it is only half of the 6

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

equation. The entity must then assure the content developer that all due process has been followed to ensure that the content developer is protected against the loss of their content IP. As with any sort of nonpublic data, the primary security hole with this sort of content behind an enterprise firewall is the enterprise's own employees, who can copy and restore content onto other virtual worlds. Firewalls will not stop content theft by insiders. This is a substantial security breach and one which cannot be readily managed by technological solutions, but which may be managed by legal solutions. In licensing to entities, content creators must trust the grid operator to abide by whatever agreement has been regarding the dispensation of their content. It also means that there is a dangerous chasm into which a content creator can fall, in which unscrupulous grid operators force a change of the creator and ownership tags on content instantiated into these OpenSimbased worlds. In this situation, content developers who have not kept careful records through time-stamped files and other forms of documentation could find themselves in a situation where they may attempt legal recourse but lack documentation to prove their claims of infringement. There are several aspects of OpenSim-based worlds and Second LifeÂŽ regions which must be considered by any entity which plans to use these immersive spaces. Any content (text, images, 3-D models, and so on) which can be viewed by the user using a viewer is not currently protected by digital rights management technology. The process of 'viewing' a scene composed of images, models, text, and/or code downloads the images and models onto the user's hard drive, where it is stored in cache. Practically speaking, each user has just obtained a copy of anything they have seen, or 'viewed', using their viewer which is now stored on their hard drive until such time as they 'dump their cache' or clear out old images and model information. That users now have a copy of this content is what underpins much of the content theft that occurs in these virtual worlds, and what is the ultimate conundrum to licensing content into these virtual worlds. OpenSim virtual world operators want their users to see the content, but there is currently no easy or cost effective way to block users from acquiring copies of that content on their hard drive. Most users of virtual worlds are not capable of using this copied content for nefarious purposes, either because of socio-cultural conditioning against stealing or because they lack the technological knowledge to extract this data from their hard drive caches. Others, however, are not bound by similar moral or ethical codes, and do have the technological wherewithal to steal this content and 'launder' it to resell on other grids under their own name. This poses the question, then, how can the rightful owners of the content be protected if there's no easy or effectual technology solution? It therefore becomes a pressing matter for the existing legal channels to provide that protection for content in OpenSim-based virtual worlds. In the United States and in most other developed countries, copyright, patent, and similar intellectual property laws are well-established and understood by the legal communities in these respective countries. While IP laws do vary from country to country, in general there is agreement that protecting creators' rights to their creations helps ensure that these creators continue to invent and create which in turn helps support the economy of these countries. Legal channels already exist that protect content creators of all classes.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

The content pipeline into OpenSim remains blocked, however, because of the fear, ignorance, and lack of resources to protect the individual content creators whose work forms the rich ecosystem of Second Life content. Content creators may be afraid of what will happen with their content, if they place it on an OpenSim-based grid, and what it will mean to their livelihood if their content is 'stolen' and repurposed on other grids. They may be ignorant of the steps they should take in advance of releasing their work, to protect it and to provide themselves with sufficient documentation to use in the case of legal action. They may even be unaware of what aspects of their work can, and cannot, be protected. And of course, good legal representation is not inexpensive. A good attorney, who can develop a content licensing contract to protect the content creator, may charge more than the creator will make from their license. And of course, pursuing infringement cases can cost upwards of $30,000 and more, often with little opportunity to redress the financial losses caused by the initial infringement, much less the costs of the actual legal action. What is missing, then, are legal definitions which can be used to create contracts which will withstand scrutiny in the event of a legal challenge, an understanding of the content creators about how they need to protect their own work both prior to and after releasing it as licensed content, education about what can and cannot be protected, and standards for both this sort of content and for legal agreements that govern engagements between content creators and virtual world operators.

Figure 5: The test case: Shengri La Spirit licensed to Intel Labs for use for performance testing.

Fashion Research Institute Test Case Fashion Research Institute made an agreement with Intel Labs to provide content for an OpenSim-based grid of regions, ScienceSim (http://www.sciencesim.com), as part of a year-long research arrangement. In developing this agreement, the very same questions emerged, but were dealt with by using existing laws and language. Because the nature of the agreement was to conduct research, there was both an explicit and implicit understanding that while parties on both sides would use scrupulous care in moving content back and forth between FRI content creators and Intel Labs' hosted regions, there was ultimately no technological way to protect the individual FRI content creator from the theft of small objects or individual textures by users of these regions where access was gained using any of the many commonly available client viewers.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

What is critical to note about this test case is that i) it was a research agreement, where some of the expected deliverables were both the questions that need to be asked and (some of) the answers to those questions, and that ii) this is not a typical legal agreement that might be executed between a typical content creator and a commercial OpenSim-based virtual world. The content provided to ScienceSim, in the form of avatar customization content, regions, buildings, and landscaping is intended for a variety of uses, including the distribution of new default avatars to visitors to the grid. As a research collaborator, FRI willingly assumed a degree of risk towards its intellectual property that other content creators might find onerous. We felt that only by exposing our content to the possibility of loss could we move the OpenSim platform forward to the betterment of the code base. And certainly, that risk has been justified, with many new performance code patches being created as a result of the content developed by FRI for use by the Intel engineers collaborating with us. As content is moved back and forth, new areas of research are exposed, and new questions develop. Some answers are easy: others, not so much. Occasionally content movement is expedited through the use of convenient pathways (chosen after mutual agreement and always documented) to get content moved around to provide datasets to answer a bigger question, but the pathway chosen would not be suitable for a commercial licensee or licensor. This test case varies, as well, in the amount of management oversight and documentation required, which would be prohibitive to a commercial license. Moving a new tree or flower to a grid under a commercial license should be a simple matter; moving content onto ScienceSim requires documenting its originality down to the original pixel, maintaining a file of email agreements and documentation about how the tree is to be used, and lastly, moving an entire OAR file to a special region, where the tree has its creator tags preserved and it can be collected into the inventory database by the creator. The process is time consuming and requires manual processes that will need to be automated before it can be effective for a commercial license.

Figure 6: One of the horse statues on Shengri La Gallery also licensed to Intel Labs for use on ScienceSim.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

Lessons Learned Fashion Research Institute has defined a series of requirements for content creators working with FRI to use FRI services to help license their content. These requirements have evolved from the agreements that FRI has made with Intel Labs to provide content into ScienceSim. It is critical that FRI protect itself and any downstream licensors from legal challenges of professed content originators. FRI created a framework within which content creators are required to work. The use of an extension of their apparel industry application, Black Dress Design Studio, enables creators to quickly document and register their work into a secure database. It then automatically registers their copyright with the US Library of Congress and produces a final hardcopy output in PDF form, which can be filed and shared with legal counsel in the event that this is needed for legal action. We have also created a series of standards against which content is judged, enabling content creators to issue a certificate of originality to FRI for their content. Tracking content back to its moment of instantiation provides a degree of protection against future claims against creator, licensor, licensee, and law-abiding users. While nuisance claims may arise, they can be shown to be nuisance claims through virtue of this documentation showing the instantiation of content from the original pixel. It also provides the content creator with date-stamped original files which may be admissible as evidence in the event that the content creator's work is infringed and they seek legal recourse. This is germane because it enables all stakeholders to engage with the protection which already exists in extant legal channels. Towards the Future of OpenSim Content Licensing An area which requires further exploration and input from the legal, technology, and content development communities is that of definition of terms in common usage in the virtual world space which are properly aligned to existing legal definitions but exempt from any technological implementations. FRI is working with its sister organization, Fashion Research Foundation, which has formed a committee to develop such a lexicography of terms and definitions for use by OpenSim grid operators, content creators, and content aggregators and licensing houses. These documents will be freely released under an appropriate license for use by all according to the terms of the license. These documents will enable all stakeholders to develop licensing agreements and contracts to move content between content creators and OpenSim-based grid operators. In addition to aligning technology and content development terms to legal definitions, existing terms of service and end user licensing agreements must also be considered by all stakeholders. Currently, most OpenSim-based worlds have relatively loose EULA and TOS agreements which primarily address users' rights and privileges with regards to the actual user experience. Minimal attention has been addressed to various content considerations. For example, how should users respond to the OpenSim-based world operator in the event that a user identifies content which has clearly been laundered or which is clearly in violation of another entity's 10

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

trademark, patent, or copyright? What 'rights' does a user have with respect to content? Can an individual content creator define how they will allow their content to be used, and can the grid owner/operator deliver on these requirements? Can content creators enforce a requirement to remove their content in the event that the license is infringed, and how can they be assured that their content is being appropriately handled? How can users be protected from purchasing laundered content? This is a fairly common occurrence in virtual worlds and immersive spaces where users can create their own content. Either from ignorance or intent, a user locates and introduces content which clearly infringes existing intellectual property. The OpenSim-based region operator may not even be aware that this content is present on their grid. There are many actual examples of this sort of infringement observed in both OpenSim-based worlds and in Second Life, but there are many other examples of infringement which occur and are unreported simply because the user base has no ability to report, does not understand how to report, or does not care to report infringements. The Digital Millennium Copyright Act (DMCA) contains a provision (Safe Harbour) to protect the unsuspecting web hosting service from claims of infringement by original copyright owner when infringing material is placed on the hosting service's machines. However it is not entirely clear if this is extensible to entities hosting virtual worlds, especially when the entity hosting the virtual world is also the entity which employs the infringer, and the entity that benefits from content which has been infringed. Is the DMCA provision automatically extended to virtual world content which is placed on a commercial grid operator's facilities, especially where the commercial grid operator benefits materially from that infringing content? Who is liable for this infringement? Is it the content launderer for instantiating the laundered content into the virtual world, the commercial grid operator for winking at allowing laundered content onto their grid, or is it both parties? As OpenSim matures and legally organized entities begin both using and creating OpenSim-based grids, these sorts of considerations will require more formal legal attention. The current generation of client viewers (the software used to access these virtual worlds) do not incorporate any appreciable form of digital rights management, so it falls into the purview of the legal community to help define not only the terms used to discuss these worlds and their content, but also the behaviors which are permitted within the worlds and by the actual creators and operators. Only through appropriate legal structure can the content pipeline into these virtual worlds be unstopped, which will ultimately enable the development of a 3-D Internet, with the formation of a web of federated virtual worlds.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

Towards a Profession of Content Creators As an increasing number of enterprise users enter OpenSim-based worlds, pressure will increase on both content creators and grid operators alike to not only provide high quality content, but to ensure that the content provided does not infringe on existing copyright owners' rights. The establishment of clearly understood standards which can be used to support both certificates of originality and as guidelines to develop legally binding contracts is clearly required, and the evolution of organizations whose focus is assisting with the development of these standards is already beginning. Fashion Research Institute has worked with Fashion Research Foundation to develop such an organization, the Professional Virtua Designer Society. In addition to providing professional development to virtual goods developers, this Society will also enable these content creators, who are usually freelance agents, to have access to a broad range of benefits including health, medical, dental, vision, and disability plans as well as exposure to professional development standards. Providing content creators with these very benefits ensures that they can care for themselves as they pursue their career. In addition, alignment with a professional 12

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society offers these content creators additional financial and emotional value. Their work is perceived by the marketplace as professional, which allows them to charge more for their work; and, both their customers and they themselves place a higher emotional value on their work. Until content creators have the ability to recognize themselves as professionals, it will continue to be difficult for them to protect their work as professional output which can be sold, licensed, and otherwise protected. While this is may seem to be a minor point, marketers everywhere would agree that brand identity is a critical tool in their toolkit.

Figure 6: The Saltwater House on Shengri La Chamomile. Shengri La Chamomile was created in situ and served as another test case for content management on public grids.

Content Delivery Needs More focus needs to be placed on defining specific terminology to begin developing standardized agreements, so that the rights of both content creators and grid operators are protected, and they may easily engage in contractual agreements. New content delivery mechanisms will present both tremendous growth opportunities as well as considerable legal concerns if the legal terms are not defined in advance of use by content creators seeking to deliver their content onto new grids. Similarly, grid operators must be protected against claims of copyright infringement by original copyright owners, in the event that one or more of their users infringe and bring laundered content onto their grid. Methods of establishing complicity between grid operators and users must be defined, in order to allow original copyright owners recourse against infringers. Additionally, a clear definition of how aspects of virtual world content are copyrighted is needed. The state of the art with OpenSim-based worlds have enabled a number of delivery mechanisms for content between OpenSim-based worlds, which include Inventory Archive 13

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Resource (IAR) files, OpenSim Archive Resource (OAR) files, and soon distributed asset services will also enable content delivery from one grid to another. This creates an array of questions which will require both legal and technological answers to help ensure that all stakeholders are protected and can engage in business in an environment which is legally circumscribed. Because OpenSim as a platform is so new, many new topics, concerns, and considerations can be expected to arise. The most pressing ones to the evolution and delivery of content into OpenSim-based regions are content quality standards, definition of legal terms, and standardized legal agreements. Once these become established, there will undoubtedly develop an array of additional topics which will require focused attention, including ownership of performances, how regions are actually licensed, for what purpose the content will be used, and how these questions should be best addressed. Current terms of service agreements do not address future concerns about content developers' ability to extract their content from a given region or grid. This is an area which will become increasingly critical, especially as content creators who began their careers in closed grids such as Second Life wish to extract their content and take it elsewhere. Conclusion Open source, open grids that run on the OpenSim platform offer both exciting opportunities and dangerous pitfalls for the unprepared. Opening new marketplaces to content creators has the ability to add appreciably to the global marketplace, with virtual goods accounting for $2.6 billion in sales in 2008, and that number is expected to increase exponentially in 2010. Addressing the legal considerations of content licensing, developing, and enforcing standards for content creation and defining standardized contracts will help open this new area of business while protecting all stakeholders in the value chain. Virtual worlds are already a reality, but their wide spread mass adoption will be hindered until legal guidelines can be created to protect those whose creative vision gives form and live to the units that will form the backbone of this next technological wave. Creating a working lexicography for the use of the legal practice in developing standardized agreements is critical to the continued evolution of these OpenSim-based virtual worlds, which have been hampered by the lack of high-quality content. Talented content creators, justifiably leery of exposing their intellectual property to an unregulated environment, will be afforded the protection of existing legal channels, but only if a bridge between this new space and existing legal terms and contracts can be built. The foundation of that bridge is a functional, generally accepted lexicography of key terms the usage of which can be generally agreed to by legal and lay practitioners negotiating appropriate content licensing agreements as well as a repository of standardized legal contracts, coupled with the evolution of the content creators as a class of professionals. As these areas are addressed, this marketplace will open to content creators, providing them with an increasingly wider range of revenue opportunities. This in turn will begin to enable adoption of the 3D web not just by technology companies and enterprise, but also increasingly by the mass market consumer. 14

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Bibliography Balkin, J., & Noveck, B. (2006). The state of play: Law, games, and virtual worlds (Ex Machina: Law, Technology, and Society). New York: New York University Press. Bartle, R. (2004). Designing virtualworlds. Indianapolis: New Riders.

Bethke, E. & Hoffman, E. (2008). Settlers of the new virtual worlds. Long Beach: Philomath Press. Castronova, E. (2008). Exodus to the virtual world: How online fun is changing reality. New York: Palgrave MacMillan. Duranske, B. (2008). Virtual law: Navigating the legal landscape of virtual worlds. Chicago: ABA Publishing. Lamoureux, E.L., Baron, S.L., & Stewart, C. (2009). Intellectual property law and interactive media: Free for a fee (Digital Formations). New York: Peter Lang Publishing. Law http://www.law.com.

Nuara, L.T., Kiwi, T.C., & Brown, P. (2008). Information technology law institute 2008: New directions: Social networks, blogs, privacy, mash-ups, virtual worlds and opensource. OpenSim. Retrieved from http://www.opensimulator.org. (OpenSimulator, © 2007) ScienceSim. Retrieved from http://www.sciencesim.com. Second Life®. Retrieved from http://secondlife.com/corporate/tos.php. (Linden Lab®, © 2008) Virtual Goods News http://www.virtualgoodsnews.com. Winkler, S.E. (2009). Designing dreams: The art & business of avatar apparel design & development. New York: Fashion Research Foundation. Winkler, S.E. (2010). Scouts, pioneers and settlers: The process of virtualizing business. Manuscript in preparation. Winkler, S.E. (2010). Shengri la chamomile. Manuscript in preparation. Winkler, S.E. (2009). Shengrila spirit: A designer's perspective of the making of OpenSim. New York: Fashion Research Foundation.

Journal of Virtual Worlds Research â&#x20AC;&#x201C; Licensing Considerations

Key Terms & Definitions Content: Digital assets which are created by individuals or teams and used to develop virtual worlds. Creator Intent: The intention of the creator towards his asset, whether it be allowed to be broadly and freely distributed under any of the many licensing schemes, or if they wish a given asset to be copied but not transferrable to others. Intent can allow copying, transferrable, and modifications to the original asset; currently both Second Life and OpenSim-based worlds only allow the creator to mark these three intents, which fails to allow for a content creator's intent of their asset for transfer between Second Life and other platforms. Creator Tag: To the user in the virtual world, it is the name of the individual who created any discreet bit of content, which can be examined by any user by looking at the property screen of that content. This is the original creator and should not be changed. Digital Millennium Copyright Act of 1998 (DMCA): The best working definition for the DMCA can be found at the Wikipedia, at http://en.wikipedia.org/wiki/Digital_Millennium_Copyright_Act. Digital Rights Management (DRM): Usually a technology solution; attempts to prohibit illegal or not allowed copying of digital assets. Inventory Archive Resource (IAR): A new file format unique to OpenSim-based virtual worlds, invented by a core OpenSim developer to assist in moving user's inventory between grids. This can be compared to a user's suitcase. It is a very new file format and has not been tested. OpenSim Archive Resource (OAR): A new file format unique to OpenSim-based virtual worlds, invented by a core OpenSim developer to assist in moving entire regions full of content from grid to grid. Care must be taken in restoring OARs onto new regions, or the content creator and owner tags are changed, removing the original information. OpenSimulator (OpenSim): Open source virtual world platform which uses a viewer in common with Second Life. For more information, please visit http://www.opensimulator.org. Owner Tag: The person who currently owns a given asset. This tag is fluid and can change depending on who currently possesses that asset. Second Life: Closed source virtual world platform developed and owned by Linden Lab, which uses a viewer in common with OpenSim. For more information, please visit http://www.secondlife.com. User: Individual who has a registered account and an avatar representation on any given virtual world. Users may or may not verify their real life identity, depending on the ToS agreement with the virtual world in question.

Volume 2, Number 4 Virtual Economies, Virtual Goods and Service Delivery in Virtual Worlds February 2010

Teens and Virtual Goods: The Fun, Useful and Affordable Luxuries that are Driving the Virtual Economy By Maura Welch, WeeWorld

Keywords: virtual worlds; teen; virtual goods.

This work is copyrighted under the Creative Commons Attribution-No Derivative Works 3.0 United States License by the Journal of Virtual Worlds Research.

Journal of Virtual Worlds Research – Teens and Virtual Goods

Teens and Virtual Goods: The Fun, Useful and Affordable Luxuries that are Driving the Virtual Economy By Maura Welch, WeeWorld

U.S. and global economies may be in a historic downturn, but the current generation of teen digital natives is fast establishing a rising virtual economy. iIn-Stat predicts the total revenue in virtual worlds–driven primarily by the sale of virtual goods–will exceed $3 billion by 2012. According to KZeroii, the largest single age group of virtual worlds users is 14–with the 10-15 age group on track for the largest future growth. So what is driving this new virtual economy, and specifically, how and why are teens fueling the growth? Fun with Identity Formation Virtual worlds are quickly becoming a popular way for teens–especially younger teens 13-16 years of age–to spend time connecting with existing friends while searching for new contacts. According to KZero, in the third quarter of last year alone, 92 million new, unique users joined virtual worlds. However, as virtual worlds grow, teens are looking for more opportunities beyond just building their personal networks. Enter virtual goods–items users can earn or purchase to express themselves creatively or to gain status among their peers in a community. Those who have not spent time in online communities and worlds find it difficult to understand the motivation for purchasing virtual goods. But buying them or completing tasks to earn them is fun and challenging, in the exact same way shopping or playing games in the real world is fun and challenging. For example, some virtual goods provide an immediate advantage in games or contests, some help express your personal styles and interests, and some can be sent as gifts to friends. Sometimes people buy virtual goods because they’re impatient or competitive and don’t want to wait the number of days it would take to earn them for free. But fundamentally, virtual goods are entertainment–they make it fun to interact with friends and express personal styles. Virtual goods are not just about fun. Developmentally, teens are at a stage in their lives that is all about testing and evolving their emerging identities. So within the context of a virtual world, the props that help them with that important process are virtual goods. By choosing items that express their emerging affiliations (styles, causes, occupations, friends, dating, interests, passions), they can then test out these new combinations on an audience of their choosing–either with existing friends or with new people. Virtual world role-playing gives teens a fun and nonthreatening way to experiment and test out new things. While teens purchase virtual goods all year long, just like in the real world, holidays give users even more reasons to spend. Recently, mobile payment provider Zong reportediii that consumer spending on virtual goods rose 27% on Black Friday. Other holidays including Halloween and Valentine’s Day can also drive spending on decorative virtual items and virtual gifts.

Journal of Virtual Worlds Research – Teens and Virtual Goods

Allowances and Spending There are both developmental and recreational reasons why teens are flocking in record numbers to the Internet, and in particular virtual worlds, over other forms of home entertainment–and they’re bringing their dollars with them. According to eMarketeriv, teen spending will reach $208.7 billion in 2011, up from $189.7 billion in 2006. In addition, a recent study by Cavallino LLCv found that there is no end in sight for the teen spending boom, despite the recession. This is corroborated by a recent teen survey of more than 4,000 WeeWorld users which found that despite the declining economic forecasts, more than half of teens claim to have the same or higher allowance than before, while only 11% noted that they are getting less allowance now than in the past. So while many households may be feeling the pinch, only a small number of teens have needed to alter their spending habits online. Affordable Luxuries Despite stable allowances, the Cavallino report does suggest that teens (and their parents) will curb spending on luxury items–and that’s where virtual goods come in. When compared to real world goods, virtual goods are a bargain. Ranging in price from a few cents to a few dollars, these little virtual items are adding up to big numbers. According to Forrester and othersvi, $1.5 billion a year is currently spent on virtual goods worldwide, and this number is expected to grow as consumers tighten their budgets on more expensive items in the real world. Pam Danzinger, author of the book Why People Buy Things They Don't Need, says that “luxury has nothing to do with money; it has to do with meaning" (http://www.msnbc.msn.come/id/6872012). Consequently, “luxury” is defined by what the buyer thinks is luxurious and it has more to do with where the buyer’s passions lie than with how much they have to spend. It’s easy to connect the dots–teens are all about evolving their emerging identities, and one way they do that is to spend time with each other on virtual worlds. In that environment, virtual goods are the props that add style, uniqueness, luxury, and fun. Teens have so many motivations to spend–they are not just helping to create these emerging virtual economies; they are also protecting them from the recession. Variety and Keeping Pace with Trends Just like in the real world, offering a variety of goods helps to drive purchases in the virtual world. From virtual sneakers to accessories, hairstyles to gadgets, teens want the virtual world to reflect what they like and who they are becoming in the real world. Virtual worlds offer their own lines of styles that might range in price from ten cents to three dollars.

Journal of Virtual Worlds Research – Teens and Virtual Goods

Brands themselves are a key component of the way teens develop identities, express themselves, and collect visual equity they can leverage. Increasingly, brands are finding their way into established virtual worlds and offering another tier of luxury to teens eager to wear their favorite brands. According to The Licensing Lettervii, licensed brands in the real-world can command a 33% premium at retail and it’s much the same in virtual worlds. While a real-world RocaWear hoodie sweatshirt might cost $40 or more, teens can splurge on one at WeeWorld for $3.50, which is at least 33% higher than a generic hoodie created for sale by a virtual world. Celebrities also hold tremendous star power on virtual worlds as teens look to purchase goods that they have seen on the red carpet, in films or video, or on stage. The catch in the virtual world is that the brands that are hot today may not be tomorrow as teen preferences and tastes change rapidly. For instance, today it might be a branded, animated skateboard and the coolest mobile phone, tomorrow maybe it’s a shampoo offering special hairstyles or a coveted gift, and maybe the next day it’s a TV for a virtual room that runs the newest movie. Virtual worlds need to be flexible and move fast to capitalize on trends. However, it is not all about brands–premium items drive virtual goods purchasing. To be successful, premium goods generally need certain elements including timeliness, limited supply or collectability. The recent presidential election is an example of timeliness driving demand. When given the opportunity to express their political views through candidate-themed virtual items, 46% of WeeWorld users endorsed now President Obama by adopting Obama-themed virtual goods. In fact, it was possible to track the candidate approval based on the adoption patterns of their virtual fans.

And directly following the scene created by Kanye West at the Grammy Awards this year, a certain virtual item became quite popular for a time…

Journal of Virtual Worlds Research – Teens and Virtual Goods

Many virtual worlds offer weekly or monthly collectibles or limited editions. These items, only available for a short time, provide exclusivity to their owners when the coveted items are no longer available. Some items are sold as limited edition sets, which further drive the desire to purchase. Steady Eye of the Evolving Economic Storm In both promising and challenging economic times, virtual worlds flourish as people spend real money on virtual goods. Today the average movie ticket is approximately $10 (minus the popcorn, candy and soda) and the average PlayStation game costs around $65. Virtual worlds are becoming a cost-effective alternative for entertainment, and teens are constantly seeking novel ways to entertain themselves. As for the companies catering to teens’ changing tastes, it’s far more cost-effective to create new virtual goods than it is to manufacture new real ones. eMarketer notes that today’s teens have grown up immersed in the concept of creating avatars to participate in virtual worlds. However, most adults haven’t spent any time, and may never spend time, in virtual worlds–though this varies based on geography, with Asia leading the trend. The question that will determine future growth for virtual economies becomes: When these teens become adults, will virtual goods still play a leading role?

InStat October 2008, “Virtual Worlds and Web 3.0: Examined, Compared, Analyzed” KZero February 2009, “Universe Chart” iii Virtual Goods News December 9, 2009, “Quick Stat: Virtual Goods Spending Soars On Black Friday” iv eMarketer July 11, 2007, “Teen Spending and Web Usage Up” v Cavallino LLC January 13, 2009, “2009 Consumer Shopping Intentions Study” vi New York Times, December 7, 2008 “Storefronts in Virtual Worlds Bringing in Real Money” vii The Licensing Letter, August 2009, “Retail Pricing of Licensed Vs. Non-licensed Merchandise” ii