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Friday, September 07, 2012
The real value of virtual currencies
Professor Edward Castronova made a name for himself at the start of this century by calculating the GDP of Everquest as being the 77th richest country on earth. He calculated the value of the EQ platinum piece by looking at EBay auctions, calculated how much plat was made by all players in a year, and calculated the GDP from that. I never believed his numbers. To me it always appeared evident that he had seriously overvalued the EQ platinum piece. The prices he looked at were black market prices, seriously distorted by the high transaction cost of a trade that was both rare and illegal. If all the EQ plat had been up for sale, the value would have been much lower.
Fast forward a decade, and we have games in which players can legally purchase in-game currency. Via EVE PLEX, on the SOE Station Exchange, on the Diablo III real-money auction house, or in Guild Wars 2 via gems. So how much are those virtual currencies going for? As I expected, not very much. An example:
Imagine you start a new Diablo III character. You want to buy enough virtual currency so that while playing through the game the first time you will always buy your gear from the auction house, at every level, with a less than 1% chance per day of finding some ultra-rare upgrade as loot drop. How much real money would that cost you? Less than a cup of coffee! That cup of coffee buys you a million gold or more, enough to equip you well through normal and beyond in Diablo III.
Guild Wars 2 is quickly heading in the same direction. With even masterwork gear approaching vendor price + 1 copper on the auction house, it effectively costs you only coppers to always wear the best fine or masterwork armor in all slots. Buy the smallest amount possible of gems once, exchange them for silver, and you will be equipped all the way up to the level cap.
Edward Castronova's calculation came out at $3.42 per hour as the "income" of an Everquest player. Looking at games like Diablo III or Guild Wars that appears to be wrong by at least a factor of 10. "Gold farming" is only paying cents on the hour. What makes headlines is like in the real world winning the lottery, getting some extremely rare and thus valuable loot drop that sells for serious money. But if you're planning on quitting your day job and making money farming virtual goods in games, you're in for a disappointment. Virtual currencies are actually not worth all that much once they are freely traded.
Fast forward a decade, and we have games in which players can legally purchase in-game currency. Via EVE PLEX, on the SOE Station Exchange, on the Diablo III real-money auction house, or in Guild Wars 2 via gems. So how much are those virtual currencies going for? As I expected, not very much. An example:
Imagine you start a new Diablo III character. You want to buy enough virtual currency so that while playing through the game the first time you will always buy your gear from the auction house, at every level, with a less than 1% chance per day of finding some ultra-rare upgrade as loot drop. How much real money would that cost you? Less than a cup of coffee! That cup of coffee buys you a million gold or more, enough to equip you well through normal and beyond in Diablo III.
Guild Wars 2 is quickly heading in the same direction. With even masterwork gear approaching vendor price + 1 copper on the auction house, it effectively costs you only coppers to always wear the best fine or masterwork armor in all slots. Buy the smallest amount possible of gems once, exchange them for silver, and you will be equipped all the way up to the level cap.
Edward Castronova's calculation came out at $3.42 per hour as the "income" of an Everquest player. Looking at games like Diablo III or Guild Wars that appears to be wrong by at least a factor of 10. "Gold farming" is only paying cents on the hour. What makes headlines is like in the real world winning the lottery, getting some extremely rare and thus valuable loot drop that sells for serious money. But if you're planning on quitting your day job and making money farming virtual goods in games, you're in for a disappointment. Virtual currencies are actually not worth all that much once they are freely traded.
- posted by Tobold @ 8:44 AM Permanent Link
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Umm, I guess you realise people won't all be low level crafters forever and the prices won't stay like this?
# posted by 
: 7/9/12 09:25
: 7/9/12 09:25
What about EVE? A titan costs 200 PLEX, aka $3500 and they are flown often. My income in EVE is around $12/hour. I won't give up my RL job for it, but it isn't bad.
Player income is heavily based on the stability of the currency and the underlying game systems. If there are goods in the economy that don'T have any demand because they serve no other use than increasing a character's stats, then sure they won't sell for a profit. In economics, general "shopping baskets" are used (but rarely updated) to determine inflation and the same should probably be done for virtual world economies as well, i.e. determine the income and expenditures of players by goods they actually purchase and need, not by all goods available in the economy.
Does this mean then that the way to defeat the gold farmers in WoW is to create a real money AH there, too?
If that's the direction WoW goes in, there'll be little differentiating WoW from F2P games.
If that's the direction WoW goes in, there'll be little differentiating WoW from F2P games.
Something that I was wondering; the lack of server economies - all servers are linked to the same auction house. It seems to create an over supply of items. At first sight the numbers on both end seem to increase (with all servers linked, both the number of items and customers increase).
In reality, I think, it increases the supply bigger than the demand. If on each server there are 5 people looking for item X, one server has a supply of 3 one has 4 and one has 9. The prices on those servers would vary. In the one server scenario, the supply is 16 the demand 15 and prices plummet. And this is only an example for 1 specific item. Competition is usually good for the consumer, but in most MMOs a lot of players plan to be consumer and seller.
If I go look for a weapon the basic criteria are "a weapon I can use that's better". This opens up a bigger palette of weapons that only increases the supply side of things.
Since the value of gold or gems depends on how much you can do with it, I think an economy per server is better for the AH meta game than a global one.
Or am I missing something?
In reality, I think, it increases the supply bigger than the demand. If on each server there are 5 people looking for item X, one server has a supply of 3 one has 4 and one has 9. The prices on those servers would vary. In the one server scenario, the supply is 16 the demand 15 and prices plummet. And this is only an example for 1 specific item. Competition is usually good for the consumer, but in most MMOs a lot of players plan to be consumer and seller.
If I go look for a weapon the basic criteria are "a weapon I can use that's better". This opens up a bigger palette of weapons that only increases the supply side of things.
Since the value of gold or gems depends on how much you can do with it, I think an economy per server is better for the AH meta game than a global one.
Or am I missing something?
As Gevlon points out, Eve players can generate more money. This is because the mechanics of Eve allow for the destruction of goods to increase scarcity. In themepark MMOs, items are never destroyed, only levelled into obsolescence. Even repair costs are trivial.
There is probably a better market for selling rare trading card mounts than selling gold.
Now if GW2 required massive amounts of gathered mats to increase competitive advantage in WvW, that might change things!
There is probably a better market for selling rare trading card mounts than selling gold.
Now if GW2 required massive amounts of gathered mats to increase competitive advantage in WvW, that might change things!
You are forgetting that inflation is MOSTLY about expectations. In other words, expectations are what drives behaviour.
If housing prices are up 10 years in a row, people expect them to continue like that forever. As a result they are willing to pay a bit more because they expect that in 2 years, the amount that they overpaid will be a small portion of the net increase in price.
Enter MMOs where expectations about currency inflation are escalated by a factor of 10.
It doesn't help matters that the underlying "economic" fundamentals are skewed in the same direction, mostly because they fail to take into account abuse (botting, duping) and overuse (hardcore players).
If housing prices are up 10 years in a row, people expect them to continue like that forever. As a result they are willing to pay a bit more because they expect that in 2 years, the amount that they overpaid will be a small portion of the net increase in price.
Enter MMOs where expectations about currency inflation are escalated by a factor of 10.
It doesn't help matters that the underlying "economic" fundamentals are skewed in the same direction, mostly because they fail to take into account abuse (botting, duping) and overuse (hardcore players).
# posted by : 7/9/12 15:49
: 7/9/12 15:49
Felsir, I haven't played GW2 so I have no idea what its' like in GW2, but since presumably the player base is essentially identical in time played, products needed, and so one across the servers, I don't see how it would create too much demand on the whole. At most it would smooth out the supply and demand situation by being able to absorb any local surges in demand or logjams in supply.
As somebody said everyone is trying to max their crafting right now. During similar periods in WoW I kept an enchanter alt just to DE the stuff I crafted, because that was far better than trying to sell the completed goods. Now, in WoW the crafted gear was good for about a week, but if I've been told the GW2 craft gear is actually the best available. The dynamic might settle down soon. If not it probably needs to be adjusted.
But hey Tobold--- did I call it or what!
As somebody said everyone is trying to max their crafting right now. During similar periods in WoW I kept an enchanter alt just to DE the stuff I crafted, because that was far better than trying to sell the completed goods. Now, in WoW the crafted gear was good for about a week, but if I've been told the GW2 craft gear is actually the best available. The dynamic might settle down soon. If not it probably needs to be adjusted.
But hey Tobold--- did I call it or what!
# posted by : 7/9/12 16:00
: 7/9/12 16:00
I feel like GW2 crafting mats drop a lot faster than they did in GW1. in GW2, Just by playing normally I find at least 75% of the crafting mats I need to keep up with my crafting. Drop rates on weapons are also pretty high.
At the same time, it's somewhat rare that a normal mob drops coin. Most of my money comes from questing rewards.
I feel like GW2 needs a large scale nerf on gear and mat drops, and an increase in coin drops.
At the same time, it's somewhat rare that a normal mob drops coin. Most of my money comes from questing rewards.
I feel like GW2 needs a large scale nerf on gear and mat drops, and an increase in coin drops.
Also, maybe vendor prices are too high? In what real economy will a real person pay the prices that the NPC vendors are offering when there is such a massive oversupply?
@Felsir The effect of a "global" Auction Houses is indeed an intersting study.
We could look at a real-life example, like Sotheby's and compare it to GW2.
You can immediatly see that in addition to your point about limited buyers (demand), there's the much bigger point of supply.
When it comes to artworks, supply is not only limited; each artwork is unique. So if you want to own a Monet, you could talk about supply-demand, but if you want to own Le bassin aux nymphéas, you're really down on your luck, as it sold for 80 million and might not be coming back to the market for a generation.
So to recap, GW2 has a case of extreme commoditization (nothing's unique) and unlimited supply (in time). It doesn't matter what the demand is, supply will always trump it.
We could look at a real-life example, like Sotheby's and compare it to GW2.
You can immediatly see that in addition to your point about limited buyers (demand), there's the much bigger point of supply.
When it comes to artworks, supply is not only limited; each artwork is unique. So if you want to own a Monet, you could talk about supply-demand, but if you want to own Le bassin aux nymphéas, you're really down on your luck, as it sold for 80 million and might not be coming back to the market for a generation.
So to recap, GW2 has a case of extreme commoditization (nothing's unique) and unlimited supply (in time). It doesn't matter what the demand is, supply will always trump it.
# posted by : 7/9/12 16:47
: 7/9/12 16:47
True. Although the real value of real currencies is also disappointingly low: I can remember four gallons of gas for one US$.
@Redbeard - that seems like a losing battle: gaming is going away from subs and toward F2P and gold sellers are just one reason. I'm sure Blizzard wishes WoW were F2P but it is too late (or too early) in the life cycle for WoW to go F2P.
@Redbeard - that seems like a losing battle: gaming is going away from subs and toward F2P and gold sellers are just one reason. I'm sure Blizzard wishes WoW were F2P but it is too late (or too early) in the life cycle for WoW to go F2P.
Also, maybe vendor prices are too high?
Vendor prices in GW2 aren't that high, just a handful of coppers. A single "heart" aka quest would give you enough copper to buy several items at vendor prices.
As vendors have unlimited money, and always buy everything without complaint, they are the de facto floor price. WoW allows players to sell at less, but that would be a mistake for the seller, so GW2 blocks that option.
Vendor prices in GW2 aren't that high, just a handful of coppers. A single "heart" aka quest would give you enough copper to buy several items at vendor prices.
As vendors have unlimited money, and always buy everything without complaint, they are the de facto floor price. WoW allows players to sell at less, but that would be a mistake for the seller, so GW2 blocks that option.
Interestingly, I don't think Castronova was wrong.
Money supply matters - EVE, which is designed to have a fairly closed economy and a controlled inflation as an exception, most MMOs have economies in which the pool of available money grows constnatly, and without limit, and without significant control.
When Castronova made his evaulations, the secondary market may have been inflated by black market practices - but, more than that, it was in its infancy. Everquest's currency levels were still relatively low, and the total available currency across the entire playerbase was at historically low levels.
Game currency isn't really a currency. It has no intrinsic value except for the time required to generate it, as there is no upper limit to the amount of it that can be in circulation regardless of population. This results in rampant inflation.
It's not surprising that the value of currencies in virtual worlds would plummet. Imagine if the amount of gold were truly fixed - it would be vastly different.
Money supply matters - EVE, which is designed to have a fairly closed economy and a controlled inflation as an exception, most MMOs have economies in which the pool of available money grows constnatly, and without limit, and without significant control.
When Castronova made his evaulations, the secondary market may have been inflated by black market practices - but, more than that, it was in its infancy. Everquest's currency levels were still relatively low, and the total available currency across the entire playerbase was at historically low levels.
Game currency isn't really a currency. It has no intrinsic value except for the time required to generate it, as there is no upper limit to the amount of it that can be in circulation regardless of population. This results in rampant inflation.
It's not surprising that the value of currencies in virtual worlds would plummet. Imagine if the amount of gold were truly fixed - it would be vastly different.
Game currency isn't really a currency. It has no intrinsic value except for the time required to generate it.
In this regard it is very similar to the FIAT currencies of today, which have a terrible record for storing value.
I think the solution to most game worlds is a two-currency system. Gold obviously needs to be allowed to fluctuate (ok, depreciate) in value. The second currency will act as a store of value and could be limited in supply by being tied to some form of "real" assets (USD, Euro, gold). Unfortunately, most companies are abusing the two-currency system and using it to simply sell "stuff".
In this regard it is very similar to the FIAT currencies of today, which have a terrible record for storing value.
I think the solution to most game worlds is a two-currency system. Gold obviously needs to be allowed to fluctuate (ok, depreciate) in value. The second currency will act as a store of value and could be limited in supply by being tied to some form of "real" assets (USD, Euro, gold). Unfortunately, most companies are abusing the two-currency system and using it to simply sell "stuff".
# posted by : 7/9/12 20:31
: 7/9/12 20:31
@Hagu: I think Blizzard's perfectly fine with subscription play even now. The reason why everyone else is heading to F2P is cause WoW's the big gutton that soaked up all possible subscription revenues, and nobody left wants to pay that monthly fee any more.
I'm sure that WoW is immensely profitable and will not go F2P anytime soon.
But anyway, inflation is a given in an MMO economy.
There are only so many cash sinks; mounts, repairs, crap like that where the money exits the economy. Meanwhile the amount of currency is infinite; just keep killing monsters and doing quests, right?
It's fundamentally inflationary, especially since none of the items you buy every really break. That mount never needs food, or a new transmission, never dies. Your gear never wears out or has to be replaced (unless you want to).
Basically massive inflation is pretty much a given. It appears that the response these days is to make the economy essentially meaningless by letting everyone have enough money they don't need to worry about it unless they enjoy the economic game.
But anyway, inflation is a given in an MMO economy.
There are only so many cash sinks; mounts, repairs, crap like that where the money exits the economy. Meanwhile the amount of currency is infinite; just keep killing monsters and doing quests, right?
It's fundamentally inflationary, especially since none of the items you buy every really break. That mount never needs food, or a new transmission, never dies. Your gear never wears out or has to be replaced (unless you want to).
Basically massive inflation is pretty much a given. It appears that the response these days is to make the economy essentially meaningless by letting everyone have enough money they don't need to worry about it unless they enjoy the economic game.
# posted by : 7/9/12 21:30
: 7/9/12 21:30
I would suggest to consider including Magic: The Gathering Online into the general discussion of virtual currency.
Although this game is not a MMORPG, it has a good example of virtual virtual economy.
The basic currency is called "event ticket", it has fixed cost of 1 US Dollar if bought from official store, and it can be freely traded among players with a result that it became, well, the currency of the game.
The second-market price for the ticket is a little bit less, like 0,80 US Dollar per piece, but fixed official retail price appears to make the economy of trading e-MTG cards more stable.
You can invest in cards and play around design desicion to increase worth of the collection, and theoretically you can cash-out by making a redemption of virtual cards for real sets with Wizards of the Coast.
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Although this game is not a MMORPG, it has a good example of virtual virtual economy.
The basic currency is called "event ticket", it has fixed cost of 1 US Dollar if bought from official store, and it can be freely traded among players with a result that it became, well, the currency of the game.
The second-market price for the ticket is a little bit less, like 0,80 US Dollar per piece, but fixed official retail price appears to make the economy of trading e-MTG cards more stable.
You can invest in cards and play around design desicion to increase worth of the collection, and theoretically you can cash-out by making a redemption of virtual cards for real sets with Wizards of the Coast.
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