Saturday, August 16, 2008

The real value of virtual dung and other online items

Vili Lehdonvirta Why do people pay real money for virtual items?

This is a question that has intrigued Vili Lehdonvirta for years. A researcher at the Helsinki Institute for Information Technology in Finland, Lehdonvirta approaches the market for virtual goods the way economists study the market for copper or clothing.

He estimates that people spent $2.1 billion on virtual items, including all manner of weapons and fantasy outfits for their virtual avatars in 2006 (the most recent year for which he and a colleague Tuukka Lehtiniemi compiled stats). Some of the more unusual items include virtual horse manure and colored "contact lenses" for avatars.

Lehdonvirta is an advisory board member for Live Gamer, a New York company that offers a sanctioned marketplace for players who want to buy or sell digital items for virtual worlds. Until the recent arrival of Live Gamer and Sony's Station Exchange service, most of the buying and selling occurred via shadowy websites or on EBay, making estimates of actual spending difficult. Now that the trading is gaining popularity and legitimacy, Lehdonvirta's studies are beginning to carry real world value for companies hoping to cash in.

In a recent interview with The Times, Lehdonvirta gave us some insight into the market for virtual goods.

Q: Why do people pay so much money on items that aren't tangible?

A: People pay real money for virtual items for the same reason they pay real money for any consumer commodity, namely ...

... status, identity, membership, class and performance. If you think about the clothes that you buy today, how much of the value of that $100 shirt is based on the material properties of the shirt to protect and keep your body warm? It’s probably very small. It’s not so amazing that virtual items can convey the same symbolic payload.

Q: What determines the value of virtual items?

A: One thing is performance. You can buy sharper swords and faster steeds. But then you have less obvious things like aesthetics. I don’t mean it in the common language -- aesthetically pleasing. I mean it in the sense of creating social distinctions. In one game, Maple Story, they sell different colored rubber boots. If you buy an expensive pair of boots, the only thing you get is different colored pixels. For someone who doesn’t understand the value system of that world, it may not make any difference. But to someone in that world, those few pixels can carry tremendous meaning. The same applies to everyday clothing where logos or details make a huge difference. The social world develops its own aesthetic code about what is tasteful and tasteless. And the difference can be very subtle.

Q: You also mentioned prestige as a driver of value. Do you have an example for that?

A: In Habbo Hotel, you have trophies that anyone can purchase. They all look exactly the same. But a virtual trophy that was given to a famous user by the publisher is valued many times higher than the equivalent trophy with no history. In the case of the trophy, it has a tangible record. If you click on it, you see who it was awarded to. If that’s a celebrity, the trophy will command a much higher price. What if it was possible for players to record the provenance of their virtual items? What if a sword was owned by the guild master of the leading guild when they first conquered a particular monster? I’m positive it would command a higher price.

Q: Many gamers believe items should not be made for sale, because it gives people an unfair advantage and drains the fun out of games by letting people buy their way in. What do you think?

A: There will be places where trading is simply not appropriate. At the same time, there's a lot of room for trading where it increases value. Let's go to a sports analogy. No one says it's bad to have a market for sports equipment even though they can enhance performance. But there are things that should not be traded -- human relationships, honor, achievements and skill.

Q: What's the oddest virtual item you've seen sold?

A: Virtual horse dung in the game Ultima Online, which sold for several hundred dollars. The value was driven by its scarcity. It was a rare item. There were only a few of them on each server in the game.

-- Alex Pham

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