A New Economic Model For Massively Multiplayer Games

Introduction


Over the past decade the world of computer games has grown from games that ran on an individual's computer to titles that allow thousands, or even hundreds of thousands of players to play against or with each other in virtual worlds that exist in cyberspace.

The traditional revenue model for online entertainment companies has been to sell individual copies of the software and then sell add-on packs and toolkits. Virtual game sites gain added revenue by charging a monthly subscription fee. In order for this model to work the particular game must be sufficiently entertaining to compel players to come back month after month.

Virtual worlds in which players are allowed to trade objects with each other have given rise to real economies inside the virtual world. Dr. Edward Castranova wrote a thesis (i) on the economy inside the game “EverQuest" and reported that a black market exchange exists between the EverQuest currency and US Dollars. Sony has outlawed the exchange of EverQuest items for real money. More is the loss for Sony, which may be overlooking a virtual goldmine.

While computer games and especially online titles have generated hundreds of millions of dollars in revenues, new developments in virtual worlds open possibilities for more exciting play, and consequently, exponentially greater profits.

This paper will propose a revenue model for massively multiplayer gaming based on copying the real world economy enough to give players a more exciting game. By allowing and encouraging the free convertibility of money in the real world with money in the game world, it will be possible for the game host to literally “make a fortune" by selling goods, services, and virtual real estate to the players.

Economic Model
Every computer game can be boiled down to a basic economic exchange. The players have money. The game publisher has created a really exciting game. The players give their money to the game publisher in order to get EXCITEMENT! It's all about endorphins, dude.

Therefore, when designing a game world, there are two concerns that must always be at the forefront: excitement for the player, and profitability for the publisher.

With that in mind, let's consider what it would take to advance the art of computer gaming with the goal of creating the most awesomely addictive exciting game ever that makes “unheard of" fortunes for its creators.

The Ingredients of Excitement
Better authors than I have already written papers on the subject of psychology and game design. Let's recap their work here. People are to some extent like the Pavlovian dog - we develop habits as a result of stimulus and response. However the most powerful habit-forming stimuli have been shown to be unpredictable rewards. If Pavlov's dog pushes the button, sometimes he gets a dog treat; but sometimes he doesn't. And he hasn't quite figured out how to predict the outcome.

Addictive game play is a good mix of risk, investment, and reward. Excitement is proportional to the difference between the greatest possible reward and the greatest possible loss that may result from a given decision.

To illustrate this principle, simply consider who would be more excited to win a million dollars – someone who gets a million dollars every day for doing nothing, or someone who just robbed a bank to get it and almost got his head shot off in the process? Thrill has as much to do with risk as possible rewards.

Some early virtual worlds created on the Internet had unlimited virtual resources. Players quickly grew bored with them. As virtual gaming has developed two crucial ingredients have surfaced as keys to success: scarcity and competition against other players.

The ideal gaming economic model requires a virtual world with a limited amount of space, energy, raw materials, money and real estate that players can compete for. Players may be able to take the raw materials in the game and convert them to other usable objects to help them advance in their competition against other players.

Currently, in all games, except online casinos, the only investment the player makes is his time. There is no significant monetary outlay risked in the pursuit of the reward. Likewise, the rewards offered in MM games are primarily social interactions with other players.

By taking a page from online casinos we can make scarce objects in the game world convertible to real objects of value in the real world, in order to raise the stakes, and thereby the excitement level of players to an even higher level than the mere satisfaction of winning can provide. Furthermore, the game host should aim for a continually evolving and expanding world where players always have a higher challenge to tackle so they do not become bored.

Conversion to the Real World
By creating and encouraging channels to allow money to flow from the real world back and forth into the virtual world, the game host can open up a whole new source of revenue.

Virtual objects in the game world cost nothing for the host to create, but may be of sufficient economic value to players to warrant spending money to obtain them. For example, players might be willing to spend real money into the game in order to acquire a certain virtual suit of armor that would help their character achieve a particular goal.

Virtual objects in the game world can also be tied on a one-to-one basis to valuable objects in the real world in order to raise the stakes and therefore the interest level of game players. For example, there might be a dragon in the game world guarding a treasure horde. One of the treasure items might be a virtual jewel that is actually a digital title to a real precious gem in a vault in the real world. The player who defeats the dragon and obtains the virtual gem may “cash it out" for the real gem. (For inspiration, check out the real ancient artifacts that can be purchased on the antiquities market.)

One item that has popped up repeatedly in successful online games has been the use of gold or other precious metals as the unit of money in the game. The use of precious metals as money seems to be popular regardless of whether the game is Sci-Fi (star wars) or Fantasy (Everquest). Game gold can easily be attached to the real world by making the game world money backed on a one-to-one basis by a gold e-currency such as Pecunix (www.Pecunix.com).

Players could fund their game gold account with Pecunix or cash out their game money for Pecunix. There are several companies that offer a debit card that can be linked to an Pecunix account so that game players could actually withdraw cash at the ATM machine that they earn inside the game.

This change in the game model produces several important changes for the game host. First, the game world has to be populated with items of real value, so this adds an additional capitalization requirement to launch the game.

Second, the fact that players can cash out game items means that the game host must extensively test the game model to make sure that the money players take out is less than they put in at least 51% of the time. In other words, the game model is now like a virtual casino where the odds need to be geared in favor of the house or else the game will go bankrupt.

But remember, the purpose of adding real world monetary convertibility to the game is to raise the excitement level of the players and the profit to the game host. The objective is not to fulfill every player's fantasy of getting paid to play Everquest, that is unless it furthers the first two objectives.

Profit Model
The key to the ongoing profit model of the game should be based on energy. In the real world the basis of all economies is the limited but constantly renewable availability of solar energy that is converted into all other forms, ranging from fossil fuels, to wind and hydraulic energy.

If players in the game must sustain their characters and other life forms in the game through the use of stored energy such as food or fuel, then the constant purchase or capture of energy because the economic foundation of the game that allows all other interesting activity to take place. The game host has a monopoly on the creation of energy and can make sure that it makes a profit on every unit of energy that is created in the game.

There are three primary methods by which a game host can profit from a real economic system inside the game:

Direct Sales of Virtual Objects
In our model the game world is populated with a limited number of precious objects such as base-metal (iron, bronze, copper), precious metal (gold, silver, platinum), gemstones, and objects made from all of the above. Non-player characters may operate stores and other economic exchange points that sell game objects for game money. If players can fund their game money account with money from the real world, then accepting game money for virtual objects at “stores" in the game allows the game host to directly sell virtual objects to players. The marginal cost of creating these objects is zero. However creating too many of them will cause their relative value to drop unless they can also be lost or destroyed in the game.

The opposite problem can occur if items in the game are too scarce. An online game that is constantly drawing in new players will have a constantly growing money supply that can cause in-game inflation. Rather than tweaking the money supply the game host should keep tabs on a price index in the game. When prices start rising it is time to create new territories or new supplies of objects in the game to absorb some of the influx of money from the real world into the game world.

Another common pitfall occurs in games where the game money is not pegged to anything in the real world. For example, in the original Everquest (and most MM games) the creeps continually regenerated with some copper, silver, or gold on them. As players kill the ever-regenerating horde of creeps, all of the coins regenerated along with the creeps end up in the players accounts. The “money supply" of Everquest constantly grows and grows and grows. This creates never-ending in-game price inflation, which in turn makes it harder for newbies to save up enough money to buy anything useful in the game. A game that is too difficult or boring for newbies (I just killed my ten thousandth polar bear cub saving up for a level four fuzz buster...) is damaging its own potential for success. For the designers of Everquest, the only way to deal with the inflation problem was to create new areas of the game with more objects for sale in stores for the money to chase after. However, as long as the creeps keep regenerating with money on them, the inflation problem will never go away.

Profiting from Economic Exchange Inside the Game
On a larger scale, game developers might offer larger complex virtual objects for sale inside the game. For example, the game host might create a limited number of virtual farms, complete with NPC laborers that provide some or all of the food inside the game. The game host might offer these farms for sale inside the game to players who have accumulated a sufficient amount of game money. Then the game host might extract a “real estate tax" using the king's tax collectors inside the game.

In like manner, the game host might sell virtual stores to players allowing players to set the prices and acquire inventory from other players. The game host might charge a town tax to the owner of the virtual property. The virtual store would actually be a real business inside the game with the potential for profit or loss to the player who owns it.

The more economic exchange that takes place inside the game, the higher the value of virtual objects in the game will be. This in turn will raise the value that players are willing to pay in order to obtain virtual real estate inside the game. However, unlike the Everquest scenario, the free convertibility of game money to real world money will prevent in-game inflation from getting out of hand. The reason is that if rich players put enough money in the game to drive prices up, then the game will attract players from poor countries who will play to make game-money and then cash it out for real money. (But the game had better be designed not to create game money from fiat, or else the host will go bankrupt.)

The following are suggested class types of virtual real estate and businesses that can be sold to players in the game:

- Mines: produce a limited amount of gold/silver or base metals.

Gold in the game should be represented by real gold in the form of an e-currency reserve. Base metals can be created virtually from nothing as long as they are sufficiently scarce to make them worth mining to the players. All mining activities should require an input of energy such as coal, wood, oil, or food for animals or people driving the machinery. Mining should reflect the scarcity of metals in the real world. A further expansion of the idea would allow players to prospect for new deposits that could then be developed into a mine at considerable expense.

- Farms/Forestry: Farms produce perishable food, wood, or textile items in predictable quantities that may vary with the weather. Farms may be damaged or destroyed by war, mismanagement or natural disasters.

- Shops: Buildings or virtual real estate where players can conduct real economic exchange. An NPC shopkeeper may be programmed by the player/owner to buy and sell certain items from players at certain price levels. The more flexible the pricing/inventory instructions can be the more likely the players will be able to make the store truly profitable.

- Auctions: Similar to a shop, but allows players to place objects in the store for auction with a reserve price.

- Manufacturing Facilities: Players may buy machines that take raw materials or other items and combine them with energy to form new objects in the game. This could be as simple as an anvil, or blacksmith's forge, or as complex as a production line machine that makes warp engines out of titanium and steel in a Sci-Fi game.

- Transportation: Players might be able to purchase virtual objects representing ships, horses, wagons, aircraft, magic carpets, etc. Transportation objects should require energy.

- Programmable NPC's. Players in the game might be able to “hire" NPC's with valuable skills that can be programmed to travel through the game selling these skills for money or other exchangeable items.

By encouraging the free exchange of goods and services inside the game the virtual game host will be able to increase the value and quantity of virtual objects that it can sell to players of the game for real world money.

Revenue from Lost Items
When players in the virtual world get killed or drop items the game company can recover value by having NPC's that pick up the items, or by simply erasing them. If a player dies in the wilderness with money on his corpse, the game may move the virtual money into the “lost" account, which accrues back to the game's master account. Another possibility would be to have regenerating NPC monsters that loot abandoned player corpses and automatically repatriate a certain percentage of their find back into the game hosts main account. The remaining items might stay on the NPC's inventory for other players to obtain by conquest or exchange.

High Value Objects
Many of the most popular games in the real world have a means by which some players or observers may win high value prizes. This can occur in several forms. In the case of lotteries the excitement of the possibility of winning a multi-million dollar prize motivates millions and millions of people to buy low cost lottery tickets, even thought their chances of winning are infinitesimally small. In the case of professional sports, many people pay to watch for the sheer enjoyment of watching. However, the most fanatical fans are often the ones who place bets on their team. Something about the possibility of winning a financial return is extremely exciting to many people.

By populating the game world with high value objects that correlate to high value objects in the real world, the virtual game company can raise the excitement level and stakes in the game, not to mention creating a media circus that will further publicize the game. By creating the possibility of winning something that most people perceive would make them “rich" millions of players can be motivated to spend money into the game in order to purchase items that might give them an advantage at winning the big prize.

In our virtual gaming model we recommend two ways of doing this:

Game Money is Based on Gold
By making the money system inside the game based on a real e-currency such as Pecunix, each unit of money inside the game is convertible to real gold in the real world. Since e-currency is infinitely divisible for all intents and purposes, it can facilitate economic exchange inside the game and allow a market in the game to determine the real prices of goods and services in the game world. The use of gold as money in the game allows players to earn small amounts of wealth by obtaining it from other players and NPC's through conquest or trade. This will conceivably allow some players to earn a real world living solely by playing the game, which in turn will bring further investment from the real world into the game.

Game Treasures Based on Real Treasures
The second way to populate the game world with a certain number of high value objects is to allow virtual representations inside the game of real world treasures such as gemstones, precious metals, or collectors items. Previously we mentioned the idea of having the dragon's hoard contain jewels that are virtual titles to real diamonds, rubies emeralds, etc. This would also be an extremely effective marketing tool for the game. For example, if Sony Entertainment Online were to purchase a famous diamond such as the Hope Diamond and place it inside EverQuest II in the treasure of a very high level monster or extremely difficult puzzle, it would generate a media circus, bringing more players, and therefore more money, to the game.

Populating the World
The game host must populate the world with enough high value objects to incite players to a virtual gold rush where they are willing to expend real world money to purchase game items in pursuit of the high value objects.

Just like a virtual casino, the game must be geared so that collectively the game players spend far more money into the game than wealth is actually exported out of the game. If the game is not geared correctly then players will “strip mine" the virtual world by finding the treasures and then cashing them out. The way to prevent this is to make game treasures sufficiently difficult to obtain that they require the expenditure of considerable resources.

If a player buys a gold mine, or constructs one, the total cost of the materials and energy required to extract the gold should be a little bit less than the value of the gold he will extract. In this way the player still makes a profit. Since the game host created the energy and materials used to mine the gold for nothing, at some point someone in the game paid for the gold that was extracted from the mine in the form of energy and raw materials. If the game host sells the virtual real estate to the mine player/owner at a sufficient price it will cover the difference between the energy prices and the value of the gold actually mined.

The other way to keep high value objects from being stripped out of the game is to give them an additional high value use inside the game. For example, if one of the treasures in the dragon's lair is a real ruby, it might be something that the player can take to a magician and have it converted into a highly powerful magical wand inside the game that gives the owner's character an advantage in fighting other high level foes. Then if the player wants to cash out on the value of his ruby, instead of taking delivery of the real world ruby, he might auction off his powerful magic wand with the ruby in it inside the game to other players.

The cost of populating the game world for the game company will be the value of the precious metals and precious stones backing the ore deposits, money, and treasures inside the game. Any money carried by NPC's inside the game will also be included in this real cost because if a player kills and loots an NPC and “gold pieces" he obtains can be cashed out into real gold in the real world. For this reason the game host will want to only put money in the pockets of non-regenerating high level NPC's. Or else it will have to very carefully monitor the creation of money-carrying monsters inside the game to make sure it doesn't lose money. (One way to do this is to have the creeps “loot" the bodies of dead players for any game money they might be carrying. So the player's gold gets recycled.)

Again, the key to this process is much like the algorithm used by casinos. Since you are allowing players to gain real money from beating creatures inside the game you need to gear the game to make sure that the cost of entering the game exceeds the value of items won inside the game more than 50% of the time. In fact, if you want to make a profit, then it should exceed it 75-85% of the time.

The best way to raise the stakes is to make the players of the game fund the prizes with their own money. For example, if you allow free convertibility of real world money to game money, then players can fill their character's pockets with as many gold pieces as they are willing to shuck out of their real-world bank account. If a player gets killed by a monster any valuable items on his corpse should be added to the inventory of the monster population. In this way, players perpetuate the wealth of the game. (But the game host should might want to put a weight limit on the amount of money a player character can wander around with. Use in-game “banks" for storing greater quantities of loot.)

For example suppose that a player is carrying 40 gp and gets killed by a gnoll. The 40 gp would then go into the gnoll's pocket or possibly be distributed among the other gnolls in his burrow. Now when a player kills one of those gnolls he loots some gold pieces that actually originated from the real world bank account of another player in the game.

The Problem of Rich Players
One possible abuse of the system might be that rich players, or players from rich countries might try to buy their way to success. The way to keep the playing field reasonably level is to make the game difficult enough that it takes more than just money to win. At the same time, these rich boy players are actually a boon to the game because they will buy valuable items from poorer players who might be better at the game. In this way the rich players subsidize the poorer ones voluntarily and make it more profitable for people to play the game. The game company should view this problem as a way to get rich players to raise the possible winnings in the game at their own expense. So indeed, it needn't be a problem after all.

Legal Issues
A game company that allows minors to play will have to be careful to avoid breaking laws against gambling by minors. The laws as they are written in the United States do not target virtual role-playing games and leave plenty of room for the economic model described here.

The key is that most anti-gambling laws prohibit playing games of chance for money. Governments do not consider gold currency systems like Pecunix to be money.

Most anti-gambling laws prohibit playing games of chance against other players for money by minors. In the virtual game world, as long as no particular contest is for money then it is not gambling. Killing a dragon for its loot is not the same thing as betting $50 on a football game, especially if the players don't know what the loot will be until after they have killed the dragon. In the virtual game no real currency is “bet". Of course this issue would require further investigation by the legal department of any gaming company that plans to enter this field.

The second legal issue of importance to game hosts is the fact that in most countries minors may not have bank accounts or credit cards. This creates a barrier to bringing money into the game, as well as allowing minors to cash out of the game.

Pecunix has solved this problem by creating a system that can handle all exchanges of value into and out of the game world. Pecunix is not a bank, and the accounts are not in national currency, so anyone of any age can open an Pecunix account for free. Pecunix debit cards are also available to anyone with an account regardless of age. It works at real ATM machines and POS terminals worldwide.

To avoid lawsuits, it might be a good idea for the game host to place a limit on the amount of money a player character can have on his person. Players might have to make use of in-game “banks" to store large values of money. This might help to avoid overly PO'ed players whose character got killed with a million drachmas in his pocket. Another way to deal with this issue to place it explicitly in the agreement when the player first starts the game that the player acknowledges that any value lost during game play is forfeited.

They key is to make the game playable, exciting and fun, with a chance of winning real stuff, but to prevent the use of debt (credit) to play the game.

Finally, the best way to solve the legal issue is simply to incorporate the game itself and servers in a pro-gaming jurisdiction such as Antigua or St. Kitts.

Security
Another consequence of allowing monetary convertibility from the real world to virtual gaming worlds is that it will increase the incentive for hackers to try to break into the game database or steal the passwords to other players accounts. There are two relatively simple countermeasures to prevent this:

1. Use encryption to protect certain tables in the game database, specifically, the tables that contain account balances and inventory as well as object locations.

2. For very high value systems, use secure machines like NCipher's Nshield boxes to secure encryption keys.

3. Implement countermeasures to neutralize password theft against players by Trojans.

All three of these security issues are covered in great detail in the documentation for Pecunix (see resources at the end of this article.)

Conclusion
By building a virtual game world that encourages players to import real world money into the game world, the game host can make far more money by selling virtual objects and real estate, than by merely charging a monthly subscription fee. In fact, by selling in-game perishables such as food and water to the players, the monthly subscription fee can be eliminated. By raising the stakes of the game by populating it with valuable real world objects, the game company can draw many more players into the game and motivate them to invest more money in the game than they otherwise would.

By raising the excitement and possible value to be obtained by playing the game, entertainment companies can provide an enhanced gaming experience to their audience.

For more information on how to incorporate gold currency systems into game design contact Ken Griffith at griffith@goldeconomy.com.

References:


White Paper on Using Pecunix for Gaming Transactions


http://pecunix.info/CasinoPaymentSystem.htm


Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier


http://papers.ssrn.com/sol3/papers.cfm?abstract_id=294828