Article on virtual currency in The Economist

Hey, we're getting press coverage!
http://www.economist.com/node/21541163

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Paying for pixels
Virtual goods are worth real money—and cause real dilemmas

Dec 10th 2011 | from the print edition

CASUAL GAMES MAY attract huge audiences, but it is harder to convert those millions of eyeballs staring at screens into hands reaching for wallets. Piers Harding-Rolls at Screen Digest reckons that the 57m or so game consoles in use in America generate about $7.5 billion of revenue each year, but the 109m players of casual online games produce just $250m.

Casual-game firms are testing a variety of ways to make more money from their users, from straightforward digital sales to subscriptions and advertising. One promising model comes from East Asia, gaming’s spiritual home, where internet access is widely available and piracy is rampant. It involves giving users free access to online games but then charging them for all sorts of extras.

One Western example is “The Lord of the Rings Online”, which allows players to live in an online version of J.R.R. Tolkien’s fantasy world. When the game was released in 2007, players had to buy the game for $40 and then pay a subscription for each month they played. Last year Turbine, the game’s developers, moved to a new charging model in which the game was made available for nothing but players could spend real-world money on “Turbine Points”, a sort of electronic currency with which to buy items that make the player more powerful. Turbine says its revenue from the game tripled.

In “FarmVille”, Zynga’s wildly popular Facebook-based farming simulator, players can earn coins to spend on crops, livestock or farm equipment by playing the game, or they can buy them with real cash. Such transactions make up the bulk of Zynga’s revenues.

Not all virtual goods offer players an in-game advantage. “Vanity items” such as a new design for the electronic homestead are just nice to have. Spending real money on virtual luxuries may seem odd, but a minority of dedicated players wants to show off to others online, says Nick Lovell of Gamesbrief, a games-business website. “You make 80% of your revenue from 20% of your player base,” he adds. A few of them will shell out eye-watering amounts of money. In Dark Orbit, a browser-based space adventure from Bigpoint, a German online-game studio, customers can buy a “10th drone” to beef up their spaceship for around €1,000. BigPoint has sold more than 2,000 of them this year.

This sort of trade allows players to work out a real-world value for their in-game items (and makes it possible for economists to calculate the GDP of virtual worlds). Some players sell desirable items to other players for real cash, a practice chronicled by Julian Dibbell in his 2006 book, “Play Money”, in which he earned up to $3,000 a month trading in virtual goods. Such reselling is generally forbidden by the games companies, though there are exceptions, including “Second Life”, a virtual world run by the American firm Linden Lab. But the players themselves treat their virtual goods as if they were real and can become extremely possessive about them. In 2005 a Chinese player, Qiu Chengwei, killed a fellow-player of “The Legend of Mir 3” for selling (on eBay) a rare virtual sword that Mr Qiu had lent him. He is now serving a life sentence.

All this raises some intriguing questions for governments. Should virtual income be reported to the real-world taxman? China thinks so, in principle at least: it has said it wants to tax its virtual-goods market, thought to be worth around $1.5 billion a year, although how the tax would work is not clear. The South Korean authorities have ruled that trading in virtual goods should be subject to a 10% sales tax. America’s Internal Revenue Service is wrestling with the same problem. And if a games company goes bust, can its players claim compensation for loss of valuable property? After all, “some players have accumulated wealth worth thousands of dollars in these games,” says Eyjolfur Gudmundsson, chief economist at Iceland’s CCP Games, which makes the sci-fi trading game EVE Online.

In 2010 South Korea’s highest court ruled that, against the wishes of the games companies, players’ virtual cash could indeed be converted freely into real-world money, provided it was generated in a game of skill rather than won in a game of chance. It is only a matter of time, says Roxanne Christ, a lawyer at Latham & Watkins, before Western courts will be faced with the same questions.

 

It was interesting to read. But profit not only goes to the companies it self. Look at the black market. I'm sure Sythe traders make more than 10K daily in just gold trading.

 

10k daily is an exaggeration.

 

I dont think so

 

:s if i can get a decent guide on money making they will also be talkin about me along with the huge gold traders

 

I use to make over $3K/month using my method to sell virtual goods (not game related). There are a lot of virtual items which aren't related to games which can make you big bucks.

 

I don't think that article is quite talking about Sythe type blackmarket. It seems like more of a companies selling their own shit type of thing.

 

That's correct.

@Fruity Lex No, it's not. If I'm able to make $100 a day, I'm sure top 10 gold traders of Sythe ONLY, make $10K AT LEAST per day.