Start-Up to Create Market For Trade of Virtual Goods
A start-up plans to help game companies get a grip on the booming illicit market for virtual goods, including everything from currencies to magical swords that help players advance in online games. — Live Gamer Inc. is developing …
Context & Ripple Effects
2007 has been the year the virtual-goods economy stopped being a curiosity: BBC reporting pegged virtual worlds at $1bn back in March (virtual worlds 'worth $1bn'), TechCrunch argued in June that goods are the next big business model, and by July a Second Life rival was seeking a €1bn UK listing. The money is real — but most of it changes hands in an illicit gray market of currency sellers and item farmers that publishers have only been able to ban, not tax.
Live Gamer Inc.'s plan, reported by the Wall Street Journal on December 17, is to give game companies a sanctioned marketplace for trading everything from currencies to magical swords — converting enforcement overhead into a cut of legitimate transaction volume.
First-order effects
- Publishers gain a partner that turns item trading from a terms-of-service violation into a monitored, revenue-bearing channel they can endorse or license per title.
- Gray-market currency and item sellers now face a legitimate competitor operating with publisher cooperation rather than against it.
Second-order effects
- If publishers sign on, secondary-market fees become a new post-sale revenue line, changing the economics of games whose items currently appreciate outside any official channel.
- Rival platforms and marketplaces must either seek similar publisher deals or cede the sanctioned-trading niche, since liquidity follows legitimacy.
Third-order effects
- Persistent item economies push online games further toward service businesses where the publisher's role extends past the point of sale into operating and taxing a market inside its own world.
- A pattern of publisher-sanctioned trading would formalize real-money value attached to synthetic goods, raising questions regulators and payment providers eventually have to answer.
The trend: Virtual goods are shifting from an uncontrolled gray market alongside online games to publisher-sanctioned marketplaces that convert player-to-player trading into platform revenue.