By TAMARA LUSH, Times Staff Writer
Online games have given birth to an industry that sells virtual perks for actual dollars. How good an idea is that?
MIAMI - Two months ago, Javier Heredia found himself in a different country without any of the local currency in his wallet. Not a penny, and he had some big purchases to make.
Heredia arranged to meet a currency broker at a busy city landmark, and they agreed that Heredia would pay $130 for the new money. As they met, sketchy characters with weapons gathered nearby. The broker handed Heredia the cash without problems.
But the smooth transaction didn't happen here on Earth - it took place in the fictional city of Freeport on the make-believe planet of Norrath, inside the Internet video game EverQuest. Heredia wasn't even himself at time; he was Gretk, a 5-foot-tall talking rat.
In fact, the only thing that was real was the money.
Video games are nothing new, but the latest generation of games, so-called MMORPGs, or massively multiplayer online role-playing games, has spawned an interesting new wrinkle in electronic entertainment: the virtual economy.
At auction houses and on eBay, players can use real money from the real world to buy the implements and weapons of their game's universe. Brokers take orders for fictional currency, make-believe swords, even entire characters (a Ranger Wood Elf male with "very nice gear" for $269).
The practice, while increasingly common as online games grow in popularity, raises interesting questions about intellectual property rights - shouldn't gamemakers get a percentage since they invented all this stuff? - and whether gamers like Heredia are being true to the rules of play.
Software and computer companies produce a wide variety of MMORPGs with an array of fantasy worlds to explore, from outer space to Tolkeinesque lands. Yet for all their differences these games share a form of meritocracy; through experience (and hours of play) gamers can build characters, called "avatars" among gamers, with ever greater strengths and ever greater goods, permitting an ever more interesting level of play.
Because the level of interaction in the games is so high, and because the social rewards can be so great, it has become attractive for players to pump the hard currency of the real world into these fake universes, all in the name of achieving status and prestige in the virtual society.
"Much like the World Wide Web has taken off into its own little society, these games are becoming their own societies," said Heredia, a 28-year-old information technology worker in Miami. "These games have their own economies."
Few are benefiting more from the trend than Miami-based IGE, perhaps the world's leading broker of virtual currencies and goods. The company, which is privately owned, employs 150 people in Miami, New York and Hong Kong; most are customer service agents.
"The concept that these are virtual, nontangible goods didn't stop me from thinking that they might ... have value," said IGE co-founder Brock Pierce, who is barely 24.
Pierce is aware that many scoff at his business and the industry as a whole. Yet Pierce claims his company handles several million dollars' worth of virtual inventory and makes enough money for him to keep a beach condo in Miami and a penthouse in New York and make several trips to Hong Kong each year.
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Edward Castronova is an economist at Indiana University who specializes in the video game industry. He estimates that revenues for online gaming were $1.9-billion in 2003 and will grow to $9.8-billion by 2009. He also figures that up to $100-million in real-world money is captured annually by dealers in virtual currency and goods, and that number will keep growing.
Much of this economic output is driven by the Asian gaming market, where people are avid residents of virtual worlds.
According to Castronova's survey of players, the average gamer is a man in his 20s, with a full-time job and disposable income. The average time spent within the virtual worlds is 20 hours per week, he said, adding that 20 percent of the EverQuest gamers he surveyed declared, "I live in Norrath but I travel outside of it regularly."
Three years ago, Castronova knew little of this strange, new world. He was a struggling economics professor at California State University at Fullerton. His wife worked in another city, and to kill time at night, Castronova started playing EverQuest.
Castronova and thousands of people worldwide would log on at any given time - according to Sony Online Entertainment, which owns EverQuest, more than 800,000 people subscribe to the company's various games - and interact with one another in real time.
In EverQuest, like other MMORPGs, players create a character, or avatar, that they will play each time they return to the game. This character has special powers, such as strength or agility, based on its race and class. An ogre, for instance, has more raw strength than a half-elf, and a barbarian is better in combat than a Vah Shir (a feline humanoid).
Avatars take on tasks in exchange for experience, money or items. Castronova found that fighting magical beasts yielded friends, currency and prestige.
But in between killing magical beasts and accompanying lizards on adventures, Castronova noticed that Norrath's economy was booming.
He witnessed virtual bakers making virtual bread. Virtual merchants selling virtual boots and hats, along with weapons and armor. Even virtual homes. Castronova realized Norrath is a consumer society. Everyone wants more money (platinum is the currency) to gain higher status and, well, amass more stuff.
Just like in the real world.
He concluded, "There was a hell of a lot of money changing hands."
He did some research, and the results were startling: The average player was generating 319 platinum pieces, about $3.42, for each hour spent "working" in the game. Castronova tallied the wealth all the players created in one year in Norrath: $2,266 per capita.
"The exchange rate between Norrath's currency and the U.S. dollar is determined in a highly liquid (if illegal) currency market, and its value exceeds that of the Japanese yen and the Italian lira," Castronova wrote in a research paper. "The creation of dollar-valued items in Norrath occurs at a rate such that Norrath's GNP per capita easily exceeds that of dozens of countries, including India and China."
Castronova discovered that EverQuest is the 77th richest country in the world - or would be if it existed.
Since Castronova's findings were published - on the Internet, of course - he was hired to a tenure position at Indiana University, where he teaches telecommunications.
At 42, Castronova is still an avid gamer, and can be found on any given night inside the World of Warcraft, another MMORPG. His avatar is a "tall, elderly and dignified hermit."
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If Castronova is the Milton Friedman of the online economy, then Brock Pierce aspires to be the Alan Greenspan.
Pierce is a former child actor - he appeared in The Mighty Ducks - who became involved in the Internet when he was a teenager. When he was just 18, during the technology boom in the late '90s, Pierce was hired as a vice president at an Internet startup in Los Angeles, Digital Entertainment Network.
After companies such as Dell, NBC and Intel pumped $65-million into the company, it went belly up.
But IGE, he insists, is a sure thing. So sure he hired Internet gaming guru Steve Sallier who, among other things, is credited with bringing the fantasy role-playing game Dungeons and Dragons to the Internet.
Sallier, IGE's president, said companies such as IGE are needed to impose real market dynamics in the virtual world to establish the value of an item.
"Even the U.S. currency today is based on a work standard, national growth and work effort of the citizens of the U.S.," he said. "In the virtual currency world, the value of the currency is completely destroyed if a publisher simply creates more currency."
Castronova says IGE has "come along and put some professional business practices in place," such as rapid delivery combined with a secure purchase.
Sony and the game designers of EverQuest disagree.
"Anything not done within the context of our service is not safe or secure," said Chris Kramer, spokesman for Sony Online Entertainment.
Kramer said Sony has shut down users' accounts for "pharming": playing the game to amass currency and items for resale. He said the company can scan player accounts to see who owns what.
"It's easy to tell when someone has a huge influx of cash," Kramer said. "We aren't banning the accounts of people who are buying the stuff, but we are banning people's accounts when they are exploiting the game."
Sony and some game players have some other, ethical concerns. They worry that IGE buys from "pharmers" in the Third World, who are paid pennies to play.
Some players wonder whether IGE has too much control over the virtual worlds, because of its vast inventory over many different games, and its power to set prices. They also don't like IGE because the "secondary market" of buying currency and items to boost an avatar's power ultimately destroys the meritocracy of the worlds.
Not to mention that Sony, as publisher of the game, has copyright issues with the resale of elements of its game on a black market. The terms of agreement for players to sign onto the game include a promise not to resell items from the game.
At Sony, an "internal debate" has raged for six years - since such MMORPGs were released - over whether to sell currency and items through the official Web site.
"Our game designers feel very passionately about the subject," Kramer admits. "They are concerned that the sale of items and of platinum results in people being rewarded for having money instead of being rewarded for playing the game."
Matt McDanel, a 17-year-old World of Warcraft player in Westminster, Colo., says he is adamantly against companies such as IGE.
"They flood the economy," said McDanel, explaining that "pharmers" will figure out, for instance, how to slay a monster to obtain a rare sword. Before, only players with certain skills would obtain that sword; now, through the free market, anyone can buy it with dollars because the "pharmers" are obtaining it regularly.
Nevertheless, University of Miami law professor Michael Froomkin said such transactions are legal. Froomkin, who teaches Internet law, believes the value of these games is in the people who are playing, making complaints about how they choose to play it "unseemly."
The game companies are "making money off the creativity of the players. It's a shared experience."
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Can you make money brokering virtual goods and currency?
"I'm living proof that you can," said Julian Dibbell, who is writing a book called Play Money.
Dibbell, a freelance journalist from South Bend, Ind., started playing the game Ultima Online when he wrote a piece on virtual real estate for Wired magazine.
Dibbell, 42, was fascinated by the fact that an online, virtual island sold for $30,000. After writing the story, he continued playing.
He decided to try becoming a broker for virtual goods and currency; later he could write about the experience. After nine months, his total profits came to $11,000. But they kept growing. In his last month he said he made $3,900.
"More and more people will be making money doing this," Dibbell predicts. "Will this replace the real-world economy? No, I don't think so.
"But it suggests a general trend in capitalism toward trying to capture the energy of play to productive ends."
--Tamara Lush can be reached at firstname.lastname@example.org or 727893-8612.