The complicated economics of video games

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The complicated economics of video games

Video games have changed a lot in the time between Pong and Halo. Now games have movie-level budgets, massive marketing campaigns, professional eSports leagues – oh, and entire economies that rival that of some real-world countries.

We’ve been used to money in video games ever since we began obsessively hitting every block in Super Mario Bros., hoping for a coin to pop out. But as games got larger and more complex, so has the role of in-game currencies. The lines have blurred between digital money and real-world money. And there’s an interesting dynamic – and potential crisis – that comes into play when you consider digital currency, the real-world products it can buy, and the impact on the real-world economy.

In-game video game currencies

Video games, especially massively multiplayer online role-playing games (MMORPGs), have thriving ecosystems where players can buy and sell items, both with in-game characters and each other. But there’s a problem with fake money: There’s too much of it. Money is gained by completing quests or killing monsters and, since the game’s developer wants players coming back, there’s an unending stream of missions and enemies – and, therefore, fake cash.

There are benefits to this sort of growth. Looks at in-game economies have placed some of them squarely in the midst of real-world economies. The nation of Norrath in Everquest was in the top 100 world economies, challenging Russia’s.

Of course, in the real world, printing money nonstop causes inflation. It has the same effect in virtual worlds; as money continues to be produced, its value goes down. A 10,000-gold magical sword doesn’t mean the same thing after players spend a decade farming money. (Farming is gamer-speak for completing missions and destroying enemies solely for the coin.)

Developers have found a workaround for this: Currency sinks. A currency sink is a game mechanic that takes money out of the game permanently. Extra Credits has a video that goes into more depth:

https://youtu.be/sumZLwFXJqE

Currency sinks could involve buying permanent upgrades for a character, or things that have a real-world value. The most popular form of the real-world value version is the ability to pay for a game’s subscription using that game’s own currency. But as a hit game has recently shown, currency sinks don’t always works as intended.

Real-world economic impacts

OK, so video games have entire functioning ecosystems. But those are just 1s and 0s being used to "buy" other 1s and 0s, right? Turns out that there are real dollars-and-cents implications to all of these transactions.

You don’t have to look further than two of the most popular current video game franchises to see this impact in action: World of Warcraft and Destiny.

First, some backstory. World of Warcraft (WoW) is an MMORPG created by Blizzard. WoW has a monthly subscription fee, but players can pay for it using in-game Tokens. One Token equals one month of play time. Things get interesting when you realize that Tokens can be purchased using real-world money or WoW gold.

The use cases for Tokens are as follows:

  1. Buy a Token with real-world money for $20, and sell it in-game for gold, which can be used to buy digital in-game items.

  2. Buy a Token using in-game gold, which can be used to add play time to your subscription.

There’s also a third option. Blizzard uses their Battle.net platform to distribute their games. Players can buy a Token using in-game gold, and use it to credit $15 to their Battle.net account. This lets them buy Blizzard games by playing Blizzard games.

But Blizzard recently announced that the highly anticipated Destiny 2 (a non-Blizzard game) will also be available on Battle.net, so demand for Tokens has skyrocketed. While the Token’s real-world price, for either buying or selling, hasn’t changed, the in-game gold value has. Here’s a snapshot of what the in-game gold value of Tokens has looked like surrounding the announcement of Destiny 2’s availability on Battle.net, courtesy of WoW Token Info:



Tokens went from under 110,000 gold to settling at around 130,000, about an 18% increase in value (and continues to see spikes as high as 160,000 gold).

That’s good in the sense that it’s taking gold permanently out of the in-game economy, like currency sinks are supposed to do. But the trade-in credit value of a Token hasn’t changed. That means the real-world value of in-game gold has declined relative to the U.S. dollar; a $60 copy of Destiny 2 will now cost players around 520,000 gold instead of 440,000 gold.

So players now have to spend more time farming digital gold to get real-world purchasing power. And those extra hours can have big implications across the world.

The long-term production impact

The world economy has more or less recovered from the worst of the Great Recession, but not every demographic has bounced back. Young adult males have spent less time working and more time playing video games in recent years. As video games have become more involved, they have cannibalized a lot free time and contributed to overall happiness, especially for people having trouble finding work.

But economists fear that there could be far-reaching implications If people in their 20s are working less and aren’t honing their skills, it makes them less desirable to employees in the future. Playing video games today could result in decades of depressed wages and opportunities.

But what if all of that game-playing was put to good use, and could become an actual job or an otherwise useful contribution to the economy?

Third-party video game services are a booming business. A University of Oxford study divided these services into four branches: farming currency, gathering items, creating accounts, and "powerleveling," which helps players build their characters. These skills are geographically centralized; China dominates currency and item services, while the U.S. is home to 79% of the world’s account services.

And make no mistake, there’s money to be made in this industry. On the popular site PlayerAuctions, you can find powerleveling services that cost several hundred dollars, accounts that go for as much as $2,500, and an Unholy Deathknight full armor set for over $200. Even if you don’t know what "Tarnished Dreamkeeper's Gauntlets" are, you can understand the cash that's on the table.

There’s obviously a limit to the relevant resume-building experience someone can get from creating a World of Warcraft account. But digital items are already having a real impact on the economy, and maybe it’s time we start looking at nurturing the tangential skills developed by entrepreneurial video game players. Building skills like account management, customer service, and sales might make playing video games more productive.

Image: Warkentien2