Money for nothing

2009-11-20 10:25

Today, several million people will buy something online with no expectation of ever receiving their items by post or courier. They will only ever see their purchases on their computer (or cellphone) screens. And they will be completely happy with that deal.

I’m talking about virtual goods – products that exist only inside online ecosystems like multi-player games and social networks. If you’ve ever paid $1 to send someone a gift in Facebook, then you’ve bought virtual goods.

If the whole idea seems ludicrous to you, then consider these numbers: the US market for virtual goods is currently worth between one and two billion US dollars. Surveys indicate that about 12% of Americans (that’s over 30 million people) bought some form of virtual product last year.

And what’s even more unbelievable is that the Americans are behind the global curve here. In the Far East virtual goods have been big business for the better part of a decade.

For instance Tencent, a Chinese instant messaging and social networking company, made $1bn in revenue in the last financial year. Well over half of that was from virtual goods. (Full disclosure – Naspers, our parent company, owns a 35% stake in Tencent.)

Why would you buy?

But why do people buy these non-existent products in the first place? Well, for pretty much the same reason people buy any luxury goods – for pleasure. Whether that pleasure consists of sending your loved ones a cute virtual bear, or slaying a digital dragon with your new virtual sword is entirely up to the customer in question.

Online multi-player games are a particularly fertile ground for virtual goods because they are naturally competitive. Many games companies have now developed two-tier economies in their games. The majority of players spend many hours playing the game, completing quests and earning virtual currency to buy better kit for their virtual selves.

But a minority of players are impatient or lazy enough to want to take short cuts and rich enough to be willing to pay for them. They can buy large quantities of virtual currency with relatively small amounts of real money, and leapfrog their rivals.

Where the games companies don’t facilitate such an “exchange rate” between real money and their virtual currency, a black market quickly springs up.

You can, for instance, buy virtual gold for World of Warcraft or WOW (the world’s most popular multi-player online game) at a rate of $2 per thousand pieces of gold. Blizzard, the company behind WOW, explicitly forbids this practice – but it happens anyway.

Real money real problems

Of course where there is real money, there are also real problems. In 2005, for instance, a Chinese man killed a friend for selling a virtual sword that he had lent him in a game they both played. In a grim twist of irony, he stabbed the man to death with a real sword.

And money also brings corruption. In October, industry bloggers at Techcrunch uncovered a rash of scams in the social gaming ecosystem that has sprung up around Facebook.

Essentially players who want to earn virtual currency but don’t want to pay for it are tricked into signing up for subscriptions or products they don’t really want. Facebook has since cracked down on the practice and penalised the worst offenders.

But despite these negative aspects, it’s clear that virtual goods are here to stay. And while we may shake our heads in wonder, this is only a logical next step. After all, how “real” is a ring tone? How real is a screen background on a cellphone?

The only shame here is that virtual goods can do nothing to help the world’s poorest people. Without computers or connectivity they are locked out of this virtual economy. And besides, who wants a virtual flower when you’re starving?

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