Markets, unintended consequences and the spam in the Feudal System

Ok, so the title will only make sense within the context of Blizzard’s hugely popular (and financially successful) World of Warcraft. WoW is, very simply, a multiplayer online game (and by multiplayer we’re not talking of 4 players here, but rather millions of players around the world) where players interact with other players and the virtual world of the game.

A key component of the game is that special items can be purchased. The currency is “gold” and gold can be earned in a variety of ways. The least interesting of which is by performing basic tasks and completing basic quests. These are, in general, not very difficult or challenging, but do still take a fair amount of time. The other piece of the puzzle that is relevant to this post is that gold can be transferred from one player to another.

Without too much difficulty, it should be clear that players with lots of time and little money are incentivised to spend their time earning “in game currency” to sell to time-poor and money-rich players for real world cash (i.e. as in US Dollars). The sale of in-game currency in the real world is a free market, so free-market economics forces act on the allocation of resources (time and money) in a way as to more optimally allocate resources.

Picture if you will the far-eastern sweat-shops manufacturing shoes. Now replace the glue and sewing machines with computers, and replace the shoes with in-game WoW currency. Cheap labour comes to the fore and a business is born. In-game currency is the product, salaries (and a bit of computer, WoW and internet expenses) are the Cost of Sales, and real hard cash from time-poor First World teenagers and adult is the revenue.

Two problems:

  1. Is purchasing vast quantities of in-game gold with real-world currency (presumably earned from applying one’s particular real-world skills and talents in gainful employment) cheating? Is there a moral or ethical angle here? What is it?
  2. How do the “entrepreneurs” boost sales? They advertise! How? By spamming in-game players with messages.

The first point is interesting, and worthy of a blog (and quite likely a UN commission as well). The second point that has seen some recent action from Blizzard, who are suing one of the companies behind the in-game spamming. Will be interesting to see how that develops. Slashdot also picked up the story.
But, understanding how the problem arose is clear with the benefit of hindsight. However, I am quite certain that with some basic analysis of the economic forces in the game, and an understanding of consequences, these problems should have been anticipated by Blizzard. Seems like they have fallen one step behind the spammers, which could also be interpreted as the power of the free market.

Oh, and the Feudal System? The company being sued is “peons4hire”.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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