First Glimpse: Big Markets Inside Virtual Worlds

Internal data from Second Life give us outsiders our first glimpse at the volume of trade inside virtual worlds. It's big. Really big.

Over a one-month period, the users of 2L had a stock of 8.35 million Lindens (L$) and used it to conduct L$19.2 million in trade. Economists call the ratio of trade to the money stock "velocity;" in this case, it's 2.30.

Economists also tend to assume that velocity is constant. It's the turnover rate of a single unit of currency and is determined by the efficiency of market institutions. Second Life doesn't seem enormously different than any other world in this regard, so let's assume the velocity is about the same in other worlds, such as Norrath.

Data from Norrath in Summer 2001 indicated that the typical user had about 7,700 platinum pieces (PP) in cash. At that time, EverQuest had 400,000 users and the exchange rate between PP and dollars was 100:1. This means that the total money stock was (7700)*(400000) = PP3.08 billion. Using a velocity of 2.3, total in-world trade would have been PP7.084 billion. At the then-current exchange rate, that comes to $71 million.

So, a game like EQ has $71 million monthly in in-world trade. Current data from eBay suggest that the combined export-import trade for all US games except EQ - games whose total populations nonetheless well exceed EQ's 400,000 - is only about $1.3 million monthly. Evidently, in-world trade is much greater than out-world trade.

The figures for EQ suggest that each user does about $18 of in-world player-to-player trade monthly. That number feels about right (seriously! I've actually played EQ quite a bit). If we think about the market as a whole, we have upwards of 10 million people in the various worlds right now. At $18 per person per month, that's an aggregate in-world trade volume of $2.2 billion annually. According to UN data, that volume of trade would make virtual worlds the 144th largest economy in terms of GNP, right up there with Malta and Albania.

On the other hand, this number is such an extreme telescoping of assumptions as to have little merit in an absolute quantitative sense. We only have the velocity number - the keystone of all this - because Philip Rosedale of Second Life was kind enough to let me see it. It's frustrating that we don't have better data, and that we're forced to put together this crazy-quilt patchwork of assumptions to get even the most basic feel for what's going on. (If you're the proprietor of a big game and can see how some of these data, if released, could benefit the entire industry, get in touch.)

However, these data do yield convincing evidence of a qualitative, if not quantitative, nature: Whatever we see on eBay is dwarfed by what's happening inside the games. A great deal of value is changing hands out there. And it's all denominated in gold pieces.

Comments

[Bruce Boston]

1.

Anyone know what a Linden(L$) trades for these days?

[Bruce Boston]

2.

Also just to touch on the velocity of a currency. I am not sure what other VWs measure, but VoM is a key stat for the strength of the Therebuck and so we have been watching this closely. We have found that there are some pretty clear trends that are starting to emerge.

One example being the changes in the velocity just before and just after a 'release'. This may seem like an obvious conclusion, but we have been seeing that the velocity slows dramatically as people start saving a few weeks before the next release and then the velocity speeds up dramatically once the next wave of products hit the market.

The VoM also seems to have a resting place that it likes to return to between releases, though I am wondering if the resting place will stay at the same watermark now that we are out of beta.

[DivineShadow]

3.

Ed,

2ndLife has such a radically different manner of value generation, removal and trade, as compared to other worlds, that I don't think you can infer anything at all of what happens in other worlds. None of the big games out there have a means to create value with *creative* content, the creative arrangement that can be done in other worlds carries nearly no value since it can be easily replicated by anyone. Furthermore none seem to tax it's citizens like 2ndLife does or give cash rewards in quite the same ways. Perhaps a distant cousin to the 2ndLife economy might be The Sims Online, but both are very different from other worlds.

Also, what you're looking at on eBay includes very-high-value items, such as accounts, characters, and the pricier hard-to-get items - When the game has a hard time expressing the large values these items command due to the inordinate amount of time/effort/skill required to obtain them, or the game has no explicit way to host a market for them, the trade for them is taken outside. If anything, the difference between strictly in-world trade and mixed in/out world trade is likely more pronounced (read: eBay is even smaller, and comparatively there is more strictly inworld trade than you're suggesting).

PS: As far as I know Linden$ do not trade in a significant way outside of the game.

[Edward Castronova]

4.

Bruce: "VoM is a key stat for the strength of the Therebuck and so we have been watching this closely."
Well, share! What is the number??? Hehe. Inquiring minds are dying to know.

DivineShadow:
1. Argument that Second Life's production is creative, other world's production isn't: Hey, if it trades, it trades. The moniker "creative" doesn't mean anything to economics. Is a McDonald's cheeseburger creative? Nope. Does contribute significantly to GDP? Yep. To say that a good's trade should not be counted in GDP because it isn't really creative in some sense, is to wander off the path. If a thing is so easily replicable that its price is zero, then it will, in fact, contribute nothing to GDP. If it is easily replicable (uncreative) yet in short enough supply to have a positive price, then it will, and should contribute to GDP. So I don't see a distinction between the fantastic cars and motorocycles made in 2L as opposed to the 77 millionth version of the Flowing Black Silk Sash in EQ. They both have prices (P) and trade quantities (Q), and P*Q = GDP.

That having been said, it's clearly incorrect to generalize data from one world to another. We just don't have any other choice right now, because there is no systematic data collection going on. We have nothing to go on besides guesswork. And in an information vacuum, a reasonable guess is better than nothing.

2. Regarding eBay: sure, the items trading on eBay are "high-end" and special in some sense. But again, those terms are social constructions. But if it trades on eBay, it trades on eBay. And there are good reasons for eBay taking the trade it does. You can't trade an account using in-game markets, for example. Nor can you trade gold pieces against the dollar. Some of the older worlds (UO) make it difficult to trade items, especially in large quantities. So those are all reasons why the eBay trade exists for these items and not others.

But the point is, the trade is the trade is the trade. It's about $16-$17 million a year at eBay. Meanwhile, if 2L's velocity numbers are at all comparable to the other worlds, the in-world trade is many multiples of that.

On the other hand, it should be mentioned that GNP refers to new production. To the extent that in-world trade involves used items, that trade does not contribute to GDP.

And finally, no, there does not seem to be trade in the Linden, so we don't know its dollar value. I thought about cobbling together a dollar equivalence for it, but thought better of it since there are so many fishy assumptions in this thing already.

[DivineShadow]

5.

Ed,

A trade is a trade, granted. But again, the manner Linden$ come into existence and the circuit it does within the gameworld should affect the subseqent guesstimates. In 2nd Life Linden$ come into existence (AFAIK) by way of the popularity game (people's vote) and seem to flow into the gameworld at a steady pace month-to-month. It seems a lot more controlled than the influx of other worlds, just as the output, which is regulated via infamously unpopular taxes, seems to create a steadier pace of currency retirement. It is also much more rigid to player demand, whereas in other games it is mostly demand-driven with the demand being how many times monster X is camped/killed or action Y performed - No amount of politicking in 2ndLife seems capable of making the influx of Linden$ greater - The apparent reason for this is that Linden Labs is supposedly regulating server resource usage based on this economy - If they allowed Linden$ to flow indiscriminately into the gameworld they would incurr a big server resource debt which could potentially bring down the service. Other games do not have this problem since most objects a player can instantiate based on his bank balance are kept tightly controlled by way of inventory limits. 2nd Life's inventory limit is directly regulated by the currency.

That's for the generation. But what about trade? In 2ndLife you very rarely trade in order to obtain something that enables you to obtain more currency, whereas that is a main point of trading in other worlds. There are no better swords to kill monsters faster in 2ndLife. There's your curiosity (or esthetic sense) and sometimes the ability to participate in a special game. Where I'm going with this is that there are no commodities in 2ndLife, every object is unique and everyone is a crafter. Wouldn't the amount of trade for unique objects that enable almost *nothing* in a world full of producers be less than the trade for commodities that enable objective progress in a world with a mixed population of producers (crafters) and consumers (adventurers)?

Anyway. You see generation, trade, and currency retirement just as in Everquest, etc. But where I'm trying to go to is that the entire 2ndLife currency circuit seems so different from the rest that comparisons are unreliable at best. I'm not saying the estimates you threw are long shots, you already said that. I'm saying they're much longer shots than they would appear at first glance.

[Edward Castronova]

6.

"I'm not saying the estimates you threw are long shots, you already said that. I'm saying they're much longer shots than they would appear at first glance."

Ah, OK. Fair enough. That makes good sense. I stand corrected.

Ted

[Dave Rickey]

7.

I am now truly sorry I was unable to get authorization to show you the data I had on the Camelot economy, you could have done a lot more with it than I was able to.

However, my boss will be with me at State of Play, and I think we need to get together and pitch him the case that we should give you access to the data for Wish. Although I'm doing some things significantly different in the economy there, they're in ways that should make it even more interesting for you.

It's somewhat embarassing to have all this data, and no way to figure out what in it is actually important.

--Dave

[Cory Ondrejka]

8.

Related to the "all this data" problem is the fact that we don't keep all of the data we gather (OK, we do have it, but it's in backups and both harder to retrieve and harder to place in context with current data) so another area for tighter integration between academia and the game world is pointing out what data would be useful so that we can make sure to keep it.

For those who would be interested, Linden's policy is to be extremely open with data, so if anyone is working on research that we could help with, please don't hesitate to contact me.

Cory

[Bruce Boston]

9.

Ted -

I am going to draft a proposal in the next week or so, to make more of these numbers available.

But first, I wanted to ask if there are other key numbers that Academia could make use of? GDP? Total money supply? Breakdown of upper, middle and lower wealth levels? Industry numbers, example Manufacturing, vs, Retail, vs Services, vs etc?

Any other suggestions?

Who knows how much I can get approved to show publicly, but there is little harm to including all the requests in the original proposal. Besides, the more I can put in the first round the less likely it will be that I need re-pitch a proposal for more data in 2-3 months.

Also, since the likelihood of each VW coming up with the same set of econometrics using the same definitions is pretty low, I am wondering if you want to define a basic set of key economic metrics that we could all work from? I think this could also make it easier to compare/contrast trends in one VW to the next, and make it easier to aggregate several VW's data together in the future.

-Bruce

[Edward Castronova]

10.

Ack! Homework. But a golden opportunity, and I will get something together. Anyone with ideas, let us know.

[Edward Castronova]

11.

No one is going to be able to deliver all of this, but this is what I would like to see:

Standardized Quarterly Statistical Report for Synthetic Worlds

1. Average hourly population of unique users.

2. Total number of unique users.

3. Price level (cost of a standardized, representative, unchanging basket of in-world goods, using in-world currency).

4. Value of production of new goods (using in-world prices obtained for [3]).

5. Volume of observed trade in new goods (smaller than [4], since many new goods are kept by their maker and not traded).

6. Volume of observed trade in used goods (goods not produced this quarter).

7. Volume of observed trade in services (if you can actually record people trading things like transportation or healing for money or other goods and services that have a money value).

8. GDP = [4] + [7]. (However, if you follow the current practice of Earth governments, GDP = [5] + [7]).

9. GDP per capita = [8] / [1] (or [8]/[2], depending on how one defines population.)

10. Current stock of in-world money.

11. Velocity = [5] + [6] + [7] / [10]

10. Value of currency in dollars:
Method A "Time Cost" (preferred): (i) Obtain average hourly wage rate of user base [2]. (ii) Observe average time cost required in world to obtain one unit of currency. (iii) Multiply (i) times (ii).
Method B "Convertible Currency" (if available): Observe current in-world purchase price of the currency in terms of dollars.
Method C "eBay" (if available): Collect average trading value of currency during this quarter at online markets.

11. Volume of foreign exchange transactions (sum of eBay and in-world currency conversions).

12. Volume of external trade (total trade of in-world goods and services in out-world markets).

13. Average price of a used account in out-world markets ($).

14. Volume of used account trade in out-world markets ($).

15. Inflation rate (percent change in [3] since last quarter)