Real Money Trade (RMT) is the buying and selling of virtual property or currency for real-world money. Many virtual worlds now embrace this trade in virtual currency and goods, often as a source of income for the world’s operator. Blizzard, the developer of World of Warcraft (WoW), does not:
“RMT is a TOS [Terms of Service] violation. The fanbase is pretty committed to being against it, and we’ve got a group of guys that are committed to stopping TOS violations. The game was never designed for that in mind – everyone starts off even. In the real world that’s not true, but in WoW everyone starts even, and the RMT stuff messes with that.”
That environment seems to have expanded another quite logical commercial market: Teaching players to play. “Learn2Play” in the vernacular, or “L2P” in shorthand.
Rather than buying gold (in-game currency), players buy the knowledge of how to make gold themselves. The market isn’t restricted to gold. Guides to power-leveling (advancing a character through the first part of the game as fast as possible) are also popular: Rather than pay someone else to level a player’s character, players can buy a guide containing instructions optimised for rapid leveling.
This article explains Learn2Play, and explores some of the history and trends in this “market”. It focuses specifically on World of Warcraft, in English, which is sufficiently popular to create a tangible commercial Learn2Play market. It draws on my own experience from selling these guides.
Superficial analysis suggests the World of Warcraft Learn2Play market is valued at over $3 million revenue per year. In spite of WoW being an online experience, revenue from physical book sales may still exceed revenue from the virtual equivalent. The market is far smaller than RMT. But the notion that people are willingly investing US dollars in knowledge and skills that are useful solely within one virtual environment, should perhaps deserve as much attention as other real-virtual money transactions.
These are rough notes from an Edinburgh Entrepreneurship Club/Edinburgh-Stanford Link lunch event. Patrick Chung is a partner with NEA (New Enterprise Associates), focused on internet technology, including video games.
Video games trends
A summary of his current trends in video games:
- Casual. Fishing is really popular, apparently. (I know!)
- Platform. The development of platforms, instead of specific game titles, spreads the risk. Mainstream games titles are expensive to develop, take a long time to build, but often don’t sell well – ergo, as high a risk as almost anything. Parallels my earlier musings on games industry innovation.
- Virtual goods and alternative revenue models.
Nothing terribly unexpected there. But he made some interesting points on venture capital and funding.
When to consider venture capital
At the outset of a venture, consider venture capital only when you really need it. He used the example of Loopt. The two young founders needed the approval of major US mobile carrier networks. They simply would not have got in “through the door” of those organisations without the backing of a major venture capitalist.
In most cases, find angel investors (individuals with private money to invest) to get started. Specifically angel investors that don’t make too many demands. Those demands both go against the spirit of angel investing (the woman in the pub writing a cash cheque on the back of a good idea and little else), and can make it far harder to progress once the enterprise grows (i.e. selling part of it to venture capitalists).
The valuation of a “typical” Silicon Valley consumer internet enterprise will change over its development:
- Start – an idea, no real plan, people without previous experience: ~$2 million.
- Experience – a plan, a capable team, perhaps some rudimentary code: ~$4 million.
- Product – tangible product, not yet launched or perfected: ~$6 million.
- Users – people are actually using your product: ~$10 million.
If users are growing rapidly, valuations can also grow rapidly.
Why are these changing valuations important? An enterprise still at the first (starting) stage, will probably need to sell half the business to a venture capitalist in return for funding. The further one is down the valuation chain, the more bargaining power an entrepreneur will have. The advice is simple: Don’t sell right at the start unless you really need to.
Location and culture
Geographical location is particularly important for early-stage enterprises, or when the people involved have little experience: The venture capitalist will want/need to be involved day-to-day, almost hour-to-hour. That’s a problem if there is a 9-hour time difference: A crisis in London at 10:00 is likely to stop someone in Silicon Valley getting a good night’s sleep. (Games are somewhat easier, because developers tend to work very long hours…)
Later-stage enterprises can be managed more effectively from the other side of the world. Realtime Worlds (Dundee, Scotland based) is a good example. The business was already established with 100+ employees, including some of the people involved in the original creation of franchises like Grand Theft Auto.
Culture is also important: All venture capitalists are not the same. For example, some will invest based on the people involved in an enterprise. Others will look more at the idea.
Funding application stages – what’s expected
Patrick highlighted a series of stages in the pitching/evaluation process:
- You – what are you trying to do, how, how dedicated are you to that aim? They look for problems to be solved – “painkillers, not vitamins”.
- Market and returns.
- Uniqueness of solution.
- Competition and team.
- How much money is required, and how will it be spent? Avoid running out of money: Ask for more than you think you need – perhaps twice as much. If you run out of money before completing an initial product, you won’t have any bargaining power when trying to raise more.
These notes discuss innovation within the video games industry. The factual information is primarily drawn from sessions (and conversations) with Jessica Mulligan (executive producer and one of “the five most important people in the virtual world“), Jason Rutter (University of Manchester), and Brian Baglow (Indoctrimat). These notes are my personal interpretation of what was discussed, not a transcript of the event.
The first Edinburgh Digital Interactive Symposium was held on 15 August 2007. It aimed to bring together academics and the “games” industry, to discuss topics from games industry innovation to policy in virtual worlds. The diversity of people these topics attracted was remarkable – from philosophers to corporate executives. It should come as no surprise that we all struggled to understand each other. Yet this was a group who merely by expressing their interest in such an event, tend towards curiosity.
This is the first set of notes from the Edinburgh Digital Interactive Symposium, covering virtual policy and legal issues. A second set of notes discusses innovation in the video games industry. These notes are my personal interpretation of what was discussed, not a transcript of the event.
The lawyers are very excited about virtual worlds. Antonis Patrikios, from Field Fisher Waterhouse LLP, was speaking. At the most basic level, it’s a clean slate with no case law, yet almost endless contentious issues. You can almost see the dollar signs in their eyes. At one extreme there is a school of thought that wants to declare a new thread of international law – that is, to treat virtual environments as separate legal jurisdictions. At the other, the simple statement that real world objectives (and therefore regulation and law) will be directly applied to virtual worlds, without special consideration.
An example of one of the many crunch-points: If by “playing” I generate money-tokens (i.e., not necessarily legal currency, but having the same effect within the world they are generated), and someone does something that scams me of those money-tokens, do I have any rights in (physical) criminal law? If prior to bankruptcy, I move all my assets into a virtual currency, can the authorities recover them? One position is that I only have rights if the operators of the virtual environment allow me to legitimately transfer my money-tokens into real money. But it could be argued that if something is perceived as having value, it has value, even if it can’t be directly or legally (contractual law) monetarized.
Now, add to the equation the fact that the representation of the person within the virtual environment may not be traceable to a real legal entity. (There’s a major philosophical argument here too, that I’ll step over because I don’t understand it – although I’m told the fact I don’t understand it is fundamental to my ability to try – er, yes.) The one entity that always is traceable is the operator of the world – who of course have no legal structure themselves, since they are typically a business and not a civil authority. The anonymity issues may be solved technologically, but the very possibility that operators might get dragged into criminal cases triggered by what their users do, is pretty frightening.
The role of physical location of operators, technology (servers), and users gets even more complex than in the (already arguably broken) website/e-commerce model. Does intellectual property of things created in these worlds transfer to the user? Trademarks are defined territorially, yet where is this virtual territory? And is a virtual re-creation the same as a real product anyway? There are big US/EU differences here. For example, in the EU it is far harder to patent the implementation of an idea, rather than the idea itself. So a lot of software patents that exist in the US, don’t exist in the EU, since software is commonly just the technical implementation of an idea.
There’s an interesting aside here on when money becomes a currency, and when a game becomes a bank. In the UK, if you offer credit, you’ll drift into financial regulation. The question nobody can answer is when that provision gets so large it becomes a bank, or so popular it threatens an existing currency.
Chris Francis (IBM) attempted a basic differentiation between virtual games/worlds. He takes more of a policy perspective than others. You have to be able to quantify each virtual experience on a spectrum, otherwise everything from simple online games to open real-currency trading platforms will be seen as the same thing in any regulatory debate. There are four factors, each of which covers a spectrum of topics. Generally the further to the left you are, the more like a game (and hence the most likely to avoid regulation), the further to the right, the more like real life (and so the more likely to be regulated):
Economy/tradability: In-game “gold” <<—>> Real money.
Identity/communication: Text <<–> Voice <–>> Accountability.
Plot: Scripted <<—>> Freeform.
Data flow: Augmented virtuality <<—>> Augmented reality.
Augmented virtuality I didn’t quite understand as a concept, but I’d interpret it as the re-creation of augmented reality concepts into an inherently virtual setting, rather than a real-world one. The interesting current topic is voice. Voice is a significant shift into the realm of communications legislation, since voice is widely understood to be communication, while text is a grey area. It follows that in introducing voice clients within games, game operators are more likely to open themselves up to regulation. I don’t think the games industry had considered that.
William Garrood spoke from Ofcom, the UK communications regulator. In the EU, active regulation is currently focused on television-like services, particularly using the radio spectrum for transmission. Electronic Communication Services legislation first appeared in 1998, passed into EU law in 2000, and has slowly been added to law across EU states. (It is worth noting that the regulatory cycle is almost 10 years, the academic cycle for studying it all is 3 years, yet 6 months is a typical industry timescale to deploying new technology in the arena.) The current legislation could allow virtual worlds to be regulated, at least in part – but nobody is yet. This was intentional in the design of the legislation: The EU agenda is to move away from regulation – there is a desire to try and foster self-regulation.
The EU may be regarded as a lower-risk environment than the US, simply because the US has no apparent boundaries – yet a litigious culture that will make discovering those boundaries expensive, and arguably will resolve them in favour of the dominant industry. The EU has a structure that is likely to “step in” if it looks like everything is going to hell in a handcart.
Ofcom is quite focused on the BBC‘s traditional territory: Supporting “socially valuable content” in virtual environments. They already have a strategy called the Public Service Publisher. They’re aware that young audiences, in particular, are moving away from television, and are looking to fill the “post-TV gap”. It’s positive regulation, although how it works in practice is unseen.
The United Kingdom’s local public transport network is likely to become part of Google Transit. Technically that should be far easier in the UK than in North America, where Google Transit was first developed: The UK has a decade’s bitter experience putting all the data together. In practice it is raising wider issues over data control and availability, that the public sector is somewhat reluctant to tackle.
This article describes how the UK’s public transport data is being integrated into Google. It questions why data is being made available based solely on the business model adopted. It explores the real value of this information, and presents a case for the liberalisation of data.
Readers unfamiliar with the topic area should read my earlier Introduction to UK Local Public Transport Data, which contains non-technical background information, and defines many of the terms used (such as “local”). The original research for this was done in June/July 2007, so may now be slightly out of date.
The illustration on the right is the Google part of a visual representation of web trends, based on the Tokyo metro map, by Information Architects Japan.