All those people staring down at their phones while stuck in cars, sitting on the subway, lounging in parks, or getting quick hits of workday distraction? They’re not just catapulting angry birds or crushing candy. They’re contributing to a lively economy of mobile gaming, where each app download or purchase of a few extra lives in-game is contributing to a $20.9 billion global market in 2014, according to a new report from Juniper Research. And this virtual economy—where large amounts of real money are traded for digital goods that have no use in the real world—is only getting bigger.
Juniper Research, a decade-old British research firm specializing in mobile commerce that has worked with clients including Apple and IBM, predicts that the mobile gaming market will grow to over $40 billion by 2019. These big numbers might prompt a question: Why are we paying so much money for things that don’t actually exist? I previously wrote about the economies of online video games like World of Warcraft and EVE, where digital goods are sold for real money among players. But over the past year millions more people have begun participating in virtual economies through their smartphones, and a new branch of economics is growing out of those users.
A new book from MIT Press,Virtual Economies: Design and Analysis, by economists Vili Lehdonvirta and Edward Castronova, is an informative and surprisingly entertaining primer on these new markets. Every economy is based on “scarce means,” they write, or a discrepancy between supply and demand. It’s easy to see how that might function with a resource like gold—there is always less available than participants in the economy might want. But in a digital space, where objects are made up of infinitely replicable combinations of ones and zeroes, scarcity is harder to define. But it’s precisely this scarcity, Lehdonvirta and Castronova argue, that makes virtual economies function, and indeed boom to billions of dollars. (...)
Those virtual offerings often take the form of “content”—“artificially scarce resources … that create challenge and competition,” as defined by Virtual Economies, within games. If you’ve ever paid for new levels of Angry Birds, you’ve participated in the virtual content economy. Designing content gives merchants a unique advantage in the digital ecosystem: They can make supply exactly fit demand at all levels of their market, thus optimizing profits. So rather than charging a flat fee for subscriptions, they can price different content packages higher or lower, drawing in money from both casual players and committed addicts.
This model can also explain the different content structures of games over time. A high-end “triple-A” game like Halo offers lots of content immediately, with fans paying a premium for access. Online role-playing games like World of Warcraft consistently release or update content over time, trailing off once the game passes into irrelevance and subscribers lose interest. But free-to-play games that target diverse customers by charging for small packages of added content have a much longer tail—new content is often created long after the game’s release. It’s like a slow drip of morphine rather than a single injection of heroine—it might not produce as much of a bang, but it’ll probably keep you hooked and paying longer.
As more services and media move to an online-only format—think books, movies, and shopping experiences—the systems pioneered by gaming’s virtual economies will doubtless trickle into other facets of our lives as consumers. Whether we play video games or not, we’ll soon be dealing with the consequences of their economics.
Juniper Research, a decade-old British research firm specializing in mobile commerce that has worked with clients including Apple and IBM, predicts that the mobile gaming market will grow to over $40 billion by 2019. These big numbers might prompt a question: Why are we paying so much money for things that don’t actually exist? I previously wrote about the economies of online video games like World of Warcraft and EVE, where digital goods are sold for real money among players. But over the past year millions more people have begun participating in virtual economies through their smartphones, and a new branch of economics is growing out of those users.A new book from MIT Press,Virtual Economies: Design and Analysis, by economists Vili Lehdonvirta and Edward Castronova, is an informative and surprisingly entertaining primer on these new markets. Every economy is based on “scarce means,” they write, or a discrepancy between supply and demand. It’s easy to see how that might function with a resource like gold—there is always less available than participants in the economy might want. But in a digital space, where objects are made up of infinitely replicable combinations of ones and zeroes, scarcity is harder to define. But it’s precisely this scarcity, Lehdonvirta and Castronova argue, that makes virtual economies function, and indeed boom to billions of dollars. (...)
Those virtual offerings often take the form of “content”—“artificially scarce resources … that create challenge and competition,” as defined by Virtual Economies, within games. If you’ve ever paid for new levels of Angry Birds, you’ve participated in the virtual content economy. Designing content gives merchants a unique advantage in the digital ecosystem: They can make supply exactly fit demand at all levels of their market, thus optimizing profits. So rather than charging a flat fee for subscriptions, they can price different content packages higher or lower, drawing in money from both casual players and committed addicts.
This model can also explain the different content structures of games over time. A high-end “triple-A” game like Halo offers lots of content immediately, with fans paying a premium for access. Online role-playing games like World of Warcraft consistently release or update content over time, trailing off once the game passes into irrelevance and subscribers lose interest. But free-to-play games that target diverse customers by charging for small packages of added content have a much longer tail—new content is often created long after the game’s release. It’s like a slow drip of morphine rather than a single injection of heroine—it might not produce as much of a bang, but it’ll probably keep you hooked and paying longer.
As more services and media move to an online-only format—think books, movies, and shopping experiences—the systems pioneered by gaming’s virtual economies will doubtless trickle into other facets of our lives as consumers. Whether we play video games or not, we’ll soon be dealing with the consequences of their economics.
by Kyle Chayka, Pacific Standard | Read more:
Image: Farmville. (Photo: Zynga)
