Despite the growing popularity of massively multiplayer online games (MMOGs), not all Internet users are familiar with what MMOGs are, the reasons for their tremendous popularity, and the financial ramifications of the same. Simply put, an MMOG is a computer program that allows its users to play within a virtual world and interact with other such users. The virtual world has permanence in the sense that it continues to exist, and events continue to happen inside of it, even when an individual user is no longer participating in of it.
A more specialized form of MMOG is the massively multiplayer online role-playing game (MMORPG), in which participation takes the form of playing as an imaginary person or creature, usually represented graphically as an avatar. Some of the most popular MMORPGs at this time are World of Warcraft and Second Life. The latter bills itself as "a 3D online digital world imagined, created, & owned by its residents" (from their home page).
All of these MMOGs combined may form a relatively small portion of all cyberspace, but they are increasing in social importance, as more people around the world spend a lot of free (and work) time immersed in these digital worlds. World of Warcraft (a.k.a. WoW), published by Blizzard Entertainment, reached 9 million users during July 2007. Second Life, in a respectable second place, boasts over 8.4 million "residents" as of this writing.
Yet raw numbers alone do not tell the full story. With the video game generation now moving into their middle years, and their children feeling completely comfortable using computers and interacting as part of Internet-based social networks, online role-playing games are gradually making inroads into the pastimes and other forms of recreation that have traditionally consumed the attention, and the discretionary spending, of so many people.
World of Wealth
In terms of online virtual wealth, one of the pioneering MMORPGs was EverQuest, developed by Verant Interactive and now published by Sony Online Entertainment (SOE). At one time the most popular MMORPG, EverQuest allows players to battle monsters for raw materials, gain prestige and power through underhanded tactics, and steal treasures from fallen colleagues. In other words, it's just like another day in the office.
EverQuest, like all other substantial MMORPGs, has far more elements and dynamics — and thus possibilities — than can be covered here. However, in terms of virtual wealth, it set the stage for the MMORPGs that followed, because players quickly learned that the variety of elements were in limited supply, could be obtained through effort, were valued differently by different players, and could be leveraged to gain even more valuable elements. It met all the criteria for an economic system, even if it was just numbers on computers (like our bank balances, come to think of it).
Second Revenue Stream
Yet it wasn't until Second Life took off, that virtual economies crossed over into the real world to a significant extent. World of Warcraft may have allowed players to accumulate virtual gold, but for the most part it remained just that — virtual. Second Life, on the other hand, was specifically designed by its creators at Linden Research to facilitate the financial crossover, made possible by the currency of the realm, called "Linden dollars".
In Second Life, players are able to create items of wealth within the virtual world, including real estate value. Taking the fast track, they can purchase these items using real-world money, and can turn around and sell them to other players for virtual or actual money. Even more directly, virtual and actual currencies can be exchanged for one another, made increasingly viable as people put greater value upon the virtual lives that they have created, and their personal possessions within these games.
Even though MMORPGs are still only played by a fraction of the (real) world's population, these virtual economies are certainly not peanuts. For instance, economist Edward Castronova studied the financial aspects of these games, and discovered that, as early as 2002, the total value of EverQuest's economy was greater than the sum of all Japanese yen in circulation!
As to be expected, some energetic individuals are making the most of these opportunities, and are now earning full-time livings within these game worlds. The entrepreneurial efforts are just as varied in cyberspace as they are in meatspace.
Some people develop and sell online real estate properties, with the most successful earning well over six figures annually. In fact, BusinessWeek Online reports that the number of Second Life residents earning more than $5,000 per month has reached 116.
Some especially skilled players provide fee-based training to other players who wish to improve their own skills. Several computer programmers have individually created original games that function only inside of Second Life — games within a game! — that can only be played by the avatars themselves.
The Taxman Cometh
Just as a dog attracts fleas, the increasingly "wealthy" MMORPGs are attracting the attention of governments, who, smelling potential tax revenue, are hatching new plots to get a piece of the action. The United States federal government, naturally, is the first one to seriously consider forcing MMORPG players to pay real tax dollars on their earnings within these virtual worlds.
In late June of 2007, the world of online gaming received the worrisome news that the Joint Economic Committee of Congress has decided to revisit the issue, which it had earlier considered but set aside. Dan Miller, a senior economist with the committee, told CNET News.com that the committee would likely issue, at some point in the near future, a report on the matter. However, he did not provide any details as to what the committee's position might be.
However, given the growth in federal spending and the concomitant deficits, the online gaming community can already guess what direction Congress is going to go with this — and it's probably not going to be a refreshing one of fiscal restraint. Given the phenomenal popularity and growth of MMORPGs, and the imaginary wealth created within those worlds, it may "take an act of Congress" to squash it.