Cultural exchange: Western devs enter Japanese social gaming market – Japanese enter Facebook

The Japanese social gaming scene is dominated by three platforms: Mixi, Mobage-town and Gree. The great majority of people access these social networks via a mobile phone instead of a computer browser. It’s a big market: according to David ‘dc’ Collier of Japanese social game developer Pikkle, it’s just as big as the U.S. market: half the population, but twice the ARPU (David gave an excellent introduction to Japanese social games at GDC this year, covering everything from business models to game design). No wonder major social game developer PopCap’s APAC bizdev Giordano Contestabile recently said on Twitter that he was “doubling down on social games in Japan. As are most other companies. Next 6 months will be a pitched battle. Expect fireworks”!

At the same time, it’s interesting to note that Japanese developers are increasingly reaching out to Westerners, and they’re doing so through Facebook. Amebe Pigg, a year-old virtual chat world with over 2 million users, was recently launched on Facebook in English as Amebe Pico. Activities in this cutesy isometric environment revolve around shopping, decorating your room and gearing up your big-headed avatar, similar to Finland-based teenage virtual world Habbo. The developers of Poupée Girl, a Japanese community site focusing on dress-up avatars and the bewildering world of Japanese teenage girl fashion, debuted on Facebook yesterday with Poupée Boutique: a shop simulator that leverages the art assets from Poupée Girl. The UI seems to be in English. The boutique is advertised both in English and Japanese.

Besides being a path to the Western market, these forays into Facebook may also be a way for developers to hedge their bets on the domestic market. Facebook used to be a very minor player here, and it’s still minor. But I see more and more Japanese tuning into it now – especially those with foreign friends and some English ability. Two years ago, people used to ask me if I’m on Mixi. Now they ask me whether I’m on Facebook or Twitter (I am now). Japanese who join Facebook moreover find that a surprising number of people from other countries speak Japanese. Mixi requires a Japanese mobile phone to register, so you’ll find few of these foreign anime fans there. The network dynamics are complicated here, but in the long run, the bigger network tends to dominate.

Wall Street Journal blogs about virtual economy research

I usually don’t do self-serving posts about media appearances, but this one is good enough to point out: WSJ Blogs’ Real Time Economics has an article titled Real Economist Learns From Virtual World. It’s a decent story about the space MMO EVE Online published by CCP Games, and HIIT’s virtual economy research collaboration with them. My boss Marko Turpeinen is interviewed. The only thing they get wrong is the name of our unit (it’s the Network Society research program, not the Social Media research group:).

AVEA virtual economy research project final report released

A seminar on virtual economy research is starting in a few minutes here in Helsinki. The seminar marks the conclusion of a 2.5-year virtual economy themed research project at the Helsinki Institute for Information Technology. The purpose of this post is to disseminate the 119-page final report of the project. Here you go! (edit: summary version added) Excerpt from the report below.


Introduction

In 2007, the AVEA project proposal called for a new research effort into “so-called virtual property, artificially scarce digital objects that have rapidly become a viable business model for software products and online services.” Gold farmers and real-money traders in massively-multiplayer online games had recently broken into popular consciousness. There was an expectation that virtual economies were going to continue to expand in one way or the other. Helsinki Institute for Information Technology HIIT and the Finnish interactive media industry had already had a good start in grasping the phenomenon thanks to some successful early ventures and research projects. Now was a time to push on and take part in creating the next wave of the phenomenon.

The AVEA project plan put forward the following research questions: What drives the value of virtual goods and how can we model it? How can we measure economic activity in virtual economies? How can the virtual economy model be extended to new platforms and non-gaming applications? These questions reflect the fact that while significant revenues were already being made in the virtual goods business, there was no comprehensive understanding of why the goods were so valuable, and whether some opportunities for value creation remained unexploited. Edward Castronova at the University of Indiana was putting forward GDP estimates for virtual economies, but game operators were not convinced that tools from national economies were the correct ones for managing virtual economies. Furthermore, while the prevailing virtual economies at the time were massively-multiplayer online games, we were questioning whether the same principles could not be adapted for other platforms and purposes, such as mobile and serious applications.

During the three years that then followed, virtual goods, currencies and economies saw almost explosive growth on the Western market. Virtual goods sales became the dominant revenue model for online and especially social games, and many game developers referenced the publications of this well-timed project in designing their offerings. Virtual economies not involving real money also increased in complexity, and the project yielded an alternative to GDP for measuring them. The development of mobile virtual economy prototypes during the first project year heralded the eventual commercial breakthrough of the virtual goods model in mobile gaming applications, although this breakthrough did not happen in Finland.

This report is intended to provide an overview of the main research streams in the project and their key outcomes. Following the structure established by the research questions in the project plan, the report is organised into three sections: Value, Measuring and Applications. Each section contains three chapters that address the research questions from different angles by summarising work conducted in the project. Each chapter is also prefaced by a one-page summary.

The project resulted in no less than 20 scholarly publications, including articles and papers published in some of the leading venues of digital social sciences and HCI research. One PhD thesis and a total of four Master’s theses were completed during the project. A number of manuscripts are also still being worked on. This is a significant volume of publications for a three-year research project with a core team of only a handful of researchers. In part it reflects the fact that digital scarcity is a novel research topic, and is taking by surprise some academic disciplines still grappling with the implications of digital abundance. HIIT and the individual researchers involved in the project are now exceptionally well positioned to continue work on these topics.

Furthermore, AVEA’s publication success also certainly reflects the project’s strong element of international collaboration. HIIT’s main partner in the project was the Distributed and Ubiquitous Computing Laboratory at Waseda University, Tokyo, lead by professor Tatsuo Nakajima. Thanks to professor Nakajima’s team’s expertise in pervasive technologies, serious games and realistic prototyping, we were able to conduct applied research and user studies that were published in such venues as the prestigious ACM International Conference on Ubiquitous Computing. As part of the project, we also developed the Virtual Economy Research Network into an even more prominent hub and forged new international links that are already proving their value in follow-up research initiatives.

We would like to express our strong gratitude to the companies that took part in the AVEA consortium: Nokia, CCP Games, SWelcom and EveryPlay. CCP provided us with unprecedented access to a virtual economy data set that continues to yield results in follow-up research, for which we are very thankful. Finally, we would like to express our extreme gratitude to the Finnish Funding Agency for Technology and Innovation Tekes, for their crucial support in the form of funding as well as networks and advice, without which the project would not have been possible.

On behalf of the project team,

Kai Huotari
project manager

Vili Lehdonvirta
editor

7 June 2010

13 Percent

Also posted at Terra Nova

According to Playspan, and reported by various outlets this week, 13% of internet users bought virtual goods last year, spending a little over $90 on average.  (If this is accurate, it matches the percentage of voters who claim membership in the Tea Party, the percentage of CEOs who drove hybrids in 2007, and the percentage of teenagers who eat the recommended amount of fruits and vegetables.)  Estimated global revenues from sales = over $10B.

In related news, 44M game passwords were reportedly stolen, presumably with the hopes of supplying a bit of that 13 percent, multi-billion dollar market.

 

AVEA Seminar on Research in Virtual Economies

June 8, 2010
12:00 to 16:00
Museum of Contemporary Art Kiasma, Seminar room
Helsinki, Finland

On Tuesday, 8 June 2010, Helsinki Institute for Information Technology HIIT is organising an open seminar on research in so-called virtual economies. Online gaming, virtual goods sales and the convergence of games and social networking sites are radically changing the operating environment for consumer facing online businesses. Understanding user behaviour and different business models as well as the ability to collect and analyse data are emerging as crucial success factors. This seminar will provide a scholarly perspective to these topics by presenting findings from AVEA, a Tekes funded research project. Please find the programme of the seminar below.

12.00 Opening words
Kai Huotari, Research programme Manager, HIIT

12.15 Virtual Consumption
Dr. Vili Lehdonvirta, Researcher, HIIT

12.50 Virtual goods sales as a business model
Juho Hamari, Researcher, HIIT

13.25-14.25 Coffee Break

14.25 A micro-economic approach to MMOs
Juha Tolvanen, Researcher, HIIT

15.00 Does a player driven virtual world need economic management? CCPs approach to managing the economy of EVE Online.
Eyjólfur Guðmundsson, Chief Economist, CCP

15.35-16.00 Closing discussion

Welcome!

Please confirm your attendance by Friday, June 4, to Kai Huotari (kai.huotari{at}hiit.fi).

Quick Notes

Also posted at Terra Nova

 

Cosmetic Real Money Trading in World of Warcraft

Despite a staunch position against non-company-sanctioned real-money trading (RMT), or the exchange of “real” money for virtual goods and services, Blizzard Entertainment has recently introduced new features of World of Warcraft that have opened the door to the sale of the company’s own virtual goods. While currently focused on cosmetic elements of the game in a controlled and limited way, the development of Blizzard-sanctioned and governed RMT raises some questions and concerns about such practices as well as opening the door for further such activities in the future.

Recent developments in RMT in World of Warcraft are focused on primarily cosmetic items. New items that add to the game in primarily aesthetic ways are available for player purchase within the Blizzard store. To date, offerings are focused on pets and mounts. In-game non-combat pets include a panda, robotic mini- deconstructor, and mini-monster. These pets serve no practical function within the game, and retail for $10.00 USD. The store also features additional in-game pets such as a wind rider cub and a gryphon hatchling that sell for $25.00, but that also include a stuffed animal. While it will not enhance play in a way that otherwise be unattainable within the game, another recent item available in the Blizzard store includes a purchasable mount. The star-outlined celestial steed allows for quick in-world transit and sells for $25.00.

To a degree, cosmetic RMT has been around in World of Warcraft longer than might initially be apparent, especially with the hyped advent of the Blizzard store and its merchandise. In truth, special rare items such as spectral tiger and saltwater snapjaw mounts became available through the purchase of card packs for the associated trading card game (TCG). However, the shift to Blizzard-enabled purchases through a dedicated store marks a potentially significant shift in RMT practices and their effects on video game play in virtual worlds.

While Blizzard has not announced all of their future RMT intentions for the site, there are a few possible repercussions that are worth considering. First, with the shift to special store-only in-game items comes the ability to read another player in terms of how much money they have spent on the game. Generally speaking, in-game items have been largely indicative of the amount of work a player had put into their character – they represent the completion of particular tasks, success in specific dungeons or other arenas, the accumulation of wealth or other currencies, or a combination.

In contrast, allowing players to purchase items – and making such items only available for purchase, and therefore distinctive within the world – makes it clear which players have bought their goods. While such knowledge is not necessarily an issue on its own, it does raise questions surrounding whether such purchases constitute cheating, and whether making apparent how much individuals spend on the game could be an issue in a game that, theoretically, offers an even playing field within the world.

Second, the progression of different items released within store could, if they continue at their present rate, gradually lead to the sale of goods that could significantly affect gameplay. Items introduced within the Blizzard store have begun, with the introduction of the celestial steed mount, to shift from being purely cosmetic – as with non-combat pets – to moderately functional. While the mount does not increase the speed increases available to players who buy it, it does function within the world as any other mount, rather than being a purely cosmetic addition such as with a companion pet. While it will not significantly affect gameplay, beginning to introduce functional items that could alter the play experience by gradually leading to a play style where players are able to purchase their in-game items.

These issues are not necessarily fully upon us, yet the development of RMT within Warcraft raises some interesting questions about the potential effects of such developments. While RMT is not a new element of virtual worlds, the development of such features in a world that has fairly consistent moved away from and even worked against these practices offers a useful case study. Many virtual worlds have only consistently omitted or offered RMT. With World of Warcraft, the gradual shift from one state to the other offers an opportunity to explore not only its effects on worlds, but how these worlds changes as RMT becomes a sanctioned element of the world.

The ethics of social games and virtual goods: a bigger picture

ADOPT THE BABY SEAL! You can rescue a scared Baby Seal when it got lost while playing hide-and-seek! The Baby Seal is too young to survive on its own. (Happy Aquarium by CrowdStar)ADOPT THE BABY SEAL! You can rescue a scared Baby Seal when it got lost while playing hide-and-seek! The Baby Seal is too young to survive on its own. (Happy Aquarium by CrowdStar) A big theme at the Game Developers Conference this year was the rise of so-called social games: relatively open-ended games typically played on social networking sites such as Facebook, light on story and complicated game mechanics, but full of highly optimised feedback loops and virtual goods accumulation. A paradigmatic example is Zynga’s FarmVille, which has attracted an incredible audience of 80 million players. The success of social games is forcing traditional developers to reconsider the way they approach game design and game business. But some game industry veterans are now raising concerns about the ethicality of the social game paradigm (Soren Johnson has a good summary, check out the comments, too). Much of the concern relates to the idea that social games “exploit psychological flaws in the human brain” to keep users engaged and paying for comparatively simple game content. Sour grapes or valid concerns? I’m withholding judgment, but the discussion prompted me to write a short essay that puts the current concerns in a bit of a historical context.

How mass culture killed the auteur

Radio talk shows, refrigerators, packaged foods and other products of the industrial power of the United States and Europe began to reach a growing number of homes towards the middle of the 20th century. This rising prosperity was in large part due to the efficiency of the capitalist economy. But even as material prosperity grew, sociologists such as Max Horkheimer and Theodor Adorno (1947) felt that something was simultaneously being lost. They called the new mass-produced prosperity “mass culture”, and were sorry for all the more original culture it was replacing.

Horkheimer and Adorno studied music and radio in particular. Classical music was produced for the sake of music itself. In contrast, the entertainment offered by the new mass media, radio, was designed to sell advertising space. They thus argued that while culture was originally independent, in mass culture it is subjugated by economic interests. Culture becomes a machine for producing consumption: turning citizens into consumption machines in order to fulfil the needs of the growing industry.

During the latter half of the 20th century, competition between companies ensured that the science of persuading consumers continued to develop further. Vance Packard (1957) showed how American advertisers and retailers in the postwar era exploited the latest findings from psychology and sociology in order to beat their competitors and sell more goods. Subsequently this approach has been taken to new heights. Retail spaces and restaurants are literally Skinner boxes where customers’ every move is observed and analysed. Product palettes and prices are optimised for each target segment. Pop music songs and television shows follow carefully tested and re-tested formats with split-second accuracy. Where auteurs still exist, they largely subsist at the edges of the economy.

It is possible to fashion the concerns expressed about the shift towards social games according to this same pattern. Originally, game developers focused on creating the most touching and moving experiences they could fit on a floppy or cartridge, creating real cultural landmarks. In contrast, social games are turning the game industry into an industry where the profit motive directly dictates game design, and human psychology and sociology are harnessed in the pursuit of revenues. Developers become optimisers and the role of players is that of mindless clicking machines.

My game is better than your game

It is tempting to view mass consumption as an entirely “produced” phenomenon, where consumers are nothing but victims of manipulation. In practice, however, this view turns out to be too simplistic. We humans are reflexive subjects: as some new “brain hack” gains popularity, to some extent we can learn to identify it and negate its effects. Schoolchildren are increasingly taught media criticism. Gamers learn to break away from addictive mechanics to pursue other things they hold dear, at least healthy ones. People creatively repurpose consumer goods and influence the way in which markets and fashions develop through debate and advocacy. Although we will always be susceptible to marketing and optimised game mechanics, the relationship between production and consumption is by no means that of simple exploitation.

Horkheimer and Adorno’s juxtaposition of shallow mass culture versus profound high culture has been criticised as elitist. Classical music and fine literature were originally the privilege of those few how could afford the time and education to enjoy them. As mass media brought music and talk shows to the reach of the ordinary working man, the cultural elite hastened to point out that these were nevertheless inferior forms of culture: the highest respect and reverence should continue to be afforded to the connoisseurs of high culture. Yet it is difficult to define objectively what it is that is so great about the products of high culture that sets them morally above the products of the vulgar mass culture. Connoisseurs say that classical music is “profound” and “the closest music has ever come to universality”, but people dancing to a trance track at a festival with hundred thousand other people report very similar sentiments (can anyone but a connoisseur tell the difference between the world’s most talented classical violinist and a street musician?).

To some the whole debate is thus a fight over whose taste gets to be called better, and whether cultural forms that are difficult to access are automatically privileged over popular ones. Should we look down on the neo-gamer because she or he doesn’t have the time or ability to unravel The Secret of Monkey Island, instead preferring the strangely satisfying rythmic movement of clicking on pictures of plants? Many of the criticisms of mass culture and exploitation of consumers still stand. But many scholars have given up on bashing mass culture, not because there wouldn’t be anything to bash, but because all has been said already. Instead, they have now taken the bull by the horns and moved on to studying “consumer culture” in itself: what new cultural and social forms do the products of the mass culture give rise to? Superbowl ads and all the discussion surrounding them are an good example.

Making moral decisions in a market economy

Market fundamentalists believe that the consumer is always right: every free and informed choice they make on the marketplace results in greater welfare. The equal belief in gaming terms is that if a player clicks on something, they must be enjoying it. From an ethical perspective, this belief frees the producer from responsibility and shifts the burden to the consumer to make the right choices.

However, we know that people frequently make bad choices even when they should know better. Smokers and gourmands often choose short-term indulgence even when they believe it will result in greater pain later. Gamblers may risk huge amounts of money or even their job and family for the sake of a moment’s exhilaration. Nor are consumption decisions in practice very informed: many children and adults alike are lead to bad purchase decisions by one-sided information provided by advertising. If you as a seller know that what you are offering to the customer is probably not good for them, it becomes hard to justify your business ethically.

How is the seller supposed to know what is good for the consumer and what is bad? The mismatch between the choices that people make and the choices that would have made them happy is studied in fields such as behavioural economics, happiness studies and the psychology of addiction, but there is no big theory or formula that can answer that question. It comes down to individual judgment. If your “customers” are calling a helpline to get away from you, as is the case with gambling addicts all around the world, then the implications are quite clear.

Yet individual judgment doesn’t always matter in our economy, which is built around maximising shareholder value. If your gardening simulator doesn’t exploit the latest hacks from cognitive psychology, the competitor’s will, and they will prevail. On the other hand, if you become too good at relieving customers of their money without leaving them with a feeling they got something of value in exchange, you run the risk of being regulated like casinos. Having your business destroyed by regulation or consumer activism is not good business, so it is possible to make a business case for short-term self-restraint. Sulake, the makers of the teenage virtual world Habbo, are very tactful about marketing to minors: they even limit the amount of money their customers can spend on virtual coins in a week. However, this is called stakeholder management and does not necessarily have anything to do with acting ethically out of one’s own moral compulsion.

Just because the goods are virtual doesn’t mean they are unethical

Besides the recent concern over the ethicality of social game mechanics inside the game industry, mainstream commentators have been questioning the ethicality of selling “nonexistent” virtual goods ever since this revenue model was first invented. The typical view is that “selling virtual goods represents taking advantage of children both economically and psychologically”. The quote is from my PhD thesis, in which I dealt with this charge extensively.

There is nothing intrinsically unethical in selling virtual goods. People use virtual goods to establish and communicate status and identity positions (i.e. to brag and be emo), achieve aesthetic experiences and express themselves (i.e. see cool graphics and build stuff), and as means towards ends (i.e. getting the girl’s attention or killing the dragon). These are the same things that people do with material goods, and the same kinds of things that people enjoyed the boxed games of the past decades for. And just as with other goods and services, it is possible to use virtual goods in business that contributes positively to people’s lives, as well as in business that exploits people and harms them. If you are working in the competitive economy, you might not get to make a real choice, except as a matter of business expediency. If you are someone who makes their living on the edges, such as a scholar or an independent game developer, you enjoy greater freedom. Just make sure that you are not confusing personal taste and privilege with moral good, as Horkheimer and Adorno were criticised of doing.