A Quite Profitable Virus

A worm virus (targeted to steal passwords for the ubiquitous QQ service and other game accounts)with the logo of Xiongmao Shaoxiang (Panda burns joss-sticks), has hit millions of computers in China since November 2006. According to Xinhua, BEIJING, Feb. 13 Police Monday arrested eight suspects involved in producing and disseminating a severe computer virus. It was the first case related to the spreading of computer viruses in China. The virus writer programmed the virus on Oct. 16, 2006, and made more than 100,000 yuan (13,000 U.S. dollars) selling it to over 120 people via the Internet both himself and through agents. In my opinion, it would alarm everyone who cares about the security of the online property. Up to now, commercial virus development scales much better than the current security countermeasures. The huge illegal profit stimulates such net hacker to steal in a scale.

Meetings in meatspace

Japanese sukiyaki meat -- photo by LHOON Despite the achievements in immersive virtual worlds and other network-mediated communication, for many purposes there still is no substitute to being there in person. I think this is especially true when making new contacts and when cultural boundaries are crossed. Here is a brief review of som

e upcoming events.

I was looking forward to State of Play IV, a multi-disciplinary virtual world themed conference to be held in Singapore. Unfortunately, it was postponed in December and the new date still remains to be announced. The preliminary program promised lots of content related to virtual economies and the booming Asian market, so I hope it does materialise. The only thing I was missing was a call for papers. Meanwhile, a Japanese-language conference on online games titled Asia Online Game Conference 2007 will be held in Tokyo on February 22-23. Speakers from industry and academia will address topics from community management to development and business models. Cross-cultural issues, RMT and fraud are touched upon as well. In the U.S., Show Initiative, the company previously behind Austing Game Conference, is organising an event targeted at companies interested in using virtual worlds as a marketing tool, among other things. Virtual Worlds 2007 is scheduled to take place March 28-29 in New York. An event I’m personally looking forward to has less to do with virtual worlds, but much with virtual economy. The Inaugural International Workshop on Electronic Payment Systems and Electronic Commerce in China, EPECC 2007, will take a serious look at the use of virtual money as a payment system for real goods and services. The workshop will be held on May 18-19 in Chengdu, Sichuan province, China. According to the organisers, part of the content will be in English. This includes a keynote speech by Bo Harald, dubbed the “father of European Internet banking”.

SOE releases white paper on Station Exchange

Yesterday, Sony Online entertainment (SOE) announced the findings of a white paper on their official EverQuest II virtual property auction site Station Exchange. What’s interesting, there are now verified numbers of RMT available. The findings of the paper are based on data collected during the first year of operation of Station Exchange: from its launch in June 2005 to June 2006. From the numbers in the press release, it seems that most of the transactions were quite small, and most of the virtual assets were sold with a set price instantly. Interestingly, the paper also reports that most of the players who earned money in Station Exchange did so by selling items they had quested or crafted in EQII, not by buying items and selling them at a higher price. The total transactions amounted $1.87M. Some traders seemed to make a hefty profit selling virtual items, two traders reaching profits over $37k. Apart from the top sellers, the paper reports that “many more” players earned between $200 and $500 per month during the year. The average spending in Station Exchange was little over $60. There is also some data on the user base of Station Exchange. The 34-year-olds were the biggest buyers, while 22-year-olds were the biggest sellers. The traders turned out to be mostly males, though the average consumption did not depend on gender very much. Perhaps, as a very rough generalization, a typical buyer would be a little older player who needs something for e.g. a quest asap, and a typical seller would be a little younger player who makes relatively small profit (covers the subscription fee plus some more) by selling assets accumulated during game play. More information can be found in the SOE press release. Edit: commentary & the white paper can be found at Gamasutra

Sweden taxes virtual property proceeds… as does everyone else

There’s a story ricocheting in some English language news sites about Sweden’s plans to impose taxes on income from virtual property sales. The original source seems to be Swedish Radio Ekot. The news may seem startling to some, until one realises that such income is already taxed in Sweden and in other countries. From Ekot:

“It becomes something completely different when it’s outside the gameworld and in the real world, and that’s when the taxation effect comes up,” says Dag Hardyson [project leader for the tax authority’s internet commerce control unit]

Another quote in Telecom TV clarifies the point:

“We’re not interested in ordinary gamers; more than 99 per cent of them play Internet games for the sake of playing and most people keep their virtual money on their game account. However, if they move it out of the virtual world into the real world, then we’re interested in them.”

So Swedish WoW players will not be required to report epic drops on their tax statements, nor will Second Life entrepreneurs need to report their profits, unless they convert the virtual income to real money. Real-money income, regardless of its source, is supposed to be reported to the taxman in any case.

What is notable here is the fact that the Swedish tax authority is starting to pay explicit attention to virtual property issues. Last December it was reported that some people at IRS, the U.S. taxman, are similarly concerned. Even though income tax liability for virtual property sales proceeds is a no-brainer, there are other, more difficult taxation issues lurking in virtual economies that will need to be addressed as their real-world economic impact grows.

For example, virtual economies could be used for tax evasion, moving assets from one entity to another. Profitable company A buys a virtual asset and deducts it as an expense. The asset is then handed over to loss-making company B. Company B liquidates the asset and reports the income, but pays no taxes due to showing zero profits.

Such manouvres are possible due to the fact that transactions within a virtual economy are not reported to real-world authorities. The obvious solution would seem to be to require that these transactions be reported. However, this would be just crazy in a game world like WoW. I believe more research and discussion on these issues is needed to make sure that regulators can make informed decisions once the time comes.

Update: see 2008/04/16: Sweden moves to tax in-game transactions