Virtual field experiments in WoW

Photo by Flickr user drurydramaEconomic experiments in virtual worlds (or, more generally, virtual economies) have been proposed a number of times and also conducted to some extent. A recent addition to the conducting category is “Reciprocity and status in a virtual field experiment” by Andreas Nicklisch and Tobias Salz. In their study, the authors conducted a field study in World of Warcraft, seeking to investigate the role of reciprocity, and the effect of status on reciprocity, in employment relations. Reciprocity here means the observed tendency to react kindly to kind actions, even though such reactions are not enforced. Unlike previous economic experiments conducted in virtual worlds, the authors did not create an artificial setup for the experiment. Below, I summarize and briefly discuss the study and its findings.

In practice, the experiment went as follows: The experimenter (principal) asked the participants (agents) to perform a real-effort task in exchange of a reward. The task in question was fishing in a certain lake for 30 minutes, and the reward was either 4 or 12 gold pieces. The experimenter used two kinds of characters when proposing the task: either a low-level or a high-level character. So two variables were controlled: the reward of the task and the social status (and expected wealth) of the principal. The agents were unaware of participating in an experiment, paid in advance, and asked to deliver the proceedings of the fishing via mail. The agent, then, could choose to accept the reward and not perform the task.

In this case, according to the authors, the two main upsides of using a virtual world as the experimentation field are: first, the possibility to analyze the principal’s status (as measured by the level) in a meaningful social situation and second, the possibility to examine reciprocation rates controlling the effect of skills of the agent. Other features of the virtual world can also be considered beneficial. The main thing that comes to mind is that, true to the field experiment mindset, it is possible to recruit agents to perform tasks in manner that is natural to the environment they perform actions in. I’m not sure if asking a fellow player to perform a task for a reward is a typical thing to do in WoW, but I’m sure it is not the type of action that would never take place.

Control treatments, i.e. the varying of principal’s level and the wages, were carried out on different servers in order to reach participants not aware of other treatment conditions. The use of separate servers may in some cases lead to problematic results, as discussed in a recent Terra Nova thread. This is probably not a problem in this context since, as I see it, the authors are not trying to reach a separate instance of the world. Instead, they are trying to make sure the participants do not participate in multiple treatments. It is unlikely that the experimenter’s actions take place on such a large scale that information on them would spread to other servers. Hypothetically, though, it is possible that the participants are familiar to other treatment variations, one way or another.

What of the results then? Mainly, the authors observed that the behavior of agents is affected by reciprocity in virtual worlds as well. Wage offers are reciprocated with effort, even though such behavior is not enforced. Increasing the wage increases the probability that effort is provided, as well as the amount of effort provided, even if the level of the agent’s skills is controlled. The status of the principal has an effect: high-status principals are less likely to be provided with effort, but the level of effort is not affected by the status. It would seem that the agents evaluate the exchange offer with respect to the status, and thus the expected wealth, of the principal.

The issue of generalization is often brought up when virtual world experimentation is discussed. Reciprocity is a well-known effect, and the study confirms that it plays a role when exchange is considered in a virtual world. So, it confirms behavior that was already known to exist in other circumstances: in this sense, generalization is not necessary. Regarding the effect the principal’s status has on reciprocity, the study seems to confirm some theories on the issue. Whether they generalize on a larger scale is not discussed in the paper.

I think the most important finding is the additional confirmation that the users of a virtual world behave in a manner that is similar to behavior elsewhere. Also, the authors show how sensible field experiments can be run in a virtual world. We’ll see if this type of experimentation becomes increasingly popular.

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Selling branded items in Gaia: Snoop’s Dobermans and Timberlake’s fedora

New York Times has an interesting story about Virtual Greats, a company that focuses on bringing licensed content to online environments:

For celebrities, licensing virtual products is a new way to make a buck and stay hip with a young crowd. Snoop Dogg’s manager, Constance Schwartz, said she did not have a clue about virtual worlds when Virtual Greats approached her this year, so she and her team spent a week exploring Gaia Online.

 

After seeing that many teenagers were spending their time and allowances there, Ms. Schwartz explained the concept to Snoop Dogg. She said it was an easy sell, given that Snoop Dogg had been one of the first rap musicians to license works for ring tones and voice tones. His only requirement was that all of the goods be “true to himself,” down to the hair braids, house slippers and plates of Roscoe’s chicken and waffles he regularly eats in Los Angeles.

Virtual Greats styles itself as “the first company to create a platform to bring high-value, copyrighted material into virtual worlds and social networks.” When I first heard about them in July, I wasn’t too excited about the Elvis license they were pushing, since it didn’t sound like a great match with the demographic. But based on the above quote, it sounds like their portfolio has developed a lot since then. According to the story, they now also have Justin Timberlake’s signature fedora on Gaia for $3.

Virtual Greats is an offshoot of Millions of Us LLC, a virtual world marketing firm that got its start creating Second Life builds for major brands. It’s great example of moving from using online environments as a media to enhance brand value to using online environments as a channel to monetise that brand value.

Some figures on item sales from the story:

So far, the deepening recession has not slowed sales of virtual goods, which executives attribute to people spending more time at home. Gaia Online, a youth world with seven million monthly visitors, sells more than $1 million a month of virtual goods and expects a record month in December, said its chief executive, Craig Sherman. One rival, IMVU, has also had a 15 to 20 percent increase in sales since September.

[…]a Gaia golden halo now out of production sold for $6,000 on eBay, he said.

Similarly, Virtual Greats has learned that it underpriced some items, like the Hulk Impact Crater, which originally sold for 50 cents, then went up sixfold in the Gaia aftermarket. In its several months of testing, Virtual Greats has found that people prefer more expensive items with a brand name over cheaper, generic items.

Via Virtual Goods News.

Benjamin Duranske's final post at VERN: joining Pillsbury's virtual law practice

Pillsbury

Dear VERN readers,

I am pleased to announce that I have accepted a position with
Pillsbury, a global law firm with San Francisco roots and a high-tech history dating all the way back to cutting-edge 1880s telegraph cases. I’ll be helping establish and build Pillsbury’s new virtual worlds and video games practice. Returning to practice with a large law firm means that I’ll be somewhat less free to comment on virtual law issues than I was while self-employed. As such, this is my final post at VERN.

I will, however, continue writing articles on issues in virtual law; some will be available via Pillsbury’s publications directory, and others will appear in mainstream and industry publications. I have already co-authored an analysis of the implications of China’s new virtual items tax rules that might be of interest to VERN’s readers.

For more details, please see my final post at Virtually Blind.

Reasonings for virtual currency implementations in business models of free-to-play worlds

Virtual currency issues have been on the table for a while now: Sulake introducing dual currency system to Habbo and Three Rings launching Whirled with three separate currencies. The purpose of this post is not to go into much detail, but to encourage discussion on this issue.

I just quickly wanted to point out what implications different currency implementation currency design choices may have on different sub-business models.

Sub-business models, you ask? Here is just a brief description of this line of thinking. I consider seeing a business model as three-fold a viable way to look at business models in this industry. This perspective basically is derived from user relationship perspective, which is a major business model component (e.g. Osterwalder 2004, Heikkilä et al. 2007), and more accurately; describes what is the goal towards the customer. The sub-models are: Acquisition, retention and monetization. This line of thinking is somewhat established in the discourse surrounding virtual worlds, web 2.0 and social networking services. Blattberg & et al. (2001) coin it as Acquisition, Retention and, Add-on selling, Chinese MMO publisher Shanda coins it as “Come-Stay-Pay” and so on.

Here are some strategies from the top of my head how currencies are and could be used:

Acquisition:

  • Referral
    • In Whirled currencies are used as referral fees for users who have recommended the service for other potential users. The referees actually receive a third of all Coins/Bars that the refereed customer uses during her lifetime in Whirled.
  • Conversion
    • Free promotional currency
      • In IMVU new users get free promotional credits, which can be used to buy clothes etc. This also “teaches” users to buy items within the service

Retention:

  • Encouraging for frequent use
    • Losing assets if idle
      • In Habbo users also get Pixels from logging in every day. This system is somewhat similar with daily quests in World of Warcraft. If you don’t log in or don’t do the daily quest you potentially lose something, be it faction reputation in World of Warcraft or Pixels in Habbo
      • Currencies vanishing if the user does not log in (not sure if implemented anywhere)
  • Encouraging for continuous use
    • Earning currency via gameplay
      • In Habbo you earn Pixels (the new currency) from using the service and doing achievements
    • Maintaining world balance (translates to maintaining the game entertaining/engaging)
      • Adds one layer to managing virtual economy
    • Medium of exchange (currencies) potentially adds to the total perceived value (Hsee et al. 2003)
    • Separation between time-currency and bought currency
      • Playing the game is required to obtain items that are only available with time-currency
      • Enables time-spenders to acquire ~equal standing compared to money-spenders
    • Relative amount of obtained time-currency increases as game progresses (mostly in RPGs)
      • Sense of progression (also contributes to frequent use)
      • Enables one segmentation factor of users and has further implications of what items are being offered to differently progressed users
    • Rewarding beneficial behaviour
      • In Whirled content creators can earn currency (Bling) which is exchangeable to real money
      • In Habbo users may earn Pixels from helping other users

Monetization:

  • Additional layer to pricing
    • Psychological pricing
      • e.g. odd-pricing
    • Medium of exchange may create illusion of linearity, advantage, and certainty (Hsee et al. 2003)
  • Enabled trading between currencies bought with real-money and earned through gameplay
    • Monetizing “time-spenders “ indirectly as money-spenders need time-currency to buy items (Puzzle Pirates)
    • Enables taking a cut from transactions between currencies (Whirled?)
  • Items requiring both time-currency and money-currency to buy items
    • similar to above examples
  • Mismatch between sold currency amount and item prices
    • Enables accumulation of excess currency to users’ accounts
      • Users buy more currency than they use
      • Users might be willing to buy more as the excess is too small an amount to buy more items
  • Restricting tradability of currencies (e.g. in WoW there are badges as currency, which are non-tradable and there are items that can only be bought with this currency)
    • Restricts RMT, which might potentially decrease revenues
  • Currencies in advertising -> advertising revenue
    • Sell currency to advertiser who gives them out to users
    • Distinct sponsored currency to buy braded goods

There are strategies which can have setbacks as well. For example mismatching amount of currency and item prices might reflect negatively to retention. Also some strategies overlap and might not be logically comparable as such. There are a lot of parallel strategies which could be looked at from another perspective, for example amount of currency obtained from gameplay could as well be described via the usual RPG gameplay design, but as the topic in this post refers to currencies, I tried to cover strategies from the currency point of view.

Other way of organizing this list could have been listing the design choices and then their implications in Acquisition, Retention, and Monetization, as many design choices have an implications in all of them. Perhaps I will make another post with similar layout covering design choices of another dimension of virtual worlds.

References:

Blattberg, R., Getz, G. and Thomas, J. (2001). Customer Equity. Boston, Harvard Business School Press.

Heikkilä J., Heikkilä M. & Tinnilä M. (2007) The Role of Business Models in Developing Business Networks, in (ed.), Electronic Commerce: Concepts, Methodologies, Tools, and Applications, Information Science Reference, pp. 221-231.

Hsee, C. K., Yu, F., Zhang, J. and Zhang, Y. (2003) Medium Maximization. Journal of Consumer Research, Inc. 30:1, June, pp. 1-14.

Osterwalder, A. (2004) The Business Model Ontology – A Proposition In A Design Science Approach. PhD Thesis, University of Lausanne.

Virtual Goods News Launched

Virtual World News has now launched a sub-site on news concerning virtual goods, covering issues in a more targeted scope. This is a well reasoned developement as the amount of emerging information is quite huge. Virtual assets sales is also one of the primary topics here at VERN and forms a well grounded, independent perspective to virtual worlds.

"VirtualGoodsNews.com Launches: The Business of Microtransactions, V Goods, Gifts and Items"

"2009 is right around the corner and with it come additions to our family of products. We’re pleased to announce the launch of Virtual Goods News, a new blog focused focused on the business of microtransactions, virtual goods, items and gifts. Virtual Goods News coverage spans virtual worlds, games and social networks. You may see the occasional crosspost here. We’re so bullish on virtual goods in fact that we will include a dedicated Virtual Goods track at the upcoming Engage! Expo in NYC in March (more very soon). Also, we are expanding our freelance editorial team – recession be damned."