Thanks to the kindness and openness of “Goran Podolski”, I’ve been allowed to see the balance sheet of an East European gold farm, selling virtual currency for the online game World of Warcraft (WoW). A summary of its operations follows, but gold farming is a complex and unusual process, and more details on it can be found in the online report: Current Analysis and Future Research Agenda on Gold Farming.
What and Who: this is an informal (i.e. unregistered) micro-enterprise run by Goran, who is a student living in a major city in Eastern Europe. He has been playing in-game himself to make gold and he also paid two other people, whom he knows via personal connections, to play characters on his account. He has taught them how to play.
Making Virtual Gold: because WoW players have their characters on a specific European-based server, they can only buy gold that has been produced by a gold farmer on that server. Goran has therefore placed his gold-farming accounts on two (out of a possible c.250) servers he thinks are particularly “high-yield”, i.e. active and popular with players. His high-level characters have particular in-game “professions” – abilities – that are used to make or gather items (e.g. gathering herbs using high-level Herbalism and then making items with high-level Alchemy, or making items with Inscription). These items can then be sold in-game, typically via the game’s auction system, thus producing in-game gold. (He has chosen this method as more productive than what he sees as the approach used by many Chinese gold farms of fighting non-player characters, picking up items dropped when the NPCs are killed, and then selling these for gold.)
Selling Virtual Gold: most of the virtual gold has been sold to merchant-portals – the Web sites through which the great majority of players buy gold. The two key portals used in this case are www.pusada.com and www.offgamers.com (OGM). Players who wish to obtain in-game gold will buy from these merchants via their Web portals.
OGM are Malaysia-based and the sales process is undertaken via chat on their portal or via mobile phone calls. When a customer indicates through the Web site that they are ready to buy, Goran is sent the in-game name of their character by OGM, and OGM calls the customer on their mobile. Goran and the customer log into the game and the gold is transferred from Goran’s to the customer’s character: Goran sends screenshots to OGM as confirmation for his payment. If Goran is late, OGM will call him on his mobile, so this is not quite the anonymous process it might appear. OGM outsource some parts of their sales work (e.g. customer chat) to China. Likewise Pusada – who are US-based – outsource to sub-contractors in other countries. Unlike OGM, Pusada headquarters staff never go in-game but only broker the sale via IM chat.
Speaking English is thus a key part of Goran’s added value. His sub-contractors do not speak English and so, for example, are unable to sell the items they produce in the WoW auction houses to make the in-game currency; Goran has to do that himself. Likewise, thanks to his English, Goran is able to make money in a different way – by acting as the broker for a local gold farming workshop, selling their gold to the portals above and also to www.net4seller.com and (now defunct) www.mmoinn.com. He charges the local workshop a commission of about 12% for this service.
Financials: Revenues are affected by two main forces. First, the price that merchants charge to the final consumers. This has been steadily falling as virtual gold continually devalues against real-world currencies. For example, from March 2009 to January 2010 the US buy price of 1,000 WoW gold depreciated from US$14.50 to US$7.00. Second, merchants price and pay in US dollars (even though the virtual gold is sold in euros to the European player-buyers). During periods when the dollar appreciates against Goran’s national currency, this further erodes revenue. From March 2009 to January 2010, the US$ rose by around 10%. The result was a fall in Goran’s revenue from US$7.10 per 1,000 WoW gold in March 2009 to US$3.37 in January 2010.
Costs are made up of three elements: the cost of the World of Warcraft game accounts; game cards which cover the cost of a certain amount of in-game play; and the wages paid to his ‘sub-contractors’.
Nominally, Goran’s payments to those who farm the gold for him are paid on the basis of the amount of time they spend in-game with his characters rather than, for example, on the basis of what they produce in terms of either items or gold. (He tried the item-based approach but it became too complex due to the variety of items produced and different prices earned; pay-per-gold is not possible since the players themselves are unable to sell their items in-game for gold.) He paid just over US$7.00 per eight-hour working day, which was almost exactly the same as the minimum wage for a young person in this country. However, as noted, this is nominal – over time, the pay would be more akin to a certain percentage of the overall profits made during a month.
The figures can also be used to get a sense of the mark-up being charged by the merchant-portals. In March 2009, Goran was paid an average of US$7.10 per 1,000 WoW gold, and the average sale price from portals was around US$14.50: a roughly 100% mark-up. This was very similar in January 2010, when Goran was paid an average of US$3.37 per 1,000 WoW gold by the portals, while their sell price was around US$7.00.
The balance sheet below shows a sample nine-day period in January 2010 during which ten sales were made: all but one via the merchant-portals. Below the revenues earned from these sales, Goran’s calculations for total number of hours his sub-contractors spent in-game are shown. Hours are converted to days and paid at just over US$7 per day with account and game card expenditure then added. The balance is shown at the end, indicating a daily profit for Goran just greater than the national minimum wage.
|East European Gold Farm Balance Sheet: 9 Days in January 2010 (for World of Warcraft)|
|Date||Quantity sold||Price per 1,000 gold||Total Price||Buyer||Overall|
|Day 1||20000 g||$3.00||$60.00||pusada.com||Average Prices||$3.37|
|Day 1||2000 g||$3.73||$7.45||offgamers.com||Total sales in gold (thousands)||66.80 k, gold|
|Day 2||3000 g||$3.73||$11.18||offgamers.com||Total Sales in USD||$224.85|
|Day 2||3000 g||$3.73||$11.18||offgamers.com|
|Day 3||2300 g||$3.73||$8.57||offgamers.com|
|Day 4||10500 g||$3.25||$34.13||pusada.com|
|Day 5||5000 g||$4.20||$21.00||Individual player via MSN|
|Day 7||14500 g||$3.25||$47.13||pusada.com|
|Day 8||3000 g||$3.73||$11.18||offgamers.com|
|Day 9||3500 g||$3.73||$13.04||offgamers.com|
|Character||Level 80 Alt|
|Days||Hours||Mins||Character Time-play Recorded|
|Character||Level 65 Main|
|Days||Hours||Mins||Character Time-play Recorded|
|Character||Level 80 Main|
|Days||Hours||Mins||Character Time-play Recorded|
|Total hours worked||115.55|
|Total days worked||14.44|
|Pay per day||$7.14|
|Average Daily Net Profit||$8.47|
Postscript: By March 2010, Goran had expanded his gold farming business to employ nine farming sub-contractors and a business manager to oversee them all, helping to pay his way through university. By March 2011, though, Goran has – at least for the moment – stepped out of the gold farming business; in part to focus on his studies, but also because profitability is increasingly difficult. At the time of writing, the advertised buy price on www.offgamers.com was US$1.00 per 1,000 WoW gold (i.e. less than one-third what it had been a little over a year previously); the advertised sell price was US$1.54. This means the sub-contractor model would no longer work well. Goran has been making some money by renting his WoW game accounts and a GatherBuddy bot (for automating in-game activity: like gold farming, this is also against game rules) license on a monthly basis to his former sub-contractor who was doing some gold farming himself, though finding it ever-harder to make a profit and, at the time of writing, likely to drop out because prices were so low. Goran is currently offering his full support to US calls for revaluation of the renminbi!
“Gold farming” and “real-money trading” (RMT) are – respectively – the production and sale of online game virtual goods or services for real money. They consist mainly of making and selling the virtual currencies used in games such as World of Warcraft; or of creating and selling powerful characters in those games (“power-levelling”).
Such actions are against the rules of the game. Nevertheless, they provide paid employment for perhaps hundreds of thousands of young men, mainly based in urban areas in China. A feature article in Scientific American summarises research from the University of Manchester on this emerging linkage between ICTs and development. (See also our working paper on the topic.)
The research charts three eras of gold farming and RMT:
- Pre-History: first sales of virtual game items occurred during the 1980s and 1990s, building to a largely US-based cottage industry in which individuals made the equivalent of pocket money.
- Golden Age: from the late 1990s to mid-2000s, gold farming was a sector of super-profits as the number of online game players expanded rapidly, as eBay emerged to facilitate trading, and as production shifted to low-cost locations in Asia. The result was creation of tens and then probably hundreds of thousands of new jobs, with the virtual currency and power-levelling services being sold to game players in the US, Europe and within Asia itself.
- Backlash and Beyond: from the mid-2000s, game companies began clamping down on what they saw as illegal activity, yet simultaneously new gold farmers and traders began flooding in. As a result, gold farming profits were cut and it became a difficult and risky activity, though one that still appears to be growing despite the global economic crisis.
Non-purchasing players, game companies, and many Western commentators have built a chorus of disapproval against gold farming. They try to brand it as illegal, exploitative, and linked to organised crime.
Although the evidence base on gold farming is much too limited, work at the Centre for Development Informatics seeks to show there is an alternative, developmental perspective. Gold farming and RMT show novel ways in which ICTs can create new income streams for developing countries, new jobs (some for unemployed rural migrants), and new skills. They may also be the early sign of a new business model for developing countries – “cybersourcing” – the outsourcing of activities that take place entirely within the virtuality of cyberspace. Other examples would be welcome . . .
The blogosphere has been awash with reports of the demise of gold farming (production and real-money sale of virtual currencies, items and accounts in online games), which is big business in China; worth US$1bn per year and perhaps more. (Click here for the full analytical report on the history, size and trends in gold farming.)
A deep breath and a read of what was actually announced suggests otherwise.
This is a government restriction on the use of the quasi-Paypal-like currencies (mainly QQ coins) that are used extensively in China to pay for virtual game stuff. As announced they can now only be used to pay for virtual stuff, and you can’t buy real things with them as game companies were allowing to happen, nor can you gamble. This therefore is not about what gold farming clients do: use real money to buy these virtual currencies; it’s the mirror image. And it’s not about the major trade in gold farming such as World of Warcraft, which relates to other types of virtual currency. And it’s not about buying/selling in-game items. And it’s not about the power-levelling of avatars. Bottom line: it’s not about gold farming.
Two other things to say. The Chinese government appears to be this very odd mixture of fantastically effective (think Olympic Games) and fantastically ineffective (think rules on piracy and intellectual property) when it comes to implementation.
Second, this mirrors quite closely something that happened in Korea around 2006 based around a game called “Sea Story”. A huge amount of gambling and then illicit political payoffs arose around use of the Sea Story currency. Government then banned trade in virtual currencies. I’m not aware of any reports about damage to gold farming that resulted and – as might be the case in China – the legislation in Korea may have been as much about political posturing and being seen to be doing something (i.e spin) rather than an implemented reality.
Both these points remind us that announcement is not implementation. If this regulation does come to fruition, it will relate to finance and defence of the RNB yuan. Yes, it may affect some types of games in China but, no, it as yet appears unlikely to have much of an impact on gold farming.