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The Item Model

June 29th, 2006, By Duncan Gough

The business logic behind virtual worlds doesn’t seem to be very coherent at times. The Item Model – making games free to play but providing market place for the sale of in-game items – probably won’t gain traction very easily in the West as it doesn’t offer the sustained, tangible revenue that a subscription model offers. As has been pointed out already, its success in Korea is closely related to the high level of software piracy. For example, sales of consoles are always good in Korea, but the sales of games doesn’t equal what would be expected for the number of consoles sold.

Inevitably, Google has made a tentative move into the business of virtual worlds by combining SketchUp and Google Earth, but there is no obvious revenue generation behind this.

In the West, the largest online world is World of Warcraft, but the one with the most reported in-game sales is Second Life. Importantly, Second Life offers several tiers of membership, from free through to premium, giving it an alternative revenue stream to the item model which it supports mainly through the sale of land and buildings. This, I believe, is where the challenge lies for many virtual worlds – how to offer a subscription based experience that can support micropayments without ruining the game. Almost all virtual worlds only give out their rewards to the users who spend the most time online and in-game. Allowing other users to buy their way to the top is never going to be popular, especially if the item model isn’t something built into the game from the beginning.

However, the item model has proven very good at bringing paid content to a younger and more net-aware audience. It is designed to remove the traditional idea of a flat-fee and allows users to pay for exactly what they want. For teenagers, this is especially useful since they won’t always be able to afford a flat-fee, but will still want to be involved. In this respect the item model has a lot in common with music stores like iTunes where you can buy and download a single track for a nominal fee.

For the creators of a virtual world, though, the item model can cause problems. Users who pay for in-game enhancements will eventually try to sell them outside of your world. The item model tends to encourage a black market as can be seen by the trade of land, avatars and treasures found on eBay. Whilst some people have sought to stop this trade, for any new online worlds the choice is clear – accept that people will want to trade and sell items, be smart about it and build it into the game. Virtual worlds that embrace the item model should also embrace this new marketplace, allowing players to gift, trade and sell their goods without resorting to third-party websites like eBay.

Elsewhere, websites like Neopets and GoPets offer very pared down approaches to the idea of a virtual world, yet they still generate revenue through sales of food, toys and clothing to players for their avatars. Whilst it seems that grown ups are much happier using the internet to pay for tangible goods that are eventually delivered to them, it is clear that teenagers are not as concerned about paying for digital content that they will never touch.

Personally, I feel that the real opening for an item model approach comes in the world of skill gaming. Many tradional bookmakers moved online and found a steady stream of customers willing to play nothing more than ‘random chance’ flash games over and over again. The profits made from some of the simplest of games has bolstered the gambling sector and given it a new lease of life. For skilll gaming companies the virtual world analogy is interesting. Instead of subscriptions, customers fund their accounts to play. Instead of micropayments, their customers place micro bets in-game. If a skill gaming company were to focus on community, it wouldn’t be too much of a stretch to imagine their players buying trivial items online only to gamble them away, further abstracting the idea of gambing for money and giving it a broader appeal.

The gambling element is left to do what it does best – elevating the relatively mundane into the most rewarding kind of competition, player vs. player.

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