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KNOWLEDGE MAP of the VIRTUAL ECONOMY Knowledge Map of the Virtual Economy

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KNOWLEDGE MAP of the VIRTUAL ECONOMY Knowledge Map of the Virtual Economy + CONNECT SERIES KNOWLEDGE KNOWLEDGE MAP MAP OF THE VIRTUAL ECONOMY OF THE VIRTUAL CONVERTING THE VIRTUAL ECONOMY INTO ECONOMY DEVELOPMENT POTENTIAL THE WORLD BANK www.infoDev.org www.infoDev.org converting the virtuAl economy into Development potentiAl KNOWLEDGE MAP OF THE VIRTUAL ECONOMY An infoDev publicAtion written by: Dr. Vili Lehdonvirta & Dr. Mirko Ernkvist April 2011 Information for Development Program www.infoDev.org ©2011 The International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. rights and permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to infoDev Communications & Publications Department; 2121 Pennsylvania Avenue, NW; Mailstop F 5P-503, Washington, D.C. 20433, USA; telephone: 202-458-4070; Internet: www.infodev.org; Email: [email protected]. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. cover design by infoDev typesetting by The Word Express, Inc. To cite this publication: Lehdonvirta, Vili. & Ernkvist, Mirko, 2011. Converting the Virtual Economy into Development Potential: Knowledge Map of the Virtual Economy, Washington, DC; infoDev / World Bank. Available at http://www.infodev.org/publications Table of Contents Executive Summary xi 1. Introduction 1 1.1 Background 1 1.2 Structure and scope of this report 1 1.3 Methodology 2 1.3.1 Value chain analysis 2 1.3.2 Expert interviews 2 1.3.3 Market size estimates 2 2. Defining and Segmenting the Virtual Economy 5 2.1 From digital abundance to virtual scarcity 5 2.2 Key characteristics and differences from traditional digital content industries 6 2.3 Segmenting the virtual economy 7 3. Third-party Online Gaming Services 9 3.1 Demand and supply 9 3.2 Market size 10 3.2.1 Online game market size 10 3.2.2 Earlier estimates of third-party gaming service market size 11 3.2.3 Estimating the gaming service market through player surveys 12 3.3 Business models 14 3.3.1 Retailers 15 3.3.2 Producers 16 3.3.3 Game operators 17 3.3.4 Supporting activities 17 3.4 Regulatory framework and industrial policy 17 3.4.1 Negative externalities from trade of artificially scarce assets 17 3.4.2 Contractual and legal regulation of virtual goods trade 18 Table of Contents iii 3.5 Case study: Purchasing virtual currency for World of Warcraft 20 4. Microwork 23 4.1 Demand and supply 23 4.2 Market size 24 4.3 Business models 25 4.3.1 Transformers 25 4.3.2 Work aggregators 26 4.3.3 Infrastructure providers 27 4.4 Regulatory framework and industrial policy 27 4.5 Case study: Using human workers to optimize an online retail search engine 28 5. Other Segments of the Virtual Economy 31 5.1 Cherry blossoming 31 5.1.1 Case study: Improving the visibility of an online store 31 5.2 User-created virtual goods 32 5.3 Other two-sided marketplaces 33 6. Development Potential of the Virtual Economy 35 6.1 Third-party online gaming services 35 6.1.1 Worker demographics, skills, wages, and career development 35 6.1.2 Distribution of income 40 6.1.3 Costs and profitability 41 6.1.4 Number of people employed 41 6.1.5 Competition, entry barriers, and changing business conditions 42 6.1.6 Changes in business and market’s conditions over time 43 6.1.7 Upgrading strategies 44 6.2 Microwork 44 6.2.1 Worker demographics, skills, wages, and career development 44 6.2.2 Distribution of income 46 6.2.3 Competition, entry barriers, and changing business conditions 47 6.2.4 Upgrading strategies 47 6.3 Other segments 48 6.3.1 Cherry blossoming 48 6.3.2 Microcontent production and other two-sided marketplaces 48 iv Knowledge Map of the Virtual Economy 7. Conclusions 49 7.1 Market opportunities 49 7.2 Development potential 50 7.3 Scope for interventions 51 7.3.1 Third-party gaming services 51 7.3.2 Microwork 51 References 53 Appendix 1. Sources of uncertainty in the gaming services market estimate 57 Appendix 2. Examples of third-party websites selling virtual game currency 59 List of Tables Table 1. Segmenting the virtual economy 8 Table 2: Opportunities for third-party gaming services in different types of games 10 Table 3: The global online game market 11 Table 4: Percentage of players buying from the secondary market 13 Table 5: Average amount spent on the secondary market per year 14 Table 6: Number of paying online game players 15 Table 7: Global secondary market size 15 Table 8. Differences between crowdsourcing and microwork 24 Table 9. Number of participating workers and average hourly payout in four assignments during September 2010 30 Table 10: Geographic location of surveyed gaming studios 36 Table 11: Size and gender diversity of gaming studios 36 Table 12: Gaming studio workers’ prior occupations 37 Table 13: Average weekly working hours of gaming studio workers 39 Table 14: Hourly wages of gaming studio workers 39 Table 15. Monthly operating costs of a medium-sized gaming studio in suburban China 41 Table 16: Operational cost structure of surveyed gaming studios 42 Table 17: Estimate of spending on wages in the third- party gaming services industry in 2009 42 Table 18. Estimate of the number of game laborers employed in 2009 43 Table 19: Upgrading strategies for gaming studios 45 List of Figures Figure 1. Three-layer model of ICTs and economy 6 Figure 2. Basic value chain in the gaming services industry 14 Figure 3: An order of World of Warcraft gold for $100 21 Figure 4. Basic value chain in the microwork industry 25 Figure 5. Distribution of CrowdFlower’s search labeling work by country in September 2010 29 Figure 6. Revenue shares in the Chinese powerleveling industry 40 Figure 7. Revenue shares in the Chinese gold farming industry 40 Figure 8. Typical revenue shares in the microwork industry 47 vi Knowledge Map of the Virtual Economy Acknowledgements The Knowledge Map of the Virtual Economy was Ville Miettinen, Founder and CEO, Microtask Ltd, prepared by Vili Lehdonvirta and Mirko Ernkvist Finland under the supervision of Tim Kelly and Lara Miho Nojima, Associate Professor of Economics, Srivastava at infoDev, a donor-funded agency of the Seikei University, Japan World Bank. Jared Psigoda and To Minh Thu Jared Psigoda, Founder and CEO, Niubility Co., provided vital research assistance. The report was Ltd, China made possible by funding from the UK Department Andrew Schneider, Co-founder and President, Live for International Development (DFID). Gamer, Inc., United States Unggi Yoon, Judge and Internet law scholar, Contributions from the following expert informants Republic of Korea are gratefully acknowledged: The report also benefited from comments expressed Lukas Biewald, Founder and CEO, CrowdFlower, by the participants of the infoDev Virtual Economy Inc., United States workshop held on December 13, 2010 as part of the Julian Dibbell, journalist, author, France ICTD 2010 (International Conference on Anthony Gilmore, Co-founder, Nameless Media & Information and Communication Technologies) Productions, Japan conference at Royal Holloway, University of Eyjólfur Guðmundsson, Lead Economist, CCP London. Thanks are also due to the peer reviewers Games, Iceland who helped develop the initial terms of reference Vaughn Hester, Data Analyst, CrowdFlower, Inc., and have guided the study: Robert Hawkins, Anat United States Lewin, and Carlo Rossotto of the ICT Sector Unit Jun Sok Huhh, Lecturer in Economics, Seoul of the World Bank, and Victor Mayer-Schöenberger National University, Republic of Korea of the Oxford Internet Institute (OII). The authors Leila Chirayath Janah, Founder and CEO, are grateful to CrowdFlower, Inc. and Vaughn Samasource, United States Hester for sharing data used in the microwork case Nicolas Leymonerie, Chairman, IGDA Vietnam, study. Vietnam Preface vii viii Knowledge Map of the Virtual Economy About the Authors Vili Lehdonvirta is a Researcher at the Helsinki infoDev is a global development financing program Institute for Information Technology, a joint coordinated by an expert Secretariat housed in the research institution of Aalto University and the Vice Presidency for Financial and Private Sector University of Helsinki, Finland. During 2010–2011, Development (FPD) of the World Bank. It helps he was a Visiting Scholar at the Interfaculty developing countries and their international partners Initiative in Information Studies, University of use innovation and ICTs as tools for poverty Tokyo. Dr. Lehdonvirta holds a PhD in Economic reduction and sustainable social and economic Sociology from Turku School of Economics and an development.
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