The Gruter Institute Working Papers on Law, Economics, and Evolutionary Biology Volume 2, Issue 1 2001 Article 1 Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier Edward Castronova∗ ∗Cal State Fullerton, [email protected] Copyright c 2001 by the authors. All rights reserved. No part of this publication may be re- produced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher, bepress, which has been given certain exclusive rights by the author. The Gruter Insti- tute Working Papers on Law, Economics, and Evolutionary Biology is one of The Gruter Institute Working Papers on Law, Economics, and Evolutionary Biology, produced by The Berkeley Elec- tronic Press (bepress). http://www.bepress.com/giwp. Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier Edward Castronova Abstract In March 1999, a small number of Californians discovered a new world called “Norrath”, populated by an exotic but industrious people. Having just returned from a dangerous exploratory journey through this new world, I can report a number of interesting findings about its people and economy. About 12,000 people call it their permanent home, although some 60,000 are present there at any given time. The nominal hourly wage is about $3.42 per hour, and the labors of the people produce a GNP per capita somewhere between that of Russia and Bulgaria. A unit of Norrath’s currency is traded on exchange markets at $0.0107, higher than the Yen and the Lira. The economy is characterized by extreme inequality, yet life there is quite attractive to many. The population is growing rapidly, swollen each each day by hundreds of emigr´ es´ from various places around the globe, but especially the United States. Perhaps the most interesting thing about the new world is its location. Norrath is a virtual world that exists entirely on 40 computers in San Diego. The entire dollar-based economy is underground, since the owning company, Sony, considers everything created in the world to be its intellectual property. Unlike many internet ventures, virtual worlds are making money – with annual revenues expected to top $1.5 billion by 2004 – and if network effects are as powerful here as they have been with other internet innovations, virtual worlds may be the next step in the evolution of internet (and possibly human) culture. KEYWORDS: Internet, Virtual Worlds October2001 VirtualWorlds: AFirst -HandAccountofMarketandSociety ontheCyberianFrontier EdwardCastronova DepartmentofEconomics,CalStateFullerton,Fullerton,CA92834 CESifo(CenterforEconomicStudiesandIfoInstituteforEconomicRes earch) [email protected] Tel.(714)278-4458,Fax(714)278-3097 JEL:L86InformationandInternetServices;ComputerSoftware Abstract:InMarch1999,asmallnumberofCaliforniansdiscoveredanewworldcalled "Norrath",populatedbyanexoticbutindustriouspeople.Havingjustreturnedfroma dangerousexploratoryjourneythroughthisnewworld,Icanreportanumberof interestingfindingsaboutitspeopleandeconomy.About12,000peoplecall ittheir permanenthome,althoughsome60,000arepresentthereatanygiventime.Thenominal hourlywageisabout$3.42perhour,andthelaborsofthepeopleproduceaGNPper capitasomewherebetweenthatofRussiaandBulgaria.AunitofNorrath'scu rrencyis tradedonexchangemarketsat$0.0107,higherthantheYenandtheLira.Theeconomy ischaracterizedbyextremeinequality,yetlifethereisquiteattractivetomany.The populationisgrowingrapidly,swolleneacheachdaybyhundredsofémigrésfrom variousplacesaroundtheglobe,butespeciallytheUnitedStates.Perhapsthemost interestingthingaboutthenewworldisitslocation.Norrathisavirtualworldthatexists entirelyon40computersinSanDiego.Theentiredollar -basedeconomy isunderground, sincetheowningcompany,Sony,considerseverythingcreatedintheworldtobeits intellectualproperty.Unlikemanyinternetventures,virtualworldsaremakingmoney -- withannualrevenuesexpectedtotop$1.5billionby2004-- andifnetworkeffectsareas powerfulhereastheyhavebeenwithotherinternetinnovations,virtualworldsmaybe thenextstepintheevolutionofinternet(andpossiblyhuman)culture. Thisreportisbasedprimarilyontheauthor'spersonalexperiences whiletravelingand gatheringdatainNorrathfromApriltoSeptember,2001.Othersourcesincludedata madepubliclyavailablebyVerantInteractive,dataavailableforfreeorbyfeefrom publicwebsites,anddatacollectedbytheauthorfromsurveys.Nooneaffiliatedwith VerantInteractive,Sony,oranyprivatecompanieshavesponsoredthereportorbearany responsibilityforitscontents.Anyavatarnamesusedinthereporthavebeenchangedto protecttheprivacyoftheirowners.Allerrorsinthe reportaremine. I.ANewWorld Journalentry,18April.Ihavecalledmyavatar'Alaniel.'IlandinNorrathforthe firsttime,inatowncalledFreeport.Iamstandinginastonecourtyardbehindagate.I seeseverallean-tosandafirepit.AllaroundIhearthesoundsoffootstepsandIsee humanoidsofvariousshapesandsizesrunningbackandforth,nameslike"Zikon"and "Sefirooth"overtheirheads,wearingoddcostumes,carryingstrangeimplements.Are theypeople?Ormerelybeingscreatedbyth esoftware?Statementsflowintomychatbox atarapidrate."Galadrielshouts:Lookingforbindatgate."Iseeabeingwiththename Galadriel.Ishetalkingtome?Whatishesaying?"Friitzsaysoutofcharacter:brt - omwb."What?NosignofanyonenamedFriitz."Ikilluauctions:WTSbonechips."An auction.WhatshouldIdo?Ifeelthepresenceofhumanity,butIsuddenlyfeellikea strangerinaveryforeignculture.Ibecomeafraidofbreakingsometaboo,ofmakinga foolofmyself.Clumsily,I maneuverAlanieltowardthenearestlean-toandhidebehind it.Noonecanseemehere. OnMarch16,1999,VerantInteractive,aholdingofSony,launchedanon-line computergamecalledEverquestonfiveserversinSanDiego,California,USA. 1With thatactthecompanycalledintoexistenceanewworldnamed"Norrath"thathasbecome ameetingplace,amarketplace,andevenahome,totensofthousandsofpeople.This paperoffersafirst -handlookatthepeople,thecustoms,andespeciallytheeconomy of thisNewWorld. Whybother?Isn'tNorrathjustpartofasillygame?Perhapsitis,onanabstract level.Buteconomistsbelievethatitisthepracticalactionsofpeople,andnotabstract arguments,thatdeterminethesocialvalueofthings.Onedoesnotstudythelabormarket becauseworkisholyandethical;onedoesitbecausetheconditionsofworkmeanagreat dealtoalargenumberofordinarypeople.Bythesamereasoning,economistsandother socialscientistswillbecomemoreinterestedinNorrathandsimilarvirtualworldsasthey realizethatsuchplaceshavebeguntomeanagreatdealtolargenumbersofordinary people.Almost1millionpeoplealreadyhaveactiveaccountsinVirtualWorlds.Ata timewhenmanyecommerceconcernsaregoin gunder,revenuesfromon-linegaming 2 willgrowtoover$1.5billionin2004.Some60,000peoplevisitNorrathinanygiven hour,payingfortheprivilege,aroundtheclock,everyday,year -round.Nearlyathirdof theadultsamongthem –perhapssome93,000peopleoutofNorrath's400,000person userbase –spendmoretimeinNorrathinatypicalweekthantheydoworkingforpay. TheexchangeratebetweenNorrath'scurrencyandtheUSdollarisdeterminedina highlyliquid(ifillegal)currencymarket,anditsvalueexceedsthatoftheJapaneseYen andtheItalianLira.Thecreationofdollar -valueditemsinNorrathoccursataratesuch thatNorrath'sGNPpercapitaeasilyexceedsthatofdozensofcountries,includingIndia andChina.Some20percentofNorrath'scitizensconsiderittheirplaceofresidence;they justcommutetoEarthandback.Toalargeandgrowingnumberofpeople,virtualworlds areanimportantsourceofmaterialandemotionalwell -being. Virtualworldsmayalsobethefutureofecommerce,andperhapsoftheinternet itself.ThegamedesignerswhocreatedthrivingplaceslikeNorrathhaveunwittingly discoveredamuchmoreattractivewaytousetheinternet:throughanavatar.Theavatar representstheuserinthefantasy3Dworld,andavatarsapparentlycometooccupya specialplaceintheheartsoftheircreators.Thetypicaluserdevoteshundredsofhours (andhundredsofdollars,insomecases)todeveloptheavatar.Theseordinarypeople, whoseemtohavebecomeboredandfrustratedbyordinarywebcommerce,engage energeticallyandenthusiasticallyinavatar -basedon-linemarkets.Fewpeoplearewilling togowebshoppingfortiresfortheircar,buthundredsofthousandsarewillingtogo virtualshoppingforshoesfortheir avatar. Thebusinesspotentialofthisinterestinavatarshoppingisnotlostoneveryone. Mindark,aprivateSwedishcompany,hopestouseavatar -basedshoppingtobuilda 3 globalnetworkmonopolyininternetinterface.Thestrategy:startavirtualworl dina gameoftrulymassivescale,sothatmillionscanuseitatanytime.Makethegamefree. Allowpeopletousetheircreditcardstomaketransactions.Thenwaitforthesocietyand marketstodevelop,andinviteEarthretailerstoopen3Dstoresinthevirtualspace.At thatpoint,yourLaraCroftlookalikeavatarwillbeabletofollowuphertoughdayof adventuringwitharunintothenearbyvirtualJCPenney -- tobuyherowneranewsuit, forrealmoney.Thecommercialpotentialofthenewvirtu alworldsisimpressive,and makesthemwellworthafirstlook. Inthepast,thediscoveryofnewworldshasoftenbeenanepochaleventforboth thenewworldandtheold.Thenewworldtypicalhasaherald,ahaplessexplorerwho hasgottenlostandhaswanderedaimlesslyaboutinstrangeterritory,buthashadthewit andgoodfortunetowritedownwhathehasseen,hisimpressionsofthepeople,andthe excitingdangershehasfaced,foranaudiencefaraway.Insimilarfashion,Istumbled haplessly intoNorrathinApril2001,andthenspentfourmonthswanderingaroundthere. Ittookmeaboutsixweekstogetmybearings.IbeganrecordingdatainMay.AndI assureyou,Ifacedmanydangers,anddiedmany,manytimes,inordertogather impressionsandbringthembackforyou.IntheendIhavebeenabletoincludeonlya smallfractionofwhatIhavelearned,indeedonlyenoughtogiveaflavorofwhatis happening.IapologizetoanyonereadingthiswhothinksthatIhaveleftoutsomethingof