Blizzard, Valve and the future of virtual goods

This is a long(ish) post about some moves that Blizzard and Valve have recently announced regarding Diablo 3 and Steam respectively, and what they mean for the future of virtual goods in games.  Here’s the short version for lazy sods:

Summary:

  • Diablo 3 will implement real money trading (RMT): users will be able to sell items at an official auction house in exchange for real money
  • With TF2 you will be able to barter hats and gifted/extra copies of games through Steam
  • Valve and Blizzard are doing this in order to release gamers’ desire to realise economic value in their virtual goods
  • By effectively creating virtual goods exchanges, these developments are pushing the envelope in terms of what people can do with their virtual goods in games
  • This is awesome
  • It will also fuel the latent legal issues over virtual goods and how they work, as well as the next developments in games virtual goods
Here’s the long version:
So, we’ve had news that Diablo 3 will enable RMT came, which came originally via PC Gamer originally.  Players will be able to buy and sell virtual items from Diablo 3 in an in-game auction house, potentially in return for real world currency.  This is what PC Gamer said about it:
“The obvious question…is how this will affect gold farming: people who repeatedly play the most profitable parts of a game to sell the in-game proceeds for real money. They already plague World of Warcraft without a legal way to sell the proceeds – isn’t this just encouraging them…
I asked Jay [a guy at Blizzard] if they saw this as a problem. “That’s not anything different than Diablo 2,” he says. “The best items that came through that game did come through trading, and came through interacting with other players.”
As for Valve’s Steam digital distribution platform, this is what Alec Meer at Rock Paper Shotgun said about the forthcoming Steam Trading system:
“Valve’s in-game TF2 item store is about to become an out-of-game item store. They’re trialling something called Steam Trading, which primarily involves swapping your TF2 unlocks (i.e. those damnable hats, mostly) for other games.
It’s an old-fashioned barter system in new-fangled clothes. What happens is you invite someone on your Steam friends list or who you’re in a group chat with to trade, and can offer up your various TF2 items to the other guy. In return, he or she can offer you other TF2 items – or to gift a game to you. You can’t do this with any old game in your Steam library – only games you’ve purchased from the store as a gift, or received as an Extra Copy.”
So Blizzard and Valve have properly bought into P2P virtual goods trading then
The argument for P2P virtual goods trading is this:
  • Some players have more time than money
  • Some people have more money than time
  •  So why not allow both to profit by allowing the guys who have more time sell things to the guys who have more money?
  • Plus the developer can change a percentage of the sale price – so everyone wins (in theory)
But there are two main arguments against P2P virtual goods trading:
  • It breaks the game design and balancing – rich players don’t have to play through your content to get the stuff they want
  • Legal issues – what’s to stop people misusing the system?
As a result, P2P virtual goods trading has traditionally been frowned on in ‘hardcore’ games – with Blizzard in particular being against it as it happens.
But the first argument (i.e. it breaks game balance/design) was never really very convincing – it’s just game designers wanting to focus on game design etc rather than what players actually want or what they’re willing to pay for.  That’s why social games have been so massively successful – among other things, they allow players spend real money to avoid having to grind (i.e. play the game as designed over and over again in order to progress in the game) and so forth.  The second problem (legal issues) can be managed, although it will never go away (more on that later).
Anyway, while developers were making these arguments against allowing RMT into their games, players were doing it anyway.  That’s why you can buy pretty much any game virtual currency online through various websites, or buy Diablo 2 virtual items at sites like http://d2items.com/(that’s NOT a plug for this site, btw, it’s just a random example from Google!)Oh yeah, and social games businesses like Zynga have come along and showed the rest of the games industry how incredibly profitable virtual goods can be.  Which means the purists have had to re-evaluate how they want to treat virtual goods in their games.
Blizzard and P2P virtual goods
It now seems that Blizzard have decided that, instead of fighting P2P virtual goods, they’ll join it.  So they’ve decided to get rid of problem #1 by building a RMT auction house into the fabric of Diablo 3.  Let me be clear: I think this is awesome and I fully support what they’re doing.
That said, you’re reading this blog for the legal insight, not to hear me being a Blizzard fanboy (!)  So, in practice Blizzard is going to need to deal with issues like these:
  • Gold farming: this is going to be a dream come true for gold and item farmers.  Instead of having to use third party web sites to sell virtual currency/items to players for real money with all the risks that entails, they can now in principle do so quite legitimately within the game – provided they give a cut of the profits to Blizzard and obey Blizzard’s rules ofc.  You might even see ‘preferred’ or ‘rated’ sellers in due course, as in eBay.
  • Unethical conduct: but not many gold farmers obtain virtual currency/goods ethically.  What about the stories of sweatshops in the Far East servicing the needs of  rich but time-short Westerners in WoW?  Blizzard will need to tackle that problem even more in Diablo 3 now.
  • Money-laundering/criminal conduct: what happens if a criminal invests stolen money in Diablo 3 virtual goods in order to get nice clean money out from consumers?  Obviously this is never going to be a really serious problem for Blizzard because the volume of sales will never be high enough for criminals to justify getting involved in this kind of thing – but it will mean that Blizzard is legally obliged to take steps against this kind of thing.  We should expect therefore that the auction house will be hedged about with terms and conditions, warning signs, the occasional scandal etc.
  • P2P disputes: no matter how carefully Blizzard set up the trading system, there will inevitably be disputes between players regarding the terms of a trade.  Again, Blizzard will need to handle this (perhaps through something like a mini version of the in-game government you see in games like Eve Online or Second Life?)
  • Balancing: Blizzard is famed for its meticulous attention to multiplayer balancing in its games, from WoW to Starcraft 2.  It will need to focus upon this even more if players can leapfrog ahead of each other using real currency.
Valve’s turn to try a new approach to virtual goods
What Valve is doing isn’t quite so clearly RMT trading, but I don’t think it’s not a million miles away from it either.  Valve will now allow players to exchange gifted or extra copies of a game on Steam in return for another player’s gifted or extra copy of a game on Steam.  So, for example, I could exchange my gift copy of Left 4 Dead 2 for your gift copy of World of Goo.  (I also think Valve and Steam Trading are awesome, btw – /end fanboyism). This will work just fine for friends trading between each other – which is probably would Valve would like Steam Trading to be confined to.  But what I think may also happen is stuff like this:
  • Third party web sites will spring up where players can advertise the games they have for ‘sale’ and what they’d like in return (a bartering system, basically).  The web site owner might even be able to charge some form of fee for the service.
  • The Friends functionality in Steam will then become part of the sale process – which raises the prospect of Friend spam in the future.
  • Speculators: some enterprising players will take advantage of temporary game sales to buy gift copies of a reduced price game to then effectively ‘sell’ to third parties once the game returns to full value (either for real money or for traded games).  Note: I don’t think this would be particularly clever or profitable, but it will happen even so.
  •  Unwanted Steam games: people will start asking for the ability to trade unwanted Steam games.  This would basically mean creating a second hand sales market in Steam games (for example, I’d love to git rid of my unwanted copy of Commander Keen which my best friend bought for me at Christmas – the git).  More on that in a minute.
Obviously these are not game-breaking challenges for Blizzard or Valve and, as a gamer who is in their core market for these changes (i.e. not much time, but a bit more money than time), I really look forward to seeing how they address them.  Still, it’s worth knowing hopefully that it won’t be a piece of cake to actually implement all this. 
SO WHAT DOES THIS MEAN FOR VIRTUAL GOODS IN GAMES?
Let’s take a step back for a moment.  My theory, argued in a number of different post on this blog, is that virtual goods are capable of being legal property just like a car or a share in a company.  Virtual goods have both the necessary legal requirements to be property and, just as important, consumers think they’re acquiring something valuable.  And ultimately it’s what consumers think they’re getting that matters – the law forms around the expectations of ordinary people, sooner or later.  (Mine is not a slam dunk of an argument mind you, since virtual goods are very different to most real world goods – they are infinite in supply for example and at least sometimes more analogous to a service than a good.  But I digress.)
In any event, it’s clear that virtual goods are still in the very early stages of their development (look out for a post next week from my friend Jonny Mayner on the latest development in the law on virtual goods).  Generally speaking, developers still retain practical control over virtual goods and therefore can restrain what players can and can’t do with them.  This is why developers control virtual goods EULAs and retain the ability to shut down someone’s access to their virtual goods or at least prevent them (through both technical and legal means) to sell them on to third parties – even if you’ve invested huge sums in those virtual goods.But that doesn’t change the fact that consumers still want to be able to do more with their virtual goods – in particular, they want to be able to obtain economic value to them.   So developments like RMT in Diablo 3 and game trading in Steam are really significant developments on that front – Blizzard and Valve are handing power to the players.
As a result, this heralds a new and uncertain era in the world of virtual goods.  Blizzard and Valve, two of the biggest players in the games industry, have deliberately decided to reduce their legal control over virtual goods in favour of giving more choice to players.  In exchange, they hope to obtain a financial advantage(in Blizzard’s case, by a share of virtual goods sale prices; in Valve’s case, it’s the more indirect objective of encouraging people to keep buying games).  Others in the games industry (and that includes social games) will have to match them, or go even further yet.What’s next?  As always, watch this space.  The ‘hardcore’ games industry and the social games industry (the current engine of the virtual goods boom) are watching each other carefully, so this won’t go unnoticed by social games businesses that depend on virtual goods for their financial success.  Nor will other businesses in the games industry more generally be able to ignore this, especially those still hoping to succeed with their next-generation MMOs.  And, above all, consumers will quickly get used to the new control they have over virtual goods and will start asking for more…
Image credits: Blizzard and Valve

6 comments

  1. Does the fact that they are letting people use real money to purchase virtual goods limit what they can put into the EULA ? IE if they say that regardless of weather or not you spent actual money you still don't own the item, would that be legal, and absolve Blizzard of any legal fallout.

  2. If they're not buying experience levels then they're not really "leap-frogging" anything. Gaining a "bind on equip" item by cash instead of having to grind up some in-game gold (or buy that with cash from farmers) is irrelevant. If the in-game item store follows the same rules as the current WoW auction system then who really cares? The only thing that changes is that those of us who follow the rules now have access to the cash-flow that the rule-breakers have had all along. There isn't really much impact in game-play because you're not buying game-breaking items, you're just buying items that you could have gotten yourself by spending time chasing them.

  3. Blizzard has stated that in Diablo 3 there will be very few BOP items…more than likely you will be able to buy game breaking items…per se

  4. @leo,there're gonna be no BoP, only BoEs.they don't want you to be restricted much, as if you pick up a BoP on a class which can't use the item, what'll you do. And I agree with the first anonymous poster.

  5. The article states or implies more than once that Blizzard is increasing profits by doing this, but Blizzard has specifically said they are only going to charge enough money to break-even on the auction house. The main reason is for the benefit of the players: lower fees is better for everyone.

    Whether you want to argue that Blizzard is lying is another matter, but on the face of it, they are not trying to "obtain a financial advantage."

    They have also said that they will charge little or no fees to players who sell the occasional item, but the fees will increase with number of sales. Depending on how high those fees go, this will place some limitations on gold farmers.

    You never mention the fact that Blizzard (but not Valve) is saving their players from fraud, identity theft, etc. on 3rd party sites, which is an inevitable side-effect of purchasing items and gold on the gray market.

    I don't see how there could be "P2P disputes" over the "terms" of a trade. You see 100% of the item. It opens in a window for your complete perusal. There is ZERO hidden/unknowns about that item when you buy it, unlike buying something on Amazon or EBay [even new items on Amazon are sometimes damaged in shipping or the wrong item is sent].
    The "condition" of the item is even assigned a numerical rating (durability).
    What is there to dispute?

    One might also wonder what the difference is between playing a slot machine and playing Diablo III. At some point, undoubtedly a Congressman or MP is going to ask the same question.

    This article has some interesting thoughts, but it needs some more work.

  6. @JC – thanks for your comment, but I'm not going to respond in details since I was taught not to feed the troll.

Comments are closed.