Economics of Gold farming in World of Warcraft

image I have been playing World of Warcraft (WoW) for over a year now, and I am thoroughly enjoying the break it provides over the weekends. It’s a great product and has been running for the past six years or so. Blizzard has done a real good job there, especially in capturing the player versus player interactions (PVP). One such place is the auction house (AH), wherein players can buy and sell items offered by other players in the virtual marketplace. In fact, the concept of auction within its games have been so popular that Blizzard has decided to include real currency in it’s beta version of Diablo III.

But, other than the in-game auctions, a surge of enterprises have sprung up around the game, right from WoW based clothes, to power leveling services (which I think are pretty pointless! If you want to play only the end-game content, then you are missing out on a lot of good content and not to mention the lore!!). That brings us to this post’s topic, ever since 2006, people have realized that players will be willing to pay up good money to buy virtual currency. That’s where a horde of enterprising gamers realized that they can make their game-plat profitable, and even into a scalable business enterprise. This is called Gold-farming.

How it works

Whenever you complete a quest in WoW, or sell any item to a Non-Playing Character (NPC), or sell an item on the AH you get paid in the virtual currency which is Gold pieces. The higher your level, the more gold you get. A dedicated player who plays the game for 8-10 hours can easily collect 3000 gold pieces a day (there are players who make higher as well, as high as 3000 per hour!!). You put 3 different people to do the same thing and keep farming and you have a gold generating machine. Currently (in the year 2012), a 1000 gold pieces are selling for USD 2.7 (roughly 120 INR).

I know it’s not much, but consider the fact that you have to pay USD 15 per month per account. Now you make around USD 27 per day per account. That’s approximately INR 35k per month. A gamer who is farming, will get paid around 6k-8k per month, leaving a profit of 10k per account.

Where

Obviously, one major assumption I have taken over here is the gamer remuneration. This salary will only work in places where the cost of labour is low … namely third world countries. In fact in China, one prison was making the prisoners farm gold all day!!

Threats

Now, all was hunky dory at the start, but there is a teensy-weensy problem here. Laws of Economics.

ecoConsider this graph, those are the demand and supply curves. As the quantity available for the same demand increases, the price that people are willing to pay for that good goes down, and vice-versa that as the quantity available for the same demand decreases, the price that people are willing to pay for that good goes up (since its going to be rare!!).

Now apply this to the gold farming business in WoW. Over the years, the number of people playing the game has seen upswings and downswings (in fact with the recent release of Rift, it has reduced quite a bit). Hence, the demand has actually gone down.

Also, the amount available/supplied is ever increasing … what I mean is that since its virtual currency, there is no limit to it. In the real world, the total volume of gold is 300673 cubic feet, but in WoW the virtual gold is infinite. You can farm as much as you like, its not going to be depleted. EVER.

What that means, is that over a period of time, the price of the virtual currency is going to drop. I did some searching, and this is true. The price for 5000 gold pieces in WoW in 2007 … was a maidenhead. Now, its just 600 INR :-).

Not a sustainable business, this gold farming thing no? I wonder what that girl must be feeling now that those very epic mounts are being sold within WoW for 80 Gold a piece.

Well, there’s always the dragon mounts.

Clone Wars

First came Best Buy.

People were happy, they got good deals, saved some money. Good … but meh! Perhaps their launch was before time. Avante Garde.

Then came Groupon.

A multi-billion dollar valuation, e-commerce 2.0 buzz, social media tongues wagging about. It was the next big thing since the Internet.

I guess over a period of time, folks soon realized that the business model was pretty simple really. Get bulk, negotiate with vendors and give back a small share back to the users. That was also the eYantra model. I hear its gotten its second round of funding as well.

Followed by a slew of Groupon clones … there are too many of them really to name a few. The unfortunate thing is that not one of them is willing to call themselves a Groupon mee-to. We are different is what they all say.

Everybody on this planet is unique, just like 7 billion other people.

If you thought that I would be writing another nerdy review of Star Wars, you are mistaken, Ser.

With Groupon clones sprouting everywhere on the Indian e-commerce scene, its going to be a war out there. The war is going to be played out in our inboxes, on our cellphones, on our social media pages and in our tweets. Our credit cards will be the trophies, each transaction a battle on who will get us the cheapest deal. If you thought that it would make me happy, its not.

All the discounts in the world are not worth the beauty of a spam free life. It’s been ages since I have seen an empty inbox, gotten no sms-es. The Clone Wars are on, and you are the next battle!

Indian Services: A bleak future

With the Indian economy shifting from an agrarian focus to a service-based industry, a lot of foreign investors are attracted to the nation. However, the sustainability of this is under question. As service experiences from bad to worse and consumers are crying bloody murder in the courts, how will the Great Indian Dream be achieved?

The word service comes from the term – to serve, i.e. to work for another.

I am sure you will agree with me that this is hardly the case these days. To measure the quality of service, all service providers have come up with an excuse called as SLAs (Service Level Agreements). What it means is that the service provider is giving certain time limits for each of his failures, and he won’t recognize the failure until and unless that SLA has been crossed.

Ironically, its very logical and you can’t argue against this. But zoom out a bit and think seriously, if you are providing SLAs for life and death services, what would happen? I won’t call you sick, until you have been sick for three days. Dead until, you have been dead for a day.

I won’t spring into action until and unless the given time goes by.

I will ignore your pleas, until you start shouting murder at me. Then I will create tickets, and play the game of the escalation matrix. Then I will care, and once the issue is resolved, I will stop caring.

As consumers, what can we do?

Well for starters –

  1. Read the SLA’s before taking on the service. Do they seem reasonable? Try negotiating on the SLAs and make them sharp.
  2. Clearly define the Plan ‘B’ – What happens if the impossible does happen? What happens if a service promising 99.95% uptime goes down? Who takes the risk and who takes the hit?
  3. Danda works top-down. Sad, but true. Remember that. If you want the cronies to spring into action, knock at the top.
  4. Get a back-up. It’s expensive, it’s redundant, but it’s a safety net ready to catch you when Plan ‘A’ fails.
  5. There’s an interesting start-up Akosha, consider contacting them
  6. Lastly, switch providers and rinse repeat!

Predicting Business Cycles

Back in August 2006, I had written a post on Dot Com Bust 2.0, sadly rediff BLOGS has a bad way of storing posts (week-wise instead of it being individual posts) passed away into oblivion.

Revisiting that post was an interesting exercise, an excerpt –

Do we see history repeating itself? A sudden surge in this Dot Com 2.0 demand, people are already teeming in to cash-in on this new opportunity. Do I start off a firm of my own and try to do the same. Is this risk / venture enough to sustain me through the impending bust? During my induction at TechMahindra, there was a fellow from the top management who was wizened enough to predict that the next bust is going to come in the year 2009. We laughed it off back then, I am not laughing now. Maybe, the dot com bust might relapse, and why not? Fortunately, IT in India is not just about web development anymore. We will pass through this. But will my dream of starting off on my own do the same?

Full marks and respect for that top executive.

A VC who nurtures entrepreneurs

Just read this on the Wall Street journal, that there is a venture fund by the name of Pacific Lake Partners who actively seek out young entrepreneurs, give them enough money to scout around for the right organization to takeover. Then help them acquire that organization for a healthy return.

You can read the rest of the article here. An excerpt –

Pacific Lake will provide between $300,000 and $500,000 to entrepreneurs to cover living and travel expenses for two years while they search for a business opportunity – generally an established business with revenue between $10 million and $30 million. There’s no sector focus; it all depends on the opportunity the entrepreneur finds.

It feels good to know that there is a venture fund who values someone who can not only boot strap an organization but take on an already running organization and turn it around. This is the stuff of what legends are made up of. All of the awe-inspiring case studies that we used read in our b-schools have suddenly come real. I wonder if any VC or angel investor follows a similar policy in India. As a developing economy, we need increasing number of such folks.

Why we pay taxes

A discussion with a friend about salary structures resulted in this post –

  1. I am damn scared of an IT raid
  2. Paying corrupt officials the salary and perks that they dont deserve
  3. Paying for infrastructural developments that dont help anyone
  4. Reducing the deficits of the nation
  5. If I do it, then everyone else could also do it

Despite all this cynicism, I still pay my dues … and I think that gives me a moral authority to demand the same from my fellow Indians.

All it takes is an idea.