Knowledge map of the virtual economy - CONVERTING THE VIRTUAL ECONOMY INTO DEVELOPMENT POTENTIAL

knowledge map

of the virtual economy

CONVERTING

THE VIRTUAL ECONOMY INTO

DEVELOPMENT POTENTIAL

KNOWLEDGE MAP OF THE VIRTUAL ECONOMY

THE WORLD BANK

www.infoDev.org www.infoDev.org

+ Connect series

KNOWLEDGE MAP

OF THE VIRTUAL

ECONOMY

www.infoDev.org

Information for

Development Program

An infoDev publication written by:

Dr. Vili Lehdonvirta & Dr. Mirko Ernkvist

April 2011

Converting the Virtual Economy

into Development Potential

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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

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

Table of Contents iii

iv Knowledge Map of the Virtual Economy

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

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