eBay prohibits virtual world trading, IGE to benefit

(This post also appears at SeekingAlpha here).
 

eBay's (EBAY) recent decision (Slashdot) to prohibit all real-money trading ["RMT"] of items from virtual worlds has ostensibly been taken on grounds of the "legal complexities" these trades throw up. The legal ownership of items acquired within gameworlds such as Blizzard's World of Warcraft remains a grey area, as the intellectual property is arguably owned by the gameworld publisher and not the individual player. Terms of use contracts between publishers and players in many gameworlds, for example in Square Enix's Final Fantasy XI, in any case explicitly prohibit RMT. eBay's move out of RMT seems designed to limit liability in the event that publishers pursue it as the facilitator of these dubious trades.

The move is short-sighted. eBay's market power stems from the defensibility of its network effect - buyers come to eBay because the sellers are all there in what for eBay is an ongoing virtuous circle. Breaking that circle for a specific category of goods or services is probably not a reversible decision - once a network effect has established itself at a new marketplace within that category the same defensibility that secures eBay's wider business is very likely to prevent eBay clawing back a share of that market segment.

The secondary market for virtual assets was estimated at a value of $900 million in 2005, with forecasts for it to reach $7 billion by 2009. As long ago as 2002 Edward Castronova, an expert in the economies of virtual worlds, posited that Norrath (the Everquest gameworld) had an economy that made it the 77th richest "country" on earth (CNet). eBay is turning its back, probably irreversibly, on a vast and growing market.

Dedicated RMT markets, most notably IGE, are poised to capitalise on eBay's abandonment of the RMT space. IGE has already bought out (Gamezone) its main independent secondary market competitor, Yantis Enterprises, in 2004, which with eBay's departure leaves as its main competition game publishers' own exchanges such as Sony's (SNE) Station Exchange. As publisher marketplaces deal only in their own games, these sites are far more limited and eBay's move out of RMT means that IGE should be able to build its own network effect in the RMT space virtually unopposed. 

Comments

[Ian Douglas]

I see eBay have exempted Second Life from the ban as the players (inhabitants?) are given intellectual property rights in the Ts and Cs. IGE are very weak on SL, probably because it's so easy to by and sell in-game. Maybe that should point the way for Blizzard and others who are worried about legal mix-ups: just give the gamers what they've made.

[Seamus McCauley]

Ian - very much agree. You can't kill a market if people want it to exist. Look at the vibrant grey market that survived in Soviet Russia or the failure of both prohibition and the war on drugs in the US. If the two most powerful empires of the C20th couldn't control the transaction of physical goods within their borders what hope for media companies that publish virtual worlds to the anarchy of the web? Sony at least have the wit to acknowledge this reality and try to own the secondary market for their own games. Blizzard has just failed to learn some of the (very recent, very obvious) lessons of history.

That said, with my gameplayer hat on, it's a shame. It doesn't matter so much for SL because SL isn't a game with progress measured in accumulated equipment. But for WoW etc, buying your way to L60 isn't very different to winning Monopoly by offering five real-world pounds for Mayfair. Perhaps the only solution is to make the advancement element of these games a largely optional feature of enjoying the world and the interactions.