LOGIN 2009: Herdina vs. Zatkin On Secondary Markets

By Alicia Ashby On May 20, 2009 · Leave a Comment

One of the most controversial topics related to the virtual goods space is the role of secondary markets in an online game's ecosystem. Some platforms like Gaia encourage secondary sales to keep players interested in the world's virtual items while Blizzard's World of Warcraft MMO is plagued with third-party grey market sites that buy and sell the game's items in violation of the game's EULA. At last week's LOGIN 2009 Conference, fatfoogoo's Martin Herdina debated EEDAR's Geoffrey Zatkin on the desirability of secondary markets.

Herdina unsurprisingly takes the "pro" stance in the debate, since his company builds tools that facilitate trading, buying, and selling of virtual items in a variety of games. Zatkin takes the more traditional game industry "con" stance. While the debate is fascinating, it is also takes about an hour to watch through the video recordings. For busier readers, a text summary of the debate is behind the cut as well as an embed of the firist video in the series. All six videos are available from YouTube user markeedragon account if you want to jump in immediately.

Herdina's "pro" opening speech comes from the classic virtual goods defense, the time-rich vs. wealth-rich player argument. Herdina states that while there's always a group of hardcore time-rich players who can earn any virtual item they want in a world, the average WoW player is 29 years old and probably has a limited budget of time to devote to the game. Herdina sees no reason why time-poor, wealth-rich players shouldn't have the right to purchase items earned by time-rich players who may be wealth-poor or simply uninterested in keeping them for other reasons.

He also maintains that it adds fun to the game when players can freely trade, buy, and sell the game's virtual items. He points out that not even Blizzard can successfully fight the grey market traders, so it's more to a business's advantage to build games with their secondary market in mind. Developers should balance the game to support its secondary market and make sure that they're giving players safe ways to trade with each other. It's easy enough to do this while also monetizing the secondary market and increasing game revenue.

Zatkin argued from the unusual stance that for a market in an MMO to be secondary, it had to exist outside of the game rather than simply being focused on player-to-player transactions that could be happening inside or out of the game. This is not a definition typically used in the virtual goods space (see, for instance, how VERN defines a secondary market). This colors Zatkin's argument in an intriguing way, as he argues that any secondary market necessarily damages a game's profitability.

He notes that for all online persistent games, the game ultimately generates revenue by getting players to spend more time in it. This either draws out a paid subscription period or gives a player more opportunities to buy microtransaction items directly from the publisher. When players sell items to each other, Zatkin argues they are essentially breaking the game's intended sequence and letting others "skip to the end," which denies revenue to the game's developers.

Zatkin essentially argues that a secondary market in any form is a massive demotivator to player involvement. The risk of fraud and having characters or passwords stolen by Chinese gold farmers demotivates people from becoming involved in a game, while seeing wealth-rich players simply purchasing high-level characters and items demotivates players from wanting to invest time in playing the game "correctly."

Rebutal and Cross-Examination

Both speeches had a "cross-examination" period where the opponent was
allowed to rebut the speaker's statements. After Herdina's speech,
Zatkin pointed out that WoW already has a sanctioned player-to-player
trading method, the game's Auction House, so there was no reason for
players to run the risk of involving real money in the transactions. He
also noted that, statistically, the average WoW player invests 20 hours
per week in the game, which is plenty of time for any player to earn
whatever virtual items they desire.

Herdina cross-examined Zatkin's speech by stating that there is a clear demand for direct purchase of virtual items, which Zatkin curiously denies. When the inclusion of LiveGamer as a sanctioned service in EverQuest II is brought up, Zatkin said he opposed the decision. He goes on to say that he considers LiveGamer support to be one of the reasons why EverQuest II to this day has fewer subscribers than the original EverQuest, which briefly offered a secondary market but pulled it due to rampant customer service issues involving chargeback and fraud.

From this point the debate moved into a series of short rebutal speeches. Herdina defended the role of a secondary market in gameplay, saying that designers could easily do things to make items untradable if they really didn't want players to trade them. This could preserve the idea of status items that are only earned through gameplay in a title.

Zatkin argued that binding is a play mechanic that quickly gets out of hand in games where it's used to prevent secondary item trading, stating that virtual currency in WoW is now virtually useless because all truly good equipment is bound. This only prevents legitimate players from giving old gear to friends or guildies. He also argued it was fruitless to offer players a sanctioned in-game RMT trading service, since that will only encourage players to go out and do it illegitimately, too.

Herdina revived the time-rich vs. time-poor argument from earlier in the evening with an account of a personal experience where being able to purchase in-game virtual items with his own money helped him enjoy a game better, since it meant he could compete even though he had only 3-4 hours per week to play. Zatkin's rebutal was that not all games are for all people and players who can't commit to an average number of play hours per week will probably end up leaving a game anyway.

Final Thoughts

Virtual Goods News, of course, supports the argument that virtual goods and microtransactions have a legitimate role to play in the design of satisfying and worthwhile games. We feel this role is equally legitimate whether the items are being sold indirectly to players or in a player-to-player fashion. Many of Zatkin's arguments seem to originate from a presumption that it is never more fun to buy a virtual good than to earn it through time investment, so it's difficult for us to agree with many of his positions.

That said, a developer hoping to build a game or other project that monetizes through virtual goods needs to be paying careful attention to the problems Zatkin brings up. If you are going to have this be an option for players, you need to build it well into the core of your game and make sure that simply being able to buy items or other data doesn't artificially shorten the game's lifespan. Hopefully, the more these issues are discussed, the more comfortable the traditional gaming establishment can get with the idea of virtual goods as items for players to buy and sell however they see fit.