Law & Games Seminar

Spotted at Games * Design * Art * Culture:

Some commentary today (from Raph and Terra Nova on a whitepaper from Sony Online Entertainment about item trading on Station Exchange.

Background for those who haven’t been following it: Sony set up some (but not all EQ II) servers to allow legal item and plat sales, via a trading system they set up. In a sense, in the face of the controversy over real-money trades (RMT), they’re trying to eat their cake and have it too: get a piece of the revenue resulting from RMT, while still allowing people who hate the idea of people buying their way to the top of the game to continue to play on non-RMT servers.

The whitepaper doesn’t try to figure out how much RMT has moved from eBay or other markets to Station Exchange, which would be interesting to know–but my guess is “virtually all of it”, with remaining off-Exchange trades mainly for items and objects on the non-RMT servers (in violation of the terms of service, of course). The reason is straightforward; in most auction markets, eBay wins as the source of the widest possible audience of bidders, but in RMT trades, Sony wins, because they (unlike eBay) can enforce trades, since they control the game. Consequently, bidders and sellers have much higher protection against fraud or bad faith.

Some have expressed surprise at the relatively low revenues earned by Station Exchange ($300,000)–this surprises me not at all. I did a back-of-the-envelope calculation years ago, and came to the conclusion that building a system to allow and enforce RMT was a marginal proposition at best, which this bears out. More important is that, per Sony, 40% of customer complaints are related to RMT trades–remember that if you buy on eBay, you’re reliant on the counterparty to show up in-game and mail you the goods or meet you in game to transfer them. A real disconnect, which, again, in-game enforcement by Sony can prevent. The volume of customer complaints has apparently fallen–Raph estimates it at 12% 30%–and that is, in fact, a big win for Sony.

Why? Well, the major ongoing costs of MMOs derive from four things: operating the data center, paying for bandwidth, live team development (that is, creating new content for game updates), and customer support. Three of these four (everything except live team development) scale directly with usage–as the customer base grows, you need more bandwidth, more servers, and more customer support. Only live team development is fixed (more or less), because the same updates can be propagated across all servers. Obviously, you set up your cost structure so that the monthly fee pays your direct costs with room for margin, but anything you can do to directly reduce the three costs that scale with usage propagates right down to the bottom line.

In other words, Sony’s real win here is in reducing its customer support costs–and if Raph’s estimate is right, it’s a big win indeed.