Bad Ideas: Trying To Build A Marketplace Of Virtual Goods
from the let-me-explain-some-basic-economics... dept
I’ve seen a few company lately trying to build marketplaces around the idea of selling virtual goods, and the latest one, Live Gamer, gets a big writeup in the Wall Street Journal over its plans to build a marketplace for virtual goods and characters from online worlds. This is hardly a new idea, as there’s been significant trade in these types of goods either on company approved sites or more informally through sites like eBay. However, it seems quite dangerous to base an entire business on this concept. The economics of virtual goods gets screwed up very easily once you realize that there are no truly limited resources within virtual goods. Sooner or later people figure out how to copy virtual goods, just like they’ve learned to copy music and movies — and suddenly the idea of charging directly for those goods becomes a lot more difficult. It’s just basic economics. The VC firms betting on this new concept seem to believe that the company (or the various gaming companies) will somehow be able to hold off this economic reality, but that seems incredibly risky. The entire market is based on an economic model based on false scarcity, and that seems quite dangerous. It may work temporarily, but there’s a big reality called “infinite supply” that’s likely to make any such model come crashing down eventually.