Questioning the “Red Gold Menace” theory of WoW economics

When I started playing World of Warcraft in 2004, it was the heyday of the Chinese gold farmer. Figuring out who was a gold farmer, and discussion over whether (and if so, exactly how) they were ruining the game, was parlour chatter in guilds across the game, from server to server. In an odd precursor to the kind of received wisdom surrounding the Great Recession, inflation was the oft-cited reason the “server economy sucked”. I never played on a server where the server economy didn’t suck according to the people who played there; whether new or well established, highly populated or virtual wasteland. It was never made clear what exactly sucked about it, aside from the fact that it was a pain in the butt to make enough money to buy skills and gear up for raiding. As in world economic history, inflation was the easy villain, and the Red Gold Menace was generally agreed upon by the loud, angry, failed-virtual tycoon class as the cause.

Chinese farmers were not only hunted by Blizzard, third party gold sales being banned under the Terms of Service, but by players. On PvP servers this was fairly straightforward. Gank mobs would hunt suspected Chinese for fun, hurling abuse, often with those on the same faction leading the opposing faction to the farmers. On normal servers players found all sorts of creative ways to ruin a farmer’s day. Some would systematically clear ahead of the farmer’s path so they had nothing to farm. Some would abuse game mechanics, leading exceedingly dangerous creatures into the farmer and letting them be killed, costing the farmer time and money.

If you had a little WoW-specific Mandarin Chinese, one could make a good in-game income from the gold buyers. A friendly approach often meant you could get better deals on whatever interesting items they had come across as they slaughtered turtles, mined ore, and picked herbs for hours on end. Their need to make their money fast meant any time away from their grind equalled lost profits for gold farmers, and no auction fees, meant it was as good a deal for the farmers as the buyers. One of guilds I was in had a guy who was great at this. A natural salesman, smooth talker, and gregarious, he was the font of our guild’s wealth, largely because he traded with the farmers and didn’t treat them like dirt. Some guilds, especially on new servers, even invited a farmer in, giving the farmer the camouflage and protection of a guild tag, and the guild a source of cheap materials.

Or at least, not the whole truth. For one thing, the they were doing the exact same things that the rest of us did: riding around the various zones looking for metal deposits, herb nodes, and slaughtering and skinning beasts for leather. Killing humanoids by the hundreds for cloth. Collecting magic items to sell or possibly disenchant. Running instances over and over. The only real difference, aside from the fact that they did it for much longer stretches, was that the farmers traded the gold they earned to other players for US dollars, and the rest of us traded it to other players, or gave it back to Blizzard, in exchange for virtual goods. People certainly worried about their friends who farmed metal or herbs for 12 hours straight, but not because they thought it contributed to runaway inflation ruining the server economy. Inflation happens when the price of things rise in association with an increase in the amount of currency in a monetary system. In World of Warcraft, across the whole market, the prices didn’t actually rise.

Deflation, not inflation

The general pattern went something like this. When a new server opened, prices would climb like crazy, because of the oversized demand. Everyone needed things to help level up their characters and professions, and because it was a blank slate there was no supply to speak of. After a while, perhaps a month or so at most, supply for basic materials and gear would begin to massively outstrip demand, dropping prices inexorably downward. As people levelled up and gained access to more advanced materials, the deflation wave would crash over them, and on up to the top end of the scale, with prices eventually settling down to an equilibrium. Many people who didn’t sell gold for money took advantage of this pattern, myself included. At the launch of Wrath of the Lich King (2008), I sold metal and cloth for twenty times what they sold for by the time the expansion content came to an end. This deflationary pattern repeated on every new server I played on, and during the early days of every expansion. You wouldn’t have known it if you asked someone who wasn’t an economist, like myself. I probably would have called it inflation. We all called it inflation. We couldn’t afford to buy the stuff we needed.

This is not to say that Chinese gold farmers had no impact on the market, only that their impact was primarily deflationary. On the auction house, whatever server you may be on, there is always someone willing sell what you’re selling for less than you just did. The overriding need for farmers to turn their inventory into gold meant that they would price even more aggressively, exacerbating the deflationary pressure. Your average player trying to keep themselves in repair bills and save up for that shiny epic mount had to lower our prices even more to compete with the flood of systematically farmed copper, mithril, dreamfoil, and thick leather.

Mounts themselves were another deflationary mechanism. Ten years ago, the 1000 gold necessary to buy and use an epic mount that doubled your run speed was a huge sum; one I never once got close to on any character before the first expansion. Expansion The Burning Crusade (2007) introduced flying mounts, with the price for top speed quintupling to 5000 gold, a sum so vast that few people I knew ever obtained it before the next expansion was released. All of the gold spent this way was removed entirely from the economy of Azeroth. Any time someone bought gold from a gold farmer to spend on their mount, they were helping deflate, not inflate, the server’s economy.

This isn’t to say that there wasn’t inflation at all, but it was far more limited in scope, if less limited in visibility. Gear needed for getting into entry level raids, and optimal gear for battleground twinks (low level alts used only for pvp in the lower level brackets) did indeed rise in price, with the availability of third-party gold sellers supporting those price rises possibly higher than they otherwise would have, but this was only because it was impossible to increase supply enough to meet the demand. Everyone that played a rogue twink in the lvl 19 bracket needed a “Feet of the Lynx” to compete. Every warrior tank stepping into Molten Core wanted a set of “Stockade Pauldrons” to help them stay alive. Every priest wanted an “Eye of Shadow”. If you had one, you were guaranteed a whole lot of gold. Being able to buy gold from a farmer meant more ways for your customers to collect gold. High prices and high amount of available currency equals clear cut inflation, but from a level already high from extreme demand. Those of us putting a few stacks of iron, kingsblood, or thick leather on the auction house every day rarely saw a copper of all that gold sloshing around.

After a while it became less and less profitable for people selling gold for dollars to employ other people to spend 12 hour days farming, even at the (relatively) low rates paid to the Chinese farmers. But what is true in the rest of the world is true in the world of gold farming: reducing your labour costs is a fast and easy way to increase profits in the short term. And as in the physical world, farmers had three basic choices to make in how they went about it: automation , theft, and slave labour.

Bots, thieves and slavers

It’s hard to tell which was more disruptive to the game: automation via botting, or theft via stolen account information. It’s undeniable that slave labour, often extracted from Chinese prisoners was most disruptive to the people involved. But due to its doubly secretive nature, it didn’t make much of a visible impact on anyone else playing the game. There was no real way for the average player to know that it was happening without investigative reporting. The slave farmers worked the same way as the now-unprofitable paid farmers. The widespread misapprehension that Chinese gold farming had always been effectively slave labour, instead of better paying and safer than factory work, helped mask the change too. That old style made fewer waves than the bots or account thefts, and the fact that there was someone playing the game on “their own” account meant that no one other than the slave and its captors noticed when and if the account was banned.

The bots and account thefts on the other hand were very noticeable, and were the cause of an incredible amount of headache for Blizzard and players alike. After firing the human farmers, the ones who didn’t have prisoners on hand put that freed-up money into improved automation. Crafting materials from bot farmers flooded the market, and have continued flooding to this day, despite waves of account bans. This exacerbated the deflationary pressures on auction house prices. Gold farmers advertising their wares became more and more annoying, to the point where whole addons were written to filter chat messages to avoid gold spam, using the same techniques as email spam filters. On a server with any population, it was an utterly unmanageable torrent. Spam blockers were the first addons many players I knew had ever installed.

Once Blizzard made reporting and avoiding chat spam easier, the sellers resorted to “corpse spam.” Bots would be written that automated the creation of level 1 characters and exploit them through the air from their starting areas to the main cities, letting them fall to their death in front of the relevant auction house in a pattern spelling out the name of their web site. It’s basically impossible to ignore something like that, no matter how many anti-spam players loudly demand that everyone ignore or stop taking screenshots. A publicity stunt that Blizzard couldn’t force anyone to ignore. At the same time, those tools of automation were used to steal account credentials.

Fake gaming sites would be set up to capture player login credentials, assuming rightly that unless forced not to by an outside actor, people often use the same username and password everywhere. Legitimate sites would be hacked, or ad networks subverted to install keyloggers on gamers’ machines, transmitting account credentials back to the scammer. Often, the thieves would steal the gold they sold right back from their buyers, the buyers having used the same username and password for their World of Warcraft account as the account on the gold seller’s website. Once in your account, they would in-game mail and trade to confederates on other accounts everything they could grab from inventory, bank, and guild bank, through a web so complicated, it would hopefully take Blizzard longer to undo than it would for them to sell the gold those items generated.

As people began to get wise to the scheme, keeping on the lookout for guild members logging in at odd times or behaving strangely, the thieves skipped sending items hither and thither and simply vendored everything that could be vendored, sending the gold on to the first step in the laundering chain, and logging out as fast as possible. It was smash-and-grab burglary, and it left a trail of frustration in it’s wake, and driving Blizzard’s support costs through the roof. A gold seller hacking an account led directly to the infamous “Martin Fury incident” when a GM accidentally sent a literal “I win” button to a player when he had his account restored after a hack. To combat this, Blizzard implemented 2-factor authentication, first with a $10 physical keyfob called the Authenticator. Being a card carrying infosec paranoid, I had bought one the day it was announced. As a result my Blizzard account has been more secure than my bank account to this day. One guild I was a member of had its guild bank emptied three times before we demanded that the officer whose account was being repeatedly compromised buy one. Almost every single member of the guild without one had their account compromised at least once. Until Google implemented its authenticator app for smartphones, online gaming accounts were the most secure accounts online. Many companies followed Blizzard’s lead and introduced their own authenticators (such as Trion Worlds for Rift, and EA for Star Wars: The Old Republic) or an alternate version of the concept (such as Guild Wars 2).

While never as popular as Blizzard hoped, the existence of authenticators made it a lot harder for the hack farmers to ply their trade. That is, until they realized that they could use the authenticators to subvert accounts themselves. After gaining access to an account without an associated authenticator, they would add one to it, thereby locking out the true owner of the account, and giving them much more time to exploit the account than they’d had before, as the player went through the laborious process of convincing Blizzard that they didn’t add the authenticator, and then Blizzard went about its process undoing the mess. That ended up further incentivizing the use of authenticators (get one before a hacker gets one for you). Giving a free vanity pet to everyone who attached an authenticator to their account, and Blizzard’s distribution of physical tokens in the collector’s edition of the Cataclysm expansion, and releasing a smartphone authenticator app made it even easier. Eventually that tide caused the Wild West era of account theft to pass by, and while it still happens, gold farmers generally went back to botting and exploiting, which remains the primary way that you’d encounter a gold seller today.

Entering the age of real money auctioneering

They did this through the WoW Token, which was surprising not because of its timing or any particular feature, but that Blizzard had introduced it at all. Not only because of how hard Blizzard had fought to excise gold selling from their game, but because of how catastrophic Blizzard’s previous attempt at authorized gold selling was. To say that the launch of the Diablo 3 Real Money Auction House was a disaster would be a pretty comical understatement. While Diablo 2 item selling established an illicit market that priced items in dollar terms, Diablo 3 set an official, Blizzard-sanctioned, dollar price for every item in the game, including gold. In anticipation of making millions with their demon killing skills, thousands of players invested money in computers, chairs, and other physical items to support their career choice of gold farmer. So many that, in a manner exactly the same as the effects of farmers on the Warcraft in-game auction houses, the dollar price for gold and items dropped through the floor and kept on dropping. For most people that didn’t use the RMAH, it was simpler to vendor everything that dropped and use that gold to buy gear on the gold-only auction house every so often than to actually use any of it. Vanishingly few people made anything resembling a living. As with the World of Warcraft auction house, only the absolute best items would net you any appreciable dollar value, and the drop rates for those items were so low that the few who did make an appreciable income did it through arbitrage.

Player numbers were suffering. While millions bought the game, auctioneers’ results made clear that few of those people were actually playing at any one time, or at least bothering to participate in the game’s economy. The huge success, critical and financial, of the console versions of Diablo 3, without any kind of auction house, signalled big changes. The release of expansion Reaper of Souls didn’t just remove the US Dollar from the economy of Diablo 3 on PC, it removed the entire economy. Trading in Legendaries (the best quality items in the game) is impossible unless the person you are trading them to was in the same instance as you when the item dropped, and even then there is a limited window for trading. Gold could no longer be traded at all, and its uses were drastically limited. Some low-quality items could be traded, but there is little point in doing so, as they are inferior to the untradeable legendaries in every way. The differences could not be more stark, and the lesson seemed clear: getting real money out of the game is what players want. At least until March 2015 when Blizzard announced the WoW Token.

Now it’s true that Diablo 3 and World of Warcraft are very different games, and the WoW Token is not the free-for-all that was the Diablo 3 RMAH. It apes the extremely successful PLEX from EVE Online. PLEX is an item that when used in game gives you a month of game time. It’s totally tradeable, can be sold on any in-game marketplace in EVE for as much in-game currency as you’re willing to hold out for. The ease of use has made the illicit isk sellers a lot less profitable over the years, and that has translated directly into profit for the company. In keeping with the arch-libertarian ideals of the game, PLEX can be stolen, scammed away from you, or vaporized just like everything else in EVE Online. Despite worries at the beginning, the virtual world wasn’t radically altered, though the game world is already so ruthless, it might have been hard to tell. And in a game whose extremely detailed and complicated market system is part of the draw for players, allowing the exchange of USD for isk isn’t a huge stretch for the imagination. The WoW Token takes the basis of the concept (virtual currency for game time) but sands all the sharp edges off. Each token can only be sold for gold once. Blizzard controls the rate at which the gold price rises or falls, to all appearances based on the average amount of time it takes for tokens to sell. The seller can’t do anything with it other than putting it on the auction house for gold. The buyer can’t do anything with it other than add 30 days to their subscription.

This begs the question of whether World of Warcraft has gone “free to play”. I would argue that it has not. While I don’t have to pay in dollars for my game time, someone does. With the very limited exception of trial accounts, there are no freeloaders in World of Warcraft. Truly free-to-play games, such as Path of Exile, are rife with them. I’m one, and I can’t imagine buying anything that Grinding Gear Games wants to sell me. I compensate them by playing with the people that do pay for things, and talking about the game to other people, who might be more interested than I am in buying those things. Making the place feel lived-in is important to all online games, as anyone who has played on a dead server will tell you. And their costs per user are so low, by design and the nature of the game, that the cost of my personal bandwidth use and database space is offset by the most minor purchase on their store.

Blizzard, like EVE’s developers, has taken a very different path to conventional free to play. Through the mechanism of the WoW Token, Blizzard has effectively hired a whole lot of extremely cheap labor, and raised their prices for the customers who wish to use that labor.

People can pay Blizzard for the right to access our labor in the same way that gold buyers access the labor of illicit gold farmers. It’s an even better deal for Blizzard, because real cost they incur for “payment” is extremely small. In 2011, server maintenance costs for World of Warcraft were $136,986 per day. Divided by the 7 million current subscribers, that’s a bit under $.02 per user, per day, or $7.15 per year. That’s not Blizzard’s total costs, and not current numbers, but even if the real numbers are double or triple that, it’s still a lower labour cost than any Chinese gold farmers had, except possibly the ones employing slave labour. On top of that, by effectively legalizing and regulating the gold trade, they reduce their costs spent enforcing the ban against third party gold sellers, and the cost of cleaning up the accounts of people who bought gold from shady dealers.

As exploitative as it sounds (and it is certainly exploitative) for players without much disposable income it’s a decent deal. One of those token buyers is me. Originally, I didn’t expect to participate, but in the month following the official launch, I’ve bought 8 tokens with gold, extending my game time until the middle of December. If I had felt like putting some serious effort into it, I could pretty easily have funded my account for the maximum allowed of three years. I have become a gold farmer. A few hours a week at most, with a bit more discipline about spending gold, was all I needed. Compared to the hours and hours I was happily spending levelling alt after alt, it was a drop in the bucket of my time. Easily doable in the mornings, and in the hour or two before raid nights. The argument from gold buyers that working extra at a paid job is more efficient than farming up gold is not totally without merit, but few people can simply work as many hours as they wish to in this day and age.

The value of the ephemeral

Whether it has changed my relationship to the game is a difficult question. World of Warcraft has changed so much in the 10 years I have played it. Costs have changed. Inflation via direct injection of gold by Blizzard has radically changed the economy. The 1000 gold price tag for an epic ground mount has dropped to 100 gold. So many ways of earning gold exist now; clearing old instances, crafting upgrade tokens, battle pet arbitrage, garrisons, classic farming, among many others. The last two characters I brought to max level had enough gold on hand to pay for all training and garrison upgrades on their own, with no seed money necessary from any other character. The only things out of range to the casual accumulator of gold these days are the rarest of the rare, or now-unobtainable items. Mounts from the defunct Warcraft trading card game. One-time event battle pets. Cosmetic items from long removed instances, but made available through the Black Market Auction House.

The token does have the potential to warp everything around the US dollar, but the extremely restrictive structure largely obviates that. I have an add-on installed that calculates the US dollar and game-time value of any item I can see, based on the current auction values, and the current token price. It’s not particularly useful information in answering questions of what I do with an item to get the most value out of it, but it is interesting to see. This sword vendors for 10 cents, that one for a dollar. This essence sells for 15 days on the auction house. That bow for 5 minutes. These equivalences are nothing particularly new, of course. These are calculations that gold sellers and buyers made themselves 10 years ago and have continued to make ever since, but it feels different to see it there, updating in real time, even if I can’t pin down exactly how, or what effect at all that difference makes.

Determining value-for-money in games is always pretty dubious. Dollars (or your local currency equivalent) per hour spent playing is a common metric, and as a shorthand it kind of works. For most of us, cheap entertainment is important, and in this day and age games come very cheap in comparison to a night out at the local bar, at a movie, a play, or dinner at a restaurant. The many incarnations of free-to-play are a part of that.

Until April, I didn’t care that my subscription fee cost me much more than what it cost Blizzard to provide the service. I was paying for a service that I enjoyed using. Indeed, throughout the last 10 years I have paid month-to-month almost the entirety of my time playing World of Warcraft. If I had been a bit more foresighted, I should have paid several months in advance, saving myself a pretty big chunk of change over the years. The reason I kept doing so was that it made it easier to quit when and if I wanted to, something that I took advantage of on many occasions. The ability to leave whenever I wanted without a large amount of non-refundable money in the hands of a company I might suddenly dislike, for an activity I no longer wanted to participate in, was easily worth the extra cost over the long term. Paying for game time with gold seemed to be a completely risk-free, win/win scenario. Warcraft gold is totally without any real value beyond its ability to purchase game time. I’ve proven to myself that I can make as much of it as I feel like making, largely doing nothing but things I did before. I have probably spent months of real time clearing old instances for fun, speed challenge, battle pets, mounts, and achievements, leaving most of what I wasn’t specifically there for to rot. Which is why I was surprised that, when I recently wrestled with the question of whether it might be time to quit for good, I felt exactly like I’d dumped cash into Blizzard’s coffers instead of gold. That I was suckered into working for nothing. Blizzard and the people who bought the gold I farmed would get all the benefit of my labor, and I will get none of it. I was the sucker around the poker table all along. I gambled and lost. Money down the drain.

It’s an obvious case of the sunk cost fallacy, and while it’s even more fallacious than usual, it’s understandable. I accumulated things that until only a couple months ago I would have paid $120 for. That value equation is apparently not so easily dissolved simply because I spent currency without particular value to me to get it. After all, thieves will try to protect what they have stolen. I didn’t steal it, but it certainly felt like I was getting something for nothing every time I bought a token.

It reminds me of my mother chiding an overly optimistic me some 25 years ago, when I was naively certain that my comics and baseball cards would surely be worth millions soon enough, that things are only worth what people will pay for them. Over time, the lesson I learned is that I was better off not ascribing any value to those things. I’ve thrown away boxes full of baseball cards, Magic cards, RPG books, and comic books without anything more than a bit of nostalgia tugging at my heart strings.

This time, however, I have been gently shown my naiveté on the other side of that value equation. I traded away something I had decided was worth nothing, only to be shown that you can’t simply decide that.