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In 1997 the size of games got much bigger with the introduction of Ultima Online. In 1999 the scope of games increased again dramatically with the release of Everquest. Now it was possible to have complex social interactions in virtual space, and even have virtual careers that paid more than “real world” careers (this is me, “Lee”, in 2000: http://articles.latimes.com/2000/apr/20/news/mn-21581).

Then the top got completely blown off of gaming with the introduction of two games in 2003, CCP's EVE Online and Blizzard Entertainment's World of Warcraft. Both of these games ended up being the pinnacle of “Big” in our industry and they just kept getting bigger. Then a strange thing happened.

Nothing happened.

In the arena of “big”, it became a veritable Damnation Alley with competitors crashing and burning right and left. Millions of dollars were lost and investors became panicked. There were a few standouts that held their own, like Cryptic Studio's (NCSoft's) City of Heroes and Square Enix's Final Fantasy XI. Competitors thinking they had to be “bigger than Big” died horrible and gruesome deaths in the marketplace. I could give names, but I don't think several pages of literally billions of dollars of lost investments is necessary here.

I'm going to let you in on a secret I have been sitting on for years now. It was never about Big.

It was about Equity.

The Role of Equity in Gaming

When you put a lock on the door to your house, it is not just to protect your life, but to protect your belongings. Both have value to you that has built up over your lifetime. This is equity. When you call the police and they come to help you, it is to protect that same equity and possibly the equity of others. This is how our society is built, and how we are trained from the moment we learn the word “mine”.

We often describe this in games as “persistence”, but what we are always talking about in these cases is equity. When I level up to L10 in a game, log out, and come back the next day at L10, my equity has been preserved. None of my efforts were lost. If I log out with 100 coin, and come back the next day, again my equity is protected.

This is why the dreaded “server rollback” is so feared. It is not that the idea of having to replay part of the game again is so painful to the player. Players in League of Legends play the same content over and over and over again every day. What is lost in a rollback is the equity earned. This is what makes it so painful.

Similarly, if you are the only one that owns a horse in a virtual world, that horse has tremendous value due to its scarcity. If you log in the next day and due to a bug or exploit now 500 people have horses, the value of your horse has now dropped to almost nothing. I explain this in more detail in my 2010 Mona Lisa and the Alchemist paper. Thus, without anything having been done to my assets, I have now experienced a catastrophic loss of equity. I'm going to be upset! I may even ragequit.

How We Undermine Equity

What if I spent three months earning the first horse in a game, and then a few days later I found out that 500 other players now had horses. But this was not due to a bug per se, this was because the game host decided that horses were cool and that players would pay real money for them. Again I describe this in Mona Lisa. Now horses are not cool anymore, and my equity has been destroyed. I'm upset! More importantly, I have now lost confidence in the game world and it's hosts because I know they will not protect my efforts. This is like calling the cops (the people you pay to protect you) and having them mug you when they arrive! I know this really happens in some parts of the world but you don't want it happening in your game space.

Thus all microtransactions that sell game content also destroy equity. This applies to anything normally “earned” in a game, whether it is levels, items, abilities or titles.

When a game gets stale and the dev team puts out a new expansion, the addition of new things to earn gives new equity opportunities. This is a good thing. When that same expansion makes previously valuable content worthless, this destroys equity. If it took me 1000 hours to get the top sword in the game, and a new expansion comes out that gives you a better sword in 100 hours, I have just lost equity. While adding new content is usually a welcome change to a game, this dynamic can be treacherous and designers unaware of this can actually kill off their game with expansion content.

Another way we destroy equity in games is by putting resources in “tiers”. If your “end game” craftable items only use last tier components, then you have destroyed the equity of all lower tier resources by design. This makes players upset. This design was copied from Everquest into World of Warcraft and even into Guild Wars 2 ten years later despite the presence of an economist embedded in the design team.

So how do you make a player economy without all these mistakes? I'm glad you asked!

Games That Got it Right, and Why

In EVE Online the lowest and most common resource in the game is tritium. It never becomes obsolete, you just need more of it as the game progresses. Your tritium never loses value, and thus even ten years later your equity in that game is preserved. The expansion process is the primary source of equity loss in that game, but this is generally the most welcome sort of equity loss. This proper game design is the reason why EVE is the only game in the world that can boast that it has just gotten bigger over the last ten years.

It's all about the equity, baby.

The only sad thing about this game is that the players are so motivated that they will spend thousands of dollars a year on the game, but CCP never implemented a monetization model that would collect those dollars. They tried to add microtransactions, and that did not go over too well due to the aforementioned reasons. PLEX was another attempt to add a microtransaction layer that went over better, but had the effect of adding one revenue source (new players buying PLEX) at the expense of another revenue source (the players most motivated to spend now played for free).

Another game that got it right was World of Warcraft because in 2003 it launched with a weak economy. Why is that good? Because weak was a lot better than no economy, which is essentially what the competition had at the time (EVE being the one exception). The inclusion of an excellently designed auction house, and mediocre player crafting system, was a huge step forward for the MMORPG genre. Players would literally just sit at the auction house every day, ignoring the rest of the game because the AH was, for them, the best part of the game.

The weak economy, and again Blizzard's inability to fully monetize spending demand, meant that third parties came in and monetized WoW after the fact. IGE in particular created quite a nuisance while extracting billions of dollars that could have went to Blizzard. Seeing all that money go down the drain, and having all of those opportunists in the game environment ruining chat with their advertisements was traumatic enough for me that it caused me to become an applied virtual economist bent on finding countermeasures.

The effect on the industry was a bit different. In the absence of these countermeasures, companies either tried to copy WoW (a total waste of money), or adopted microtransaction monetization models (to cut out the middle man), or just stopped making “Big” games altogether.

Microtransactions, as I've already mentioned, destroy equity and thus rapidly reduce the lifespan of game products. Unlimited subscription models, as WoW used, encourage “binge play” which again reduces product lifespan by causing players to run out of content quickly. The solution, frequent patches and expansions, is not very practical unless you already have a big player base. Because WoW was allowed to iterate for so long with multiple expansions without real competition, this made it a content behemoth that new products just could not hope to challenge using the same mechanisms.

"Big" Flight

The rush to abandon “Big” games was not due to technical or even budget constraints. It was due to monetization model constraints that acted as a systemic limit on the size of games. I like BIG games, I can't deny (Sir Mix-A-Lot reference intended). The thought of a really really BIG game makes me sweat and break out my wallet reflexively. I know I'm not alone in this regard. Thus everything I've done since 2005 in the virtual economy space has been focused on removing these systemic size constraints.

In the meantime there have been bright spots in the form of “smaller” games that are experimenting with ways around the limitations of both subscription and microtransaction business models. In particular, World of Tanks and League of Legends have avoided both traps and the perils of “pay to win” through creative hybridization, as described in my Supremacy Goods paper (2012).

Of the two, I favor the model used in World of Tanks because it allows the user to build equity as they progress through the tank tier tree. League of Legends does not worry so much about equity losses in their sales of game content because there is little in the way of equity in the design. While the simplicity of the LoL design lowers the barrier to entry for casual players, it also puts constraints on how deeply it can be monetized and also opens the doorway to competition. One of the biggest limitations of the WoT design, in my eyes, is the lack of gender neutrality in the game.

Speaking of competition, I could not help but notice that Marvel Heroes is coming out this week. The game is essentially Diablo 2/3 with a wide variety of superhero avatars that are sold using an almost direct rip of the LoL monetization model. The game is bigger and allows equity building in the form of both levels and gear, so while still simple from a virtual economy perspective, it is much deeper than either LoL or WoT. It does not rely on PvP, which may turn off some users, but will likely pick up just as many or more that would prefer a single player or cooperative gameplay experience.

Beyond these titles, I did take momentary excitement at the size of Guild Wars 2. The gameplay was amazing, but as I discussed in my brief review of its economy, the concept of equity was poorly applied in almost every reward mechanism, rendering the economy a drag on gameplay, lifespan, and ultimately monetization.