A new report from infoDev.org takes a fascinating, in-depth look at the so-called "virtual economy," which consists mostly of gold farming, power leveling, and other small tasks like reading CAPTCHA values. The angle that the report takes is that the market for virtual goods and services represents a growth opportunity for developing countries, and that NGOs should consider getting involved in connecting poorer, mostly rural residents with opportunities to help meet the demand for farmed gold, high-level player characters, crafted in-game items, and the like.

The report focuses on two areas of the virtual economy: "third-party gaming services," which are mainly gold farming and power leveling, and "microwork." The latter is best exemplified by Amazon's Mechanical Turk service, which lets small, repetitive tasks like image recognition be parceled out to low-wage laborers in other countries. The authors identify two other areas of the virtual economy that they choose not to focus on: virtual item creation and "cherry blossoming" (i.e. paying users to increase a brand's social network footprint by "Liking" certain pages or becoming a fan of the brand on Facebook).

While the microwork content is interesting, the most fascinating part of the report deals with the gold farming market. The authors interviewed numerous informants and gathered a ton of original data that upends some popular assumptions about the market's composition, complexity, and size.

Gold farming supposedly makes up three-quarters of the market for third-party gaming services, with power leveling responsible for most of the rest. The virtual gold market is fully developed in every sense of the word. Gold retailers have a supply chain with quality control. There are large market makers, commodity speculators, and multiple regional centers where larger firms source gold orders out to a fluid network of rural farming studios and (believe it or not) wholesalers. The latter group, wholesalers, are probably acting as arbitrageurs, buying gold low in low-demand times and selling it high when demand spikes.

According to the report, "one industry expert suggests that manual farms produce 30 percent of the virtual currency sold by retailers, bot farms produce 50 percent, and hacker groups 'produce' 20 percent by stealing it from other players."

As for the stereotype of the Chinese gold farmer supplying rich westerners with gold, the report definitely reinforces it. According to the authors' estimates, the number of players in China who pay to play online games is over twice as large as the number of North America, Europe, Japan, and Korea combined. However, the latter group of regions spends over three times what China does on farmed gold. That makes China the world's largest exporter of farmed gold, with the rest of the world running a deficit (sound familiar?).

The authors claim that the "play for free" model, an example of which was recently criticized here on Ars, is actually the dominant revenue model for online games in Asia. Players there prefer play-for-free to paid subscriptions, which indicates that the walls between the real economy and the virtual one in that region is much more fluid than it is in the West.

Ultimately, the report's authors say, the size of the virtual economy and the potential for citizens of poorer nations to pocket a significant amount of money from it suggest that virtual goods and services should be taken seriously by any group that's looking at ways to help lift people out of poverty. The authors estimate the size of the market for third-party gaming services alone was $3 billion in 2009. Significantly, most of this money went directly to the developing countries, as opposed to being eaten up by Western intermediaries. The report contrasts this with the market for coffee, which was $70 billion globally in 2009, but only $5.5 billion went to countries that produce the coffee beans.