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The Economics Of Gold-Farming

Richard Aihoshi Posted:
Columns The Free Zone 0

ICTs for Development is a blog where the contributors are all associated with academia, specifically the University of Manchester's Centre for Development Informatics, which focuses on the role of information and communication technologies in socio-economic development.  In case you wonder what this has to do with MMOGs, it came to my attention back in 2008 with the release of a working paper on gold-farming.

Last week, the blog posted an entry that I found interesting.  Entitled "The Financial Life (and Death) of an East European Gold Farm" and written by the professor who heads up the Centre, it presents balance sheet data for a gold farm that sold currency in World of Warcraft.  The information is from early last year, not current.  We're told that since then, the selling price has declined to the point where it wasn't sufficiently profitable to continue operating.  I believe a large majority of this column's readers either regard this as a positive market trend or at least don't really care that it has happened.

As a long-time observer of the entire MMO space, not just the games themselves, I have what might be called a form of detached interest in gold-farming and out of game economies.  It's not personal; for the record, I've never bought or sold anything that was farmed - not in any game.  So, I don't support the practice.  But neither do I condemn it, either as a player or as a writer.

That said, the blog caught my attention for a variety of reasons.  One is that the farmer, referred to by the seeming pseudonym "Goran Podolski", is from somewhere in Eastern Europe.  In addition to his own efforts, he hired a couple of sub-contractors to play his characters, and was able to pay them slightly more than his country's minimum wage of about $7 per eight-hour day - not a fortune by any means, but presumably enough to constitute making a marginal living.

Because he speaks English, the working language of many western merchant sites, Goran was also able to make money by acting as a broker for a local gold-farming workshop.  He charged a commission of about 12 percent for his services.  This was feasible for a long time because the prevalent margin / mark-up structure was high enough to allow it.  It appears this is no longer so.

This runs against the stereotype of much larger-scale "factory" operations located on the other side of the world, mainly in China.  It also confirms that as of around a year ago, gold-farming was an economically viable business a lot closer to home.  Indeed, by last March, he had expanded his operation to include nine sub-contractors as well as a business manager. 

I also found it interesting that his preferred method for accumulating gold involved both gathering and crafting.  Again, this differs from the stereotypical approach of killing particular NPCs repeatedly, then simply selling their drops.  Goran found it more productive have his characters collect materials they would use to make high-level items, and to sell them via the auction house.

What I don't have any real feel for is why the market economics have changed quite significantly in the past couple of years - enough for this particular farmer to go from growing his operation to shutting it down.  The blog says that in March 2009, the cost to consumers was about $14.50 per 1,000, with Goran receiving around $7.10.  In January 2010, the corresponding figures were $7 and $3.37.  Notably, it seems this was still high enough to keep operating and even to continue growing for at least a couple more months.  As of last week, they had dropped even more sharply, to around $1.54 and $1 respectively.  What's interesting is not just the drop itself, but the change in the margin.  The merchants' selling price used to be around double what they paid.  Now, the mark-up is only about 54 percent. 

Layoffs at SOE

Also very much on my mind right now is the situation at SOE, which announced last week that it will lay off about 205 people - roughly one person in three - and that The Agency has been cancelled.   The company will close its studios in Seattle, Denver and Tucson, and will downsize by around half in Austin.  I'm especially curious to see what effect this will have on other projects, not just the new EverQuest and PlanetSide titles reportedly in development, but also the unannounced ones.

In particular, I've been wondering about a possible new free to play title.  Although I don't for a fact that one was actually in the pipeline, my gut feel told me it was likely.  I still think so, but in light of the recent news, I wonder what projects if any that were never announced have been cancelled or at least relegated to a back burner.


Richard Aihoshi

Richard Aihoshi / Richard Aihoshi has been writing about the MMOG industry since the mid-1990s, always with a global perspective. He has observed the emergence and growth of the free to play business model from its early days in both hemispheres.