Today’s HIIT Gamification of Services Seminar in Helsinki also doubles as the final seminar of a research project called ARMS: Acquisition, Retention and Monetization in Virtual and Social Spaces, in which I’ve had the pleasure of working during the past couple of years. We are publishing the final report of the project here on VERN. Enjoy!

ARMS: Project Final Report – Introduction

The ARMS research project – short for Acquisition, Retention and Monetization of Virtual and Social Spaces – started in fall 2009 as a part of Tekes’s (The Finnish Funding Agency for Technology and Innovation) Spaces and Places research program.

The mission of ARMS was two-folded. First, Tekes’s program called for projects that would study the cross-section of three sorts of spaces: the virtual space, the physical space and the social space. ARMS did exactly this. The scope of our project ranged from virtual hangouts, to social networking services and to media companies. On a conceptual level, it even spanned brick and mortar businesses. The second mission was an internal one, set by ARMS’s project proposal in summer 2009: to investigate how strategies drawn from the virtual space could be used to enhance customer acquisition, retention and monetization in other contexts. In hindsight, this goal setting was timely: the term gamification became popular in the latter half of 2010, resulting in a surge of interest in the topics that ARMS was already studying.

The project was implemented in three phases. In the first phase, we began with an exploratory investigation of virtual design patterns used in virtual worlds, social networking services and games. The second phase consisted of identifying theories behind these patterns from social sciences, economics and marketing. In the third phase, these patterns were investigated in case studies of multiple services.

In terms of publications, the project produced nine articles in scientific journals and 11 conference and workshop papers, in addition to some that are still in review. Comprehensive internal technical reports were also created to serve as tools for subsequent research and as brainstorming documents for the project’s company partners. The cooperation with the industry partners was very positive and insightful throughout the entire project and the feedback we have received leads us to believe that the cooperation was likewise regarded as valuable by the companies.

This document summarizes the project’s results through 12 short essays, each describing one research area that resulted in one or more publications. The essays introduce the problem area, summarize some of the key results and highlight implications for business and design. At the end of each summary essay, there are links to relevant publications and presentations that interested readers can use to delve deeper into the subjects.

The ARMS project had a strong international dimension. Vili Lehdonvirta worked as a visiting scientist at the University of Tokyo’s Interfaculty Initiative in Information Studies, and Kai Huotari worked as a visiting scholar at the University of California Berkeley School of Information. We forged important new links, collaborating closely with the Virtual Worlds Observatory, a consortium of U.S. social scientists led by professor Dmitri Williams at University of Southern California. We also collaborated closely with our long-standing partners at Waseda University, Japan, lead by professor Tatsuo Nakajima, as well as with the project’s Iceland-based partner CCP Games and Sulake’s California office. These international exchanges continued our tradition of working with top research institutes in Japan and in the United States, and allowed HIIT to further strengthen its position as one of the global leaders in virtual economy research.

We would like to thank Tekes as well as our industry partners CCP Games, Frosmo, Ironstar Helsinki, Maxisat, Nokia, Palmu and Sulake for their financial support and for their curiosity. We would also like to thank the University of Turku, our co-research partner in this project, for seamless and insightful cooperation. And last but not least let us thank our brilliant colleagues who have worked with us on this project: Veikko Eranti, Juho Hamari, Matti Nelimarkka, Matti Näsi, adj. prof. Olli Pitkänen, professor Pekka Räsänen, Outi Sarpila, Juha Tolvanen, and professor Marko Turpeinen.

Kai Huotari                                                     Vili Lehdonvirta

Project manager                                               Report editor

Helsinki Institute for Information Technology HIIT
Aalto University / Univerity of Helsinki, Finland

Read the complete report here

Abstract: Many games today feature virtual money of some sort, whether a “hard currency” sold for real money or a “soft currency” earned through play. The question that this lecture answers is, how do you design money? Not how do players obtain money, nor how do they spend it – but how do you design the money itself. Economists have identified around a dozen attributes of a good money – the kind of money that makes an economy efficient. These attributes make a great guideline for designing serious digital currencies. But in game design, we don’t always want things to be efficient – we might want them to be challenging and fun instead. In this lecture, we therefore turn the economists’ advice on its head and come up with a guideline for designing “bad money”! Both historical and virtual examples are included.

The Virtual Economy Research Network website was launched in September 2006, so this autumn we had our fifth birthday! During the years VERN has published hundreds of posts and guest articles by some of the leading scholars and practitioners, had its texts cited in academic publications and popular media, and witnessed the meteoric rise of the social and mobile games industries that depend on virtual goods and currencies. A big thank you to all our readers and collaborators!

Unfortunately the technology behind the site was starting to show its age. Commenting was difficult and VERN integrated poorly to social media. Spam filters were not able to keep up with the new microwork-based human-generated spam. Complex backend interface discouraged writers. For this reason, we have spent the autumn moving VERN to a new platform, namely WordPress.com. This will cause some inconvenience to readers while we adjust to the new home. The biggest inconvenience is that the old URL addresses could unfortunately not be preserved. If you came here following a broken link, please use the search box to find the content that you were looking for. Each and every article continues to be available, simply under a different address. Our sincere apologies for this inconvenience.

A big thanks to Matti Nelimarkka for his massive help in the migration process!

As always, please feel free to send feedback via comments or email.

Here’s to another successful five years!

Dr Vili Lehdonvirta, Founder & Co-editor

I gave a presentation yesterday at the InfoDev virtual economy workshop introducing the Knowledge Map of the Virtual Economy report. Here are the slides. Also, The Economist published a nice summary of some of the main findings.

Last year, the World Bank’s InfoDev programme asked me to write a report on the “development potential of the virtual economy”. The report, titled Knowledge Map of the Virtual Economy, is published today. It contains a number of new facts and ways of thinking about the virtual economy, and I’m excited to see what the reaction is.

In this report, we understand the virtual economy more widely than as mere online game economies, although online game economies are big part of it. Other sectors of the virtual economy are markets for such things as Facebook likes, Twitter followers, and digital microtasks. All of these are valuable yet scarce digital assets that have emerged as the so-called “digital economy” of online services has grown (see Figure 1).

The development potential here refers to the potential to provide income opportunities to poor and undereducated people in developing countries, and to support the development of local ICT infrastructure. It is well known that gold farming provides income to many people in developing countries. In this report we estimate that it may employ as many as 100,000 full-time equivalent game laborers. For the first time, we also examine the full value chain through which gold farmers’ services are brought to Western players: everything from advertising to account hacking. We call all of these functions together the “third-party gaming services industry”, of which actual gold farming is only a small part. The total revenues of the industry are estimated at 3.0 billion USD.

But the future development potential of the third-party gaming services industry does not look good. It is threatened by game publishers’ decision to start selling virtual goods to players directly. Moreover, its services often bring harm to other players and game publishers, meaning that their net social value may often be negative.

In contrast, another sector of the virtual economy represents an unequivocally positive contribution to society: the market for microwork, or small tasks such as tagging an image or trascribing a snippet of hand-written text. E-commerce sites and other companies need such work. With suitable technology, this demand translates to income opportunities for digitally connected individuals in developing countries. In the report, we examine the value chain of this industry and assess its development potential.

One important point to make is that microwork is distinct from the related concept of crowdsourcing. Crowdsourcing refers to the outsourcing of all kinds of tasks to a crowd via an open call. Microwork refers to tiny, digitally distributed tasks, whether these are sourced via an open call or, as is also common, through closed networks (see Table 8).

In authoring the report, I enlisted the help of my friend and colleague at the University of Tokyo, Dr Mirko Ernkvist. He is an economic historian specializing in entrepreneurship, innovation and development, and has studied the Chinese online games market.

See also:

• Lehdonvirta, V. and Ernkvist, M. (2011) Knowledge Map of the Virtual Economy. Washington DC: World Bank.
• Presentation slides
• The Economist article
• Washington Post article
• Press release (below)

In Washington, D.C.:
Name: Nadine Ghannam
Phone: (202) 473-3011
E-mail: nsghannam@ifc.org

$3 Billion Virtual Economy Provides Jobs in Developing Countries, Finds IFC/World Bank Study

Washington D.C., April 7, 2011 A new study by the World Bank Group’s infoDev program shows that virtual online currencies and digital work now provide real income opportunities to poor and unskilled workers in developing countries.

infoDev is a global technology and innovation-led development finance program of the World Bank and IFC. The new study, Knowledge Map of the Virtual Economy, finds that more than 100,000 people in countries such as China and India earn a living through online games and websites disseminating micro-tasks.

Jobs in the virtual economy include micro-tasks like categorizing products in online shops, moderating content posted to social media sites, or even playing online games on behalf of wealthier players who are too busy to tend to their characters themselves. The study estimates that the market for such gaming-for-hire services was worth $3 billion in 2009, and it suggests that with suitable mobile technologies even the least-developed countries could benefit from this emerging virtual economy.

“Developing countries’ roles in the digital world have been mostly limited to users and consumers, not producers. But today, a growing mesh of digital services is giving rise to a new layer of entrepreneurial opportunities with very low entry barriers,” said Valerie D’Costa, Program Manager of infoDev.

Tim Kelly, infoDev’s Lead ICT Policy Specialist, said, “Some of the poorest people in the world are already connected to digital networks through their mobile phones. The study shows that there are real earning opportunities in the virtual economy that will become accessible as mobile technology develops. This could significantly boost local economies and support further development of digital infrastructure in regions such as Africa and southeast Asia.”

While the virtual economy unlocks a plethora of business opportunities, it should be noted that not all these activities are viewed positively. According to the infoDev study, certain business ventures and services offered may actually detract from the experience of other Internet users. For example, harvesting and selling online gaming currencies or mass clicking “Like” on corporate Facebook pages can create an unfair environment where legitimate game play and user opinion loses value and is represented inaccurately.

“Entrepreneurs should focus on digital micro-work that benefits society. Examples include transcribing books, translating documents, and improving search-engine results,” said Dr. Vili Lehdonvirta, a researcher at Helsinki Institute for Information Technology and the main author of the study.

The study, funded by the United Kingdom’s Department for International Development, is available on infoDev’s website and in print. For more information, visit http://www.infodev.org.

About the World Bank Group
The World Bank Group is one of the world’s largest sources of funding and knowledge for developing countries. It comprises five closely associated institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), which together form the World Bank; the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for Settlement of Investment Disputes (ICSID). Each institution plays a distinct role in the mission to fight poverty and improve living standards for people in the developing world. For more information, please visit http://www.worldbank.org, http://www.miga.org, and http://www.ifc.org.

Cyber-thieves have stolen approximately 30 million euros worth of carbon credits circulating in the EU Emissions Trading Scheme (ETS), authorities revealed yesterday. The carbon credits are entries in a distributed database maintained by EU states. Companies access their credits by logging into their online user account. Crackers used phishing-style attacks to obtain login credentials from companies, and transferred credits to other accounts.

This sounds familiar. Here’s an interesting exercise: let’s compare EU carbon credits with the virtual gold of the online game World of Warcraft. See if we can find a difference.

• Both credits and gold are elements in an abstract system of rules, implemented as a computer program. Neither have any shape or function outside this system.
• Both systems have a certain group of participants, and each participant has a “user account”. Each credit/gold coin belongs to exactly one user account.
• Both credits and gold can be transferred between accounts, but creating new ones is not possible; only the operators of the system can do that. Both are thus artificially scarce.
• Both credits and gold can be exchanged to national currency by selling them to another participant who finds them so useful as to be willing to pay money for them.
• Because of the above, both are targeted by cybercriminals who attempt to steal them through phishing attacks.

ETS credits are clearly the industrial version of game currency — industrial grade virtual goods. Funnily enough, it seems from the news coverage that ETS has worse cybersecurity than WoW. Those who set up new virtual economies would do well to learn from their predecessors in the game industry.

Journal of Virtual Worlds Research has published it’s issue on the booming teen/tween/children’s virtual world market. The articles are also listed below.

Meanwhile, the Researchers’ Toolbox issue has been split into two parts. My co-authored paper on data collection methods will apparently be published in the second part, which is supposed to come out this month.

The journal suffered from delays in the publication schedule last year as it underwent an editorial transition. But I’d like to thank the outgoing editor, Jeremiah Spence, for his contributions, and wish success to the incoming editor, Yesha Sivan.

The editorial team for this issue includes: Sun Sun Lim, National University of Singapore Lynn Schofield Clark, University of Denver, USA Editor′s Corner Virtual worlds as a site of convergence for children’s play Sun Sun Lim, Lynn Schofield Clark.

Peer Reviewed Research Papers

Beyond Being There: A Grounded Investigation of the Value of Virtual Worlds for Remote Family Interaction
Lizzy Bleumers, An Jacobs

Virtual Epidemics as Learning Laboratories in Virtual Worlds
Yasmin B. Kafai, Nina H. Fefferman

Who’s Watching Your Kids? Safety and Surveillance in Virtual Worlds for Children
Eric M. Meyers, Lisa P. Nathan, Kristene Unsworth

Making Sense of the Virtual World for Young Children: Estonian Pre-School Teachers’ Experiences and Perceptions
Andra Siibak, Kristi Vinter

A Framework for Children’s Participatory Practices in Virtual Worlds
Terhi Tuukkanen, Ahmer Iqbal, Marja Kankaanranta

Research-in-brief Papers

Penguin Life: A Case Study of One Tween’s Experiences inside Club Penguin
Diana Burley

Virtual Junk Food Playgrounds in Europe: Advergames in the UK and Hungary
Arhlene A. Flowers, Katalin Lustyik, Emese Gulyás

Think Piece

Growing Up with Neopets: A Personal Case-Study
Stephanie Louise Lu

The Japanese social gaming scene is dominated by three platforms: Mixi, Mobage-town and Gree. The great majority of people access these social networks via a mobile phone instead of a computer browser. It’s a big market: according to David ‘dc’ Collier of Japanese social game developer Pikkle, it’s just as big as the U.S. market: half the population, but twice the ARPU (David gave an excellent introduction to Japanese social games at GDC this year, covering everything from business models to game design). No wonder major social game developer PopCap’s APAC bizdev Giordano Contestabile recently said on Twitter that he was “doubling down on social games in Japan. As are most other companies. Next 6 months will be a pitched battle. Expect fireworks”!

At the same time, it’s interesting to note that Japanese developers are increasingly reaching out to Westerners, and they’re doing so through Facebook. Amebe Pigg, a year-old virtual chat world with over 2 million users, was recently launched on Facebook in English as Amebe Pico. Activities in this cutesy isometric environment revolve around shopping, decorating your room and gearing up your big-headed avatar, similar to Finland-based teenage virtual world Habbo. The developers of Poupée Girl, a Japanese community site focusing on dress-up avatars and the bewildering world of Japanese teenage girl fashion, debuted on Facebook yesterday with Poupée Boutique: a shop simulator that leverages the art assets from Poupée Girl. The UI seems to be in English. The boutique is advertised both in English and Japanese.

Besides being a path to the Western market, these forays into Facebook may also be a way for developers to hedge their bets on the domestic market. Facebook used to be a very minor player here, and it’s still minor. But I see more and more Japanese tuning into it now – especially those with foreign friends and some English ability. Two years ago, people used to ask me if I’m on Mixi. Now they ask me whether I’m on Facebook or Twitter (I am now). Japanese who join Facebook moreover find that a surprising number of people from other countries speak Japanese. Mixi requires a Japanese mobile phone to register, so you’ll find few of these foreign anime fans there. The network dynamics are complicated here, but in the long run, the bigger network tends to dominate.

I usually don’t do self-serving posts about media appearances, but this one is good enough to point out: WSJ Blogs’ Real Time Economics has an article titled Real Economist Learns From Virtual World. It’s a decent story about the space MMO EVE Online published by CCP Games, and HIIT’s virtual economy research collaboration with them. My boss Marko Turpeinen is interviewed. The only thing they get wrong is the name of our unit (it’s the Network Society research program, not the Social Media research group:).

A seminar on virtual economy research is starting in a few minutes here in Helsinki. The seminar marks the conclusion of a 2.5-year virtual economy themed research project at the Helsinki Institute for Information Technology. The purpose of this post is to disseminate the 119-page final report of the project. Here you go! (edit: summary version added) Excerpt from the report below.

Introduction

In 2007, the AVEA project proposal called for a new research effort into “so-called virtual property, artificially scarce digital objects that have rapidly become a viable business model for software products and online services.” Gold farmers and real-money traders in massively-multiplayer online games had recently broken into popular consciousness. There was an expectation that virtual economies were going to continue to expand in one way or the other. Helsinki Institute for Information Technology HIIT and the Finnish interactive media industry had already had a good start in grasping the phenomenon thanks to some successful early ventures and research projects. Now was a time to push on and take part in creating the next wave of the phenomenon.

The AVEA project plan put forward the following research questions: What drives the value of virtual goods and how can we model it? How can we measure economic activity in virtual economies? How can the virtual economy model be extended to new platforms and non-gaming applications? These questions reflect the fact that while significant revenues were already being made in the virtual goods business, there was no comprehensive understanding of why the goods were so valuable, and whether some opportunities for value creation remained unexploited. Edward Castronova at the University of Indiana was putting forward GDP estimates for virtual economies, but game operators were not convinced that tools from national economies were the correct ones for managing virtual economies. Furthermore, while the prevailing virtual economies at the time were massively-multiplayer online games, we were questioning whether the same principles could not be adapted for other platforms and purposes, such as mobile and serious applications.

During the three years that then followed, virtual goods, currencies and economies saw almost explosive growth on the Western market. Virtual goods sales became the dominant revenue model for online and especially social games, and many game developers referenced the publications of this well-timed project in designing their offerings. Virtual economies not involving real money also increased in complexity, and the project yielded an alternative to GDP for measuring them. The development of mobile virtual economy prototypes during the first project year heralded the eventual commercial breakthrough of the virtual goods model in mobile gaming applications, although this breakthrough did not happen in Finland.

This report is intended to provide an overview of the main research streams in the project and their key outcomes. Following the structure established by the research questions in the project plan, the report is organised into three sections: Value, Measuring and Applications. Each section contains three chapters that address the research questions from different angles by summarising work conducted in the project. Each chapter is also prefaced by a one-page summary.

The project resulted in no less than 20 scholarly publications, including articles and papers published in some of the leading venues of digital social sciences and HCI research. One PhD thesis and a total of four Master’s theses were completed during the project. A number of manuscripts are also still being worked on. This is a significant volume of publications for a three-year research project with a core team of only a handful of researchers. In part it reflects the fact that digital scarcity is a novel research topic, and is taking by surprise some academic disciplines still grappling with the implications of digital abundance. HIIT and the individual researchers involved in the project are now exceptionally well positioned to continue work on these topics.

Furthermore, AVEA’s publication success also certainly reflects the project’s strong element of international collaboration. HIIT’s main partner in the project was the Distributed and Ubiquitous Computing Laboratory at Waseda University, Tokyo, lead by professor Tatsuo Nakajima. Thanks to professor Nakajima’s team’s expertise in pervasive technologies, serious games and realistic prototyping, we were able to conduct applied research and user studies that were published in such venues as the prestigious ACM International Conference on Ubiquitous Computing. As part of the project, we also developed the Virtual Economy Research Network into an even more prominent hub and forged new international links that are already proving their value in follow-up research initiatives.

We would like to express our strong gratitude to the companies that took part in the AVEA consortium: Nokia, CCP Games, SWelcom and EveryPlay. CCP provided us with unprecedented access to a virtual economy data set that continues to yield results in follow-up research, for which we are very thankful. Finally, we would like to express our extreme gratitude to the Finnish Funding Agency for Technology and Innovation Tekes, for their crucial support in the form of funding as well as networks and advice, without which the project would not have been possible.

On behalf of the project team,

Kai Huotari
project manager

Vili Lehdonvirta
editor

7 June 2010