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