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5 Reasons Selling Virtual Goods Is Tricky - Destructoid

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About
Besides being extremely handsome and agitating, I also enjoys writing about all things business related. My education consists of Bachelor's degrees in both Management and Marketing along with a good education from the school of hard knocks.

My true business passion lies in small business and all things virtual. My very first college paper was an economics paper on virtual economies and was poorly written. Now my writing is merely sub par. My inspiration and interest in all things virtual really started with the book Play Money by Julian Dibbell. It is a fascinating look into the underground economies that run behind the scenes.

My online work includes a business blog called Gerbil Voodoo that covers all things business related and a blog title Video Game Mojo. My online portfolio also includes two e-commerce stores, angrybirdsmarketplace and tissottimepieces. Both of which are partnerships with a good friend of mine who does most of the heavy lifting.

Feel free to drop me a line telling me how awesome I am or more realistically how awful my writing is. Hope to hear from you soon!

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Ever since online worlds came into existence there have been people trying to figure out how to work the system to make real world money. Historically very few games have offered official ways to make money in game. The ones that have however certainly provide for genuine opportunities to succeed if you have the time and devotion.

Perhaps the best examples of legally making money in online games come from the world of Second Life (SL). The world of SL is almost entirely user created and allows for people to buy and sell virtual goods for Lindens which can be converted to real money. The most famous example of this in game economy is one Anshe Chung. Anshe became the first SL millionaire in 2006 by buying and selling virtual land.

The introduction of Diablo IIIís real money auction house (RMAH) a couple of months ago has provided a new generation of gamer with a straightforward way to convert game time into real world earnings. It is still early in the cycle of Diablo III but users are already reporting modest incomes from the game.

In instances where there is no officially sanctioned channel to make money players have been resourceful and found numerous ways in which to make the games pay. In the past it was not uncommon to find World of Warcraft (WoW) characters for sale on the auction site Ebay. These characters would consistently sell for hundreds of dollars with a purported record sale of around $9,000.

Ultima Online is one of the oldest graphical massively multiplayer online role playing games (MMORPG,MMO) out there. In as such it has seen its fair share of virtual entrepreneurs looking to make real world cash. Items such as armor, weapons, and even castles have provided sources of income for numerous players for 15 years.

In his book, Play Money, author Julian Dibbell describes in detail his quest to make millions selling virtual loot with Ultima Online as his primary source of income. He describes camping out waiting for land to go on sale and tracking daily auctions among other things. When all is said and done he was on pace to make about $47,000 per year. Thatís a pretty good chunk of change for most people.
With all this money to be made what is stopping you from becoming the next virtual goods millionaire? To put it mildly, there are some very important factors to consider if you choose pursue a career dealing in virtual goods.

1. Time Investment

Letís get straight to the crux of the situation. Making money whether it is in computer games or in the real world requires time. The first step of course is research. One has to find the right game to work with and then the right items to buy and sell. Also, you have to take into affect variables such as timing and overall market conditions. In Mr. Dibbellís case he could make far more than $47,000 per year by utilizing his time on his freelance writing work. If you are serious about making money this way then you cannot treat it as a part time hobby.

2. Low Barrier To Entry

This item is both a positive and a negative. A barrier to entry is simply anything that would keep someone from entering a specific market. For example, if someone wanted to sell a new cola a large barrier to entry would be advertising cost to get the name out there. With the RMAH of Diablo III there are very few barriers. All you need is a copy of the game and a Battle.net authenticator. On the plus side this means that anyone can do it, even you. On the down side, this means that anyone can do it. Even if you are more efficient and offer better service people still have to wade through all of the offers to find you.

3. Never Ending Supply and Demand

In both the real world and virtual worlds economies run on the basic idea of supply and demand. Generally speaking, more demand equals higher prices as does low supply. This works well in a world where goods take time to create and supply is limited by raw materials and capacity. In virtual worlds such as Lord of The Rings Online (LOTRO) raw materials have a never ending supply.

Think firewood as an example. You can only cut down the tree in your back yard once before it is depleted. In LOTRO that same tree can be chopped up an unlimited amount of time assuming you have the patience. The end result is a glut of raw goods that essentially keeps prices low on all but the rarest of items.

4. Cost of Production

In economics the cost of production theory of value states that items have a value that is commensurate with the factors of production. The three major factors are labor, capitol, and land. In the case of MMOís both labor and land are all but taken out of the equation because all of the land is available to anyone and the labor cost generally consists of equipping an axe and pushing a button. By eliminating two of the major factors involved it drastically reduces the cost of goods sold.

5. Legal Issues

This is the grey area that can make doing any type of online business risky, not just virtual goods. For starters, those that sell virtual goods or characters outside of game worlds are often in direct conflict with the end user license agreement (EULA) that they agree to with a company before even playing the game. This can result in permanent bans and loss of all in game monies and assets. Marc Bragg can attest to this firsthand as he lost between $4,000 and $6,000 in assets as a result of a banning from by Second Life owner Linden Labs.

Other complications can arise from technical glitches or legal issues pertaining to jurisdiction. Blizzardís rmah in Diablo III has reports of errors costing players hundreds of dollars in real world currency with no real solution provided. As far as locality is concerned it is important to remember that games can be hosted in say the United States while the product seller can be located in Africa and the buyer can reside Russia. This can make it very difficult to seek a remedy for anyone that is wronged during an online transaction.

There have been many reasons listed as to why it can be difficult to make real money dealing in virtual goods. And all of these reasons should be taken to heart when considering this type of venture. However, it is important to note that these challenges can be overcome with foresight and perseverance. As Mark Twain once quipped, ďIt usually takes me two or three days to prepare an impromptu speech.Ē
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