Knowledge Map of the Virtual Economy

Knowledge Map of the Virtual Economy: Converting the Virtual Economy into Development Potential

Executive Summary
The widespread adoption of information and communication technologies (ICTs) in everyday life and commerce has given rise to new digital problems and challenges. Although information provided by networks is abundant, the human attention required to process it is limited.

And although digital resources in principle are unlimited, many online platforms have artificial scarcities built into them as part of their design. The demand for these scarce resources, their supply, and the markets where the supply and the demand meet, constitute a computer-mediated virtual economy.

During the past decade, developing countries have rapidly followed developed countries in ICT adoption, and in some areas, such as mobile payments, even surpassed them. However, developing countries? roles in the digital economy mostly have been limited to being users and consumers of technology. Creating new digital services and technologies for the global market requires advanced skills and infrastructure, and continues to be out of reach for most entrepreneurs in developing countries.

In contrast, entrepreneurial opportunities in the virtual economy of digital scarcities have sometimes been successfully exploited, even with limited skills and infrastructure. A prominent example of this is the third-party gaming services industry.

An estimated 100,000 young, low-skilled workers in countries such as China and Vietnam earn their primary income by harvesting virtual resources and providing player-for-hire services in popular online games such as World of Warcraft. The demand for these services comes from millions of wealthier players who have a serious interest in the game world and the social connections it facilitates, but lack the time (and patience) to reach far into the game alone. ...

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An infoDev publication written by:
Dr. Vili Lehdonvirta & Dr. Mirko Ernkvist

Table of Contents
Executive Summary xi
1. Introduction 1
1.1 Background 1
1.2 Structure and scope of this report 1
1.3 Methodology 2
1.3.1 Value chain analysis 2
1.3.2 Expert interviews 2
1.3.3 Market size estimates 2
2. Defining and Segmenting the Virtual Economy 5
2.1 From digital abundance to virtual scarcity 5
2.2 Key characteristics and differences from traditional
digital content industries 6
2.3 Segmenting the virtual economy 7
3. Third-party Online Gaming Services 9
3.1 Demand and supply 9
3.2 Market size 10
3.2.1 Online game market size 10
3.2.2 Earlier estimates of third-party gaming service market size 11
3.2.3 Estimating the gaming service market through player surveys 12
3.3 Business models 14
3.3.1 Retailers 15
3.3.2 Producers 16
3.3.3 Game operators 17
3.3.4 Supporting activities 17
3.4 Regulatory framework and industrial policy 17
3.4.1 Negative externalities from trade of artificially scarce assets 17
3.4.2 Contractual and legal regulation of virtual goods trade 18
3.5 Case study: Purchasing virtual currency for World of Warcraft 20
4. Microwork 23
4.1 Demand and supply 23
4.2 Market size 24
4.3 Business models 25
4.3.1 Transformers 25
4.3.2 Work aggregators 26
4.3.3 Infrastructure providers 27
4.4 Regulatory framework and industrial policy 27
4.5 Case study: Using human workers to optimize an online retail search engine 28
5. Other Segments of the Virtual Economy 31
5.1 Cherry blossoming 31
5.1.1 Case study: Improving the visibility of an online store 31
5.2 User-created virtual goods 32
5.3 Other two-sided marketplaces 33
6. Development Potential of the Virtual Economy 35
6.1 Third-party online gaming services 35
6.1.1 Worker demographics, skills, wages, and career development 35
6.1.2 Distribution of income 40
6.1.3 Costs and profitability 41
6.1.4 Number of people employed 41
6.1.5 Competition, entry barriers, and changing business conditions 42
6.1.6 Changes in business and market?s conditions over time 43
6.1.7 Upgrading strategies 44
6.2 Microwork 44
6.2.1 Worker demographics, skills, wages, and career development 44
6.2.2 Distribution of income 46
6.2.3 Competition, entry barriers, and changing business conditions 47
6.2.4 Upgrading strategies 47
6.3 Other segments 48
6.3.1 Cherry blossoming 48
6.3.2 Microcontent production and other two-sided marketplaces 48
7. Conclusions 49
7.1 Market opportunities 49
7.2 Development potential 50
7.3 Scope for interventions 51
7.3.1 Third-party gaming services 51
7.3.2 Microwork 51
References 53
Appendix 1. Sources of uncertainty in the gaming services market estimate 57
Appendix 2. Examples of third-party websites selling virtual game currency 59

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