The Economy of Virtual Worlds - It’s got to be commercial and crazy!

I really hate it, when exciting conferences are happening without me participating - but then there's the blogosphere which usually reports "live and in full color" and gives you at least a little glimpse of what is happening. What excites me most on Worlds in Motion at GDC08 are all the discussions about the economy of virtual worlds. I think, that a working economy is one of the most decisive success factors for nearly every kind of virtual world. It doesn't matter if this world is "free to play", subscription based or sponsored/branded. A working economy always adds to the fun, the stickyness and fosters creativity.

It's big business, too. As John Swords of ESC reports from a session

Current analyst estimate that $1.8B+ is on the secondary market for virtual goods. IGE stated nearly $1B in gross transactions in 2005. ItemBay and ItemMania accounted for $974B in gross transaction volume in 2006. Economist projections are $5B in gross transactions by 2012.

And thats the secondary market. This is NOT including the transactions taking place inside virtual worlds (in Second Life, for example, the volume of inworld transactions is 5 - 10 times larger than the secondary market). Additionally, the 2012 prediction of $5B gross volume seems very conservative to me. Growth rates are much more dramatic. I would be very surprised if gross volume would not pass $10B before 2012.
The same John Swords reports (he writes the most concise summaries) from a panel with the bosses of Entropia and GAIA

Can a virtual world or MMO exist without an economy? Panelists agree it’s not likely because any time users perceive value in the world, a market will emerge regardless of terms of service.

Its my firm belief, that "economy" will play a growing role in the further development of virtual worlds, especially as users don't like paying subscriptions for their fun. If you take a look at the web now, nearly nobody pays for entertainment and news anymore. Everything is (seems) free. This is the direction, where virtual worlds are going to, too. There is no way around it. First, there will be a huge shift from subscriptions (still important for premium accounts and most MMOGs) to micropayments. In effect, the users won't pay less, than with subscription. It just feels better to them to pay their monthly 10 - 30 US$ in small payments for virtual goods. And the next step will be advertising based/sponsored models - like on the web today.

Bu there always has to be an "economy", where creativity is rewarded in a way, that "the creatives" take seriously. Because most

Price for the best quote from Worlds in Motion goes to Raph Koster (so far):

The kinds of dreams virtual worlds can achieve cannot come from just idealists or just commercial interests. It’s got to be commercial and crazy.

Sums it up nicely IMHO, that fun, creativity and economy are not diametral to each other.

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