The multi-billion dollar virtual goods economy

Since the mid-nineties online consumers have embraced internet product purchasing, commencing predominantly with tangible goods, such as books from Amazon, and progressing to intangibles, exemplified by music from iTunes. More recently this trend has grown to include the purchase of virtual goods. Virtual goods market generates more than $15 billion in annual revenue globally and is rising rapidly. The virtual goods economy is of interest in the management and information technology literature, not only in relation to social networks but also in terms of the market value they generate through the production of virtual commodities and currencies. Supply and demand for virtual products also impact on the real economy when they become desirable enough to be sold on auction sites such as eBay. More recently, the growth of this market has been driven by game operators selling virtual products directly to players. The rising material economies of virtual goods are therefore real, and merit investigating as an important phenomenon of online consumption.

Do gamers show a similar behavioural pattern in virtual goods purchase as in real-life?

Of special importance is the following question: “Does the virtual economy-based purchase behaviour demonstrate an extension of real-world behaviour?” Judy Drennan at Queensland University Technology, Australia and I focused on this question within the context of Massively Mulitplayer Online Role-Playing Games (MMORPGs) with wider implications for the gaming world altogether. We particularly examined the interactions between the personal and social drivers. In doing so, we demonstrate how and which extrinsic and intrinsic motivations influence gamers to engage and purchase virtual goods. By examining the impact of the group-level community influence variables (i.e. normative interpersonal influences and community identity) we provide a better understanding of the role of group influences in a multi-player interaction context. Moreover, in examining the interactive effects of individual- and group-level variables, we uncover the social influence dynamics that drive virtual purchase behaviour. Thus, we offer substantial contributions in relation to the extension of real-world behaviours that are reflected in the virtual economy.

In the following paragraphs, influence of each group and individual level variable and their interactive effects are elaborated upon.

Group-level: community influence

With regard to community influence, a key finding was that normative interpersonal influences within MMORPGs are significant motivators for intention to purchase virtual items. The results demonstrate that online gamers attempt to ‘conform to the expectations of significant others’. The findings suggest that game operators who wish to drive game growth and their overall share of the virtual goods market should promote relationships between players, and should especially develop campaigns that highlight conformity. Along similar lines, community identity was found to be a significant influencer of virtual purchase intentions. This finding offers a strategic window of opportunity for game developers. It suggests that game developers should provide as many opportunities as possible for members to interact within and outside the game to enhance community identity among their members. For example, game operators and vendors can take advantage of business opportunities made possible through community-related merchandising. It is therefore important that players are encouraged to share their social lives and opinions in order to develop bonds and loyalty within the community.

Players who feel a sense of identification are more likely to instigate trades with other players, connect other players with each other for merchandising possibilities, and establish loyalty by collecting virtual items to assist the community. Based on Social Network Theory research findings, we suggest that this increased identification would boost the total social capital of the game and in turn influence players to invest more human capital (i.e. their time, consumption, and other resources). While many game operators offer merchandising relating to their games, they leave the communication between players to guild websites and other social networks. Our study findings suggest that game operators should proactively engage in building a community identity among game members.

Individual level: intrinsic motivation

The influence of intrinsic motivation variables is also noteworthy. Results show that, of the three intrinsic motivators, both enjoyment and advancement were found to have a direct significant relationship with intentions to purchase virtual items. Earlier research opines that enjoyment is a key motivator for community members to engage in online games. Our study extends these findings by specifically targeting consumer perceptions of in-game virtual accessories as a driver for enhancing enjoyment. Our results show that the enjoyment experienced in using virtual accessories encourages gaming community members to further accumulate in-game accessories to assist them in achieving their goal. As accessories are part of the user experience the finding suggests that it is essential that game developers make virtual accessories enjoyable beyond their basic functionality in that they are exciting, pleasant to use, and interesting enough to keep the member entertained.

Our research suggests that advancement will act as a key motive for gamers to purchase virtual goods. For example, obtaining a rare in-game accessory and more in-game currency that helps a community member advance further in the game is a strong motivator. In communities such as WoW or Lineage, by advancing to higher levels in the game a gamer gains status, power, and more resources, as well as mileage in terms of community respect. Thus, advancement will act as a significant intrinsic motivator for gamers in these types of online communities.

The findings on the influence of customization on virtual purchase intentions also offer interesting insights, as no statistically significant relationship is found. Thus, it can be concluded that customization does not help generate sales for virtual accessories. For gaming communities such as WoW and Lineage, belongingness to the guild is paramount for survival and so the community member will strive to mimic their guild’s attire and weaponry to cement their position within that online community. In this regard, purchasing virtual accessories that make the community member look too different from others could be disadvantageous.

Extrinsic motivation and interaction between variables

Results from this study indicate that outcome expectancy is a significantly influential variable. This has recently been reflected in the gaming domain, where many gaming companies that had paid membership models have decided to offer members free access to easier initial levels. The initial excitement built through achieving a specific outcome may motivate a novice player to become a paying community member by purchasing virtual accessories. Findings also show that outcome expectancy has a significant interaction effect on purchase intentions when moderated by community influence variables. While the moderating influence of community identity was positive, the normative interpersonal influence moderation was found to be negative. Two possible explanations – namely individualistic gamer personality and forced choice – may help explain this phenomenon. Each gamer – and their motivations for playing MMORPGs – is unique. An accessory that has become extremely popular among all other players may not necessarily appeal to a particular gamer. Hence, when societal pressure relating to an outcome is forced upon gamers it can cause alienation, and in turn create a negative reaction that leads to decisions by community members not to purchase a virtual accessory. Many game developers use tactics such as sending unsolicited emails and private messages on forums to gamers reaching a certain stage to entice them to buy virtual accessories and reach higher levels. However, as found in the results of this study, such tactics may backfire.

Based on Social Network Theory, we recommend that gaming companies should promote inter-member dialogue as much as possible, which may then lead to a strong community identity, resulting in a significant increase in virtual purchases. The results also show that for an accessory to sell it should also possess clear advancement and enjoyment opportunities within the particular game; a gamer will be more convinced to buy a virtual accessory if the accessory can demonstrate it will help the gamer accomplish a particular task, will be enjoyable to use, and also help them move further up in the game.

Overall, by empirically examining the drivers of gamers’ virtual purchase behaviour, we offer significant insights on how real-world behaviour is reflected in the virtual economy. Second, by developing a model to measure the effect of group-level variables via normative interpersonal influence and community identity, and individual-level influences of intrinsic (i.e. perceived enjoyment, customization, and advancement) and extrinsic (i.e. outcome expectancy) motivation drivers to purchase virtual goods we provide a richer explanation of how virtual-economy purchase behaviour is similar or different to real-world behaviour. Using multiple social network theories to assess the moderating role played by community influence variables on extrinsic motivation we offer a greater understanding of how social influence dynamics are reflected in the virtual economy.