Insanely Bull Case For Axie Infinity & The Metaverse - Part Two

It is understood colloquially among game designers that the revenues of F2P games follow the same patterns as casinos, in that a few big spenders are enough to make the casino turn a profit - even if you give free drinks to hundreds of low-spending people. These big spenders are known as “whales.” The game industry has whales as well. There are people who spend thousands of dollars every month on the most trivial of game items. A very large portion of revenues are provided by a small percentage of the player base. Gamasutra reports that less than one-fourth of one percent of F2P players generate almost half the revenue. “Conversion rates” - the percentage of players who spend any money at all - can be as low as 3 percent or 1 percent, yet the game still turns a profit. The free spending of a few is sufficient to support the game.

What then is the role of all the other players? What purpose is served by all those people in the casino who drink their free drinks and gamble away comparatively tiny amounts of money? Those people are a critical part of the revenue model, for they form the social environment within which the whale can make friends, and compared to whom the whale looks like the awesome person he wishes to be. Without the free-drink gamblers, the casino whale has nobody to talk to and nobody to impress with his casino privileges and private rooms. The same holds for F2P games: Without the free gamers, the spending gamer has nobody to talk to and nobody to impress.

Thus there are two elements that explain why big spenders will provide revenues to companies that alow free access: A communion aspect and a comparison aspect. The communion aspect is easily enough understood: Rich people get lonely too, and a thriving game community gives them a social world for making friends. The comparison aspect is a little more complicated, so let’s unpack the social dynamics of a F2P game. Consider three ways that a person might spend real money.

You can spend money on cosmetic items - better looking hats, a neat new car, a sword that glows, a cute pet. You look better in the game.

You can spend money to overcome or get by annoying parts of game play. Perhaps in order to play the next puzzle, you have to wait 20 seconds. That is annoying! So you can spend real money to reduce the wait time. Or, there may be a certain item that you need to get to the next bit of fun. Perhaps getting the item requires a lengthy, boring quest. So you can go through the lengthy, boring quest, or, you can just buy the item at the store.

You can spend money to enhance your power. This is usually known as “pay to win.” In a PTW system, real money has to be spent to get a car with competitive speed, or armor decent enough to withstand serious combat. You can still play without these things, but unless you have great skills as a player, you will consistently lose.

Note that each of these ways of spending enhances a comparative difference between the spending player and everybody else. Cosmetic spend (1) enhances the social prestige of the spender, just as flashy diamonds do in the real world. Convenience spend (2) allows people who are short on time, or who are bored, to move quickly to more entertaining parts of the game. They get ahead quicker and look more competent with respect to the game systems. Competitive spend (3) allows people to dominate other people, to beat them, to get ahead. In all of these cases, the spender looks better than everyone else. Compared to people who don’t spend, he has better looking items, he skips the annoying parts, and he directly puts a beat-down on them. The spender is playing the game in first class.

Psychologically and socially, first class only exists if there is a second class. Thus the comparison role of all the free players is simply to be the second class. Their job is to sit in second class precisely so that the first class passengers can feel good about having been able to board first, get better food, and have more space. In an airplane, there are physical reasons why not everyone can have the privileges of the first class passengers. But in a game, there is no reason at all. There is no reason whatsoever why a game company could not give all players the same privileges they give to spenders. Thus the lines that are drawn between the spenders and the non-spenders are wholly artificial. They exist only because drawing them induces the spenders to spend. And therefore, one of the main purposes of the free players is simply to be present in the environment as those-who-did-not-spend. Their job is to form a comparison group, against which the spender looks impressive indeed. And then, alongside that comparative context, to be available for friendship, camaraderie, or romance. The free players make it a real social world, one worth paying for.

4 Playing games for money
*Free to play games illustrate that there is a role in games for people who do nothing but play. They don’t have to be smart, they don’t have to be good, they don’t have to be pretty, they don’t have to be dedicated, honest, or loving. They just have to hang around, and - this is important - be PEOPLE. The humanness of the members of a game society is essential to the formation of meaning in that society. Only human beings can serve. It is a job only people can do. *

True, a savvy game operator could try to skunk his whales by populating his game with life-like AI. But word would get around, and one whiff of people-faking would drive all the whales out overnight. The game Barbie Online had troubles because no real boys were signing up, so the company added artificial boys. It didn’t work; players knew the boys weren’t real and the game fizzled. The same thing happened with Canadian dating site Ashley Madison: Many of the “women” on the site were bots, but it only took a few email leaks to bring the scam to light. It is one thing for one computer to trick one person in one interaction - the “Turing test.” It will be a long, long time before a crowd of AIs can fool a crowd of people for years. It will be strange times, though, as game companies will guarantee sentient players the way grocery stores guarantee fresh vegetables. On the other hand, nothing kills a game like empty servers. Locations are designed to keep the real people bumping up against one another. Critical mass is critically important.

In games, we already see how valuable pure humanity is. Whatever the markets may say, pure simple humanity is a good thing. People with means are willing to pay money to be in community with other folks who get in for free. But how much will they pay? Is the willingness of big spenders to spend enough to send the street cost of game-playing into negative territory? Consider: Twenty years ago, all players paid the company for the right to play the game. These payments fell and fell. Now they are at zero across wide swathes of the industry. Why shouldn’t the price trajectory continue into negative territory? Can the spenders support not only the game-playing of poorer people, but their incomes as well?

Consider again the F2P revenue model. The iron equation of FTP is eLTV > eCPA + Ops, where eLTV is the expected long-run revenue value of a player, eCPA is the cost of acquiring that player, and Ops is the operations cost of the game. Generally, what seems to happen is that large numbers of free players are attracted into the game initially, but then most of them fall away. Over time, the paying players make up an increasing share of the player base. As this happens, companies spend less on acquisition.

What does “acquisition” mean? Typically, this is a marketing cost. Advertising - on mainstream TV, for example - can drive millions of players into a game. So long as the marketing costs (plus operations) are exceeded by the revenues that these players bring in, the marketing is worth doing.

We are considering here a second possibility, one that has not yet been tried but is surely around the corner: Paying players to play. If a large player base is important for a game, and if the main source of revenue comes from a comparatively small segment of the player base, it might well make sense for companies to pay players to come in. Paying players directly is just another acquisition cost. Instead of marketing to people, you pay them.

Initially, paying players will look like the lame maneuver by developers who lack confidence in their product. But the same was once said of developers who gave their games away for free. The stigma against F2P fell when the industry realized how much money it made. One can expect a similar acceptance of play-for-hire.

Some games are doing this already, though indirectly. In EVE Online, it has become possible for a player to earn enough in-game currency to purchase a pass that allows them to play for free for one month. The pass card replaces what would have been a real-money cash payment. Since the company sets the rate at which in-game currency can be earned, it is effectively paying the players for their in-game labor, which it then allows them to translate into a good - the pass - that has real-world cash value. Another game, World of Warcraft, has a similar system. Indirectly, these games are hiring people to play.

And why not? Economics teaches that transactions should occur whenever they are beneficial to both parties. Companies will almost surely gain from paying players; it is probably more efficient than marketing at getting people into the game. As for the player, it is surely the case that for some people, earning money in a game is just better (almost as lucrative and much more enjoyable) than earning it out of game. The in-game compensation is better than the out-of-game compensation. It is a better job, all things considered: For for-hire players, one suspects, the money would be just so-so, but the work environment would be outstanding.

This applies especially to the situation of a low skill worker who has just lost a job to automation. His choices are to take a worse job (that he will surely lose in the near future), try to skill up, or go begging. What person facing this situation would not leap at the chance to earn money while playing a video game? Thus it stands to reason that the number of people willing to work in games, even for small amounts, will increase as automation does. Paying players to pay generally makes sense for the game companies, and will make sense for more and more workers as time goes on. It is a practice destined to grow.

The typical dynamics of player bases - with the free players coming early but then leaving, while whales stick around - suggest that the practice of paying players to play games will be concentrated at the launch of a game. The company will allocate budget to the hiring of millions of players, anticipating that they will be in the game for a relatively short period. Over time, these player wage costs will fall. Yet while the for-hire players are there, the whales will become dedicated to the game for the long haul. The spending of the whales will then sustain the game for a long period. As for the for-hire players, their lifestyle will be one of migrating from game to game, picking up rewards during the launch phase of new games and then moving on when the money starts to dry up.

5 How play for hire will emerge
Right now, the environment for compensated play is clouded by overlapping institutions and regulations. Games often have multiple currency systems in place. The real world does too, of course. Laws and regulations constrain this space in ways that nobody yet understands. Yet some things are clear.

The practice of working for money online has become widespread if not yet common. New research indicates that large numbers of people around the world participate in a global market for online jobs. Oxford University has recently launched the world’s first Online Labour Index. The online labor market exists and seems to be growing.

Precedent also exists for the idea that wealthy people can pay extra money to make a game more enjoyable. Games have their shops, and game companies accept credit cards, debit cards, Paypal, and various kinds of points and credits and time cards and what have you. There should be no problem sending purchasing power from the vaults of the rich into the vaults of the game developers.

It is the ability of poorer people to get money out of games that faces legal questions. In principle, a game company could simply hire players as employees. This is highly unlikely to be a first step (or a second or a third or a 17th), however, since the regulatory overhead on hiring is incredibly burdensome. What’s more likely is a system that evolves from payment practices that already exist.

Under current US law, anyone who makes money in a game has to report the earnings when they are liquidated in the form of real-world currency. It is not clear what would happen if someone were to earn gold inside a game and then trade that gold for something in-kind, like rent. But this could happen. It could happen today, in fact. A player can already earn in-game money and give it to his landlord in lieu of rent. Players can already sell their game assets for real-world cash. Thus there is already some precedent for players to be able to transfer some of their in-game earnings into outside purchasing power.

Also it is important to realize that the world of finance is facing a wave of disintermediation. Technology is beginning to allow an almost unlimited variety of ways to transfer purchasing power among people. Technology also allows game companies almost unlimited ways to craft incentives without falling afoul of the law. For example, today, one would not want to allow whales to directly hire underlings within a game for anything that could be liquidated, because this would enable money laundering. But there is no opportunity for money laundering if whales pay $1 million to the game company and the game company provides one million piles of random, sellable loot worth $1 on the eBay market.

There might evolve a market that translates game time into game assets, such as time cards, that can then be quickly and easily traded for real money on the outside. Or a game company could make a deal with a credit card company so that game time yields bonus points on the card. Since the card can be used to pay rent and buy groceries, the game time translates quickly into real purchasing power. Current law covering these points systems does not handle them as income, so there would not apparently be any tax or reporting burden. Another possibility would be to pay players with an undercover currency, such as Bitcoin. These types of changes will represent a minimal disruption to current practices, but they will be the first signs of an emerging general change in employment patterns.

Once the basic idea is established of paying players to play, there will be some sort of legal and regulatory push to normalize the practice and make it explicit. There will be controversy. Initial objections will come from different parties. Developers, or at least the purists among them, will say that paying players to play undermines the whole idea of a game. Perhaps it does. But since it makes economic sense, it will happen anyway. Pundits and lawmakers will say that players are being exploited, that games are becoming sweatshops. Perhaps. But as inequality reaches soul-crushing levels, sweatshop employment within a game will look like a fairly humane alternative for people who cannot find work. Academics will lament the transfer of inequality and oppression from the real world into the game world. Yes, that will be sad. But since it will allow some people to eat who otherwise would starve, it will have to be accepted. The transition will be no different from that which drove farm hands into the factories. Sad; much was lost; but it was the best alternative. Social critique, policy, and aesthetics will have to give way. That’s why it is called disruption and not merely change.

After the play-for-hire model has been normalized, low-skill work will shift into games on a large scale. It will be found that for most people who do not have a particular skill or an inherited lump of wealth, one of the best ways to spend time is to play games and, with the meagre earnings, make the best life one can. Consider the minimal lifestyle necessary to sustain a full-time job playing games:

2000 calories a day

100 square feet of living space

Internet access

Game gear

A few pieces of furniture

Given that the work can be performed anywhere with internet, the costs of space and food can be very low. The needs of a working gamer will cost no more than a few dollars a day. Although, to us, this looks like a terrible lifestyle indeed, remember that this person is spending all of his time inside a game, a place designed to make him feel quite good. True, there will be other people in that space who are doing even better. The people with money to spend in there will do so, and they will have the most powerful weapons, the fastest cars, and the best-looking outfits. Yet the in-game difference between the rich and the poor can be managed in ways that are impossible out-of-game. The wealthy people in the game can be shown how very wealthy they are, while the poverty of the poor can be hidden from the poor themselves. The comparisons of rich and poor, and the emotions and self-esteem of them all, can be managed by the game developers. Thus while the outer world will provide nothing but glaring contrasts, the in-game world will be everything to everyone.

As developer Gordon Walton once said, “Everybody wants to be a hero.” In the play-for-hire game, everyone will still be a hero. But some of them will be paying a lot of real money to be a truly amazing hero, while others will be receiving a very modest amount of real money to be a pretty good hero. They will all be happy. And by this means, the vast wealth produced by automation will trickle down from the owners and the operators to the “low-skilled.” For it will turn out the that low-skilled were not all that low-skilled after all. They all have something that every human has, an ability to entertain other humans, just by being human. Every player of a game provides entertainment for every other player. It stands to reason that some people, even many people, could get paid to do this entertaining. And the job of being an in-game entertainer will become ever more attractive as the jobs available in the outside world steadily decay.

6 A timeline
The developments discussed in this whitepaper are already underway. I am told that developers have been aware of the option to pay players but have held back because of legal and regulatory barriers. And yet, as we have seen, young low-education people are already exiting the workforce in much larger numbers. Games are already taking advantage of distinctions between time-rich, skill-rich, and money-rich players. The net cost of playing games is becoming negative for some players.

Within five years, these trends will result in the implementation of a new business model in the game industry. At least one game will innovate around current regulations and set up a systems in which most players are given financial incentives to play. The incentives will be indirect: Points on a card, virtual items that can be sold for money, etc. These will be known at first in the industry as “player-retention incentives.” They will probably enter discussions as a way to lower churn in the player base, to keep lukewarm players around who might otherwise leave. The game will have a strong pay-to-win element, and will earn huge revenues from spenders. Compared to these revenues, the costs of “player retention incentives” will seem trivial.

The next game in the cycle, still within five years, will go a step further and offer “player retention incentives” to all players from the beginning. This model will also succeed, and the industry will become aware of the new model. After that, most new games will try to develop innovative ways of paying their players.

Within ten years, these innovations will be complete. Game companies will have created streamlined and efficient ways to channel purchasing power from richer players to poorer ones. A share of the revenues provided by whales will be spent efficiently to generate launch buzz and possibly to keep the overall player numbers up. This will be a standard tactic in the industry.

At the same time, in the outside world, automation will continue. Job prospects for low skill workers will keeping eroding until it reaches the point that the reservation wage - the minimum wage for which a worker is willing to take a job - will have fallen well below the legal minimum wage. This means that low-skill workers will have greatly increased their willingness to work in games. For many young people, the fantastic work conditions will more than offset the low pay that games offer. Working in games will be more attractive than any job available in the real labor market.

Nonetheless, at this point the game workers will still not generally see themselves as such. They will see themselves as unemployed and unemployable. Yet they will say that they are keeping themselves afloat by going into games and “playing smart,” bringing out whatever purchasing power they can. It will at first go almost completely unnoticed that that purchasing power is becoming large enough to cover the meagre costs of living which most low-skill workers have come to see as normal. Low skill people will have become accustomed to living far away from urban centers, with no car, no entertainment, minimal clothing, basic housing, no health care, and poor food. Their lives will be lived on the internet. And on the internet, through pay-for-hire games, they will earn enough to support their minimal bodily needs.

Link: Games and the Future of Low-Skill Work | Words and Games

Ed is a boss and has been referenced in earlier posts on the forum

I’m a big fan!

edit: just bought three of his books on Amazon…

Such a bossman…