4. Real Money Transfer Classification, 2011.

Defines the three types of real money transfers (RMT1, RMT2, and RMT3) and their effects on virtual economies and consumer behavior. This language is a prerequisite for various advanced discussions.

As this group [Games for Change] seems to attract people with similar vision to mine, I’ve decided to try posting some of my papers here with the purpose of sharing some of my research breakthroughs with the community, and perhaps also increasing site traffic (if I link to here) [Gameful.org]. Please be critical, you guys are my peer review. 

This paper creates some definitions that you will need for a “History of IM Monetization” paper which I would like to post here shortly.

Real Money Transfer Classification

by Ramin Shokrizade

September 16th, 2011

Definition of Real Money Transfer: 

A Real Money Transfer (RMT) is the exchange of real life currencies in return for virtual assets. Think of it as using a piece of a “real world” economy to buy a piece of a “virtual” economy. I break RMT’s down into three types (1st party, 2nd party, and 3rd party) as the mechanisms and effects of each type are vastly different in the way that they affect the local virtual economy and the monetization of the host developer. The point of this article is to introduce these distinctions as without them any discussion of RMT activity can be misleading and counter productive.

1st Party RMT’s: 

Commonly referred to as a “microtransactions”, a 1st Party RMT occurs when the company hosting the virtual environment sells a virtual asset for a real currency. This is the core monetization vehicle for the vast majority of “free to play” games. Socially, this creates an unfair play environment where virtual achievement is replaced by factors external to the virtual world. This substantially reduces immersion and social investment in these products. As social investment can be leveraged into real investment, this leads to short term gain and long term loss. Games using this model tend to be inexpensive to produce, with the assumption that players will lose interest fairly quickly but put out enough money in the meantime to make the product profitable.

From a virtual economic perspective, any RMT activity, and especially 1st Party RMT activity (because it is essentially unlimited), expands supply of virtual assets. This is similar to the effects of expanding the money supply in real world economies. The best real life equivalent to 1st Party RMT activity would be a central government or reserve printing massive amounts of currency. This has the effect of lowering the value of virtual assets (by removing scarcity), disempowering/impoverishing participants, and removing incentive for investment (materially and socially).

2nd Party RMT’s: 

A second party RMT occurs when invested participants in a virtual world sell off excess resources to other participants in return for “real” assets. Prior to 2003, and the rise of 3rd Party RMT activity, this was fairly common in all virtual worlds that allowed player trade. When compared to “real” world economies, this form of RMT has some similarities to socialism and is the closest equivalent to normal trade activity. Here a virtually rich entity voluntarily submits to wealth redistribution in return for a similar concession in the real world. Typically the richest virtual citizens will be spending most of their time in virtual space so their opportunities to earn real life assets by other means will be limited. Those buying from virtually rich people will be in the reverse circumstances.

From a virtual economic perspective, there is minimal net effect on the economy as long as an exploit is not involved. The greatest concern is that the strongest virtual citizens can “camp” scarce resources and thus deny them to others, in attempt to ration/sell those assets to weaker players. This creates an unfair play environment where play content is held ransom and not all participants have equal access. There are design methods to prevent this, such as are discussed in my proprietary papers, but these are rarely employed in current practice.

3rd Party RMT’s: 

Also called RMT attacks, a 3rd Party RMT is an industrial-scale manipulation of a virtual economy by a non-involved party. While a hack can be performed to conduct an RMT attack, most typically a warehouse filled with unattended bot-driven computers is utilized, though in regions with extremely low labor costs, actual humans are still sometimes employed. The key difference between this type of RMT and 2nd Party RMT, is that these agents have no entertainment interest in the host virtual world and are counter-incentivized to invest in it. Their avoidance of money sinks, lack of social interaction, denial of access to scarce resources, large scale, and accompanying advertising spam make them very similar to Denial of Service (DoS) attacks. In this case, in addition to a DoS element, they also attempt to force invested virtual citizens to pay them for access to the assets of the virtual world, thus inserting themselves between the target customer and the host vendor.

From a virtual economic perspective, the situation has some similarities to the Nazi attempt to undermine the British economy through large-scale counterfeiting during WW2. Massive expansion of virtual asset supplies make them increasingly worthless, with only the most rare items still holding value. Those items experience extreme inflation since virtual currencies used to purchase them become nearly worthless. The virtual assets of invested virtual participants rapidly devaluate, reducing social investment, achievement, and immersion. As assets devalue, content becomes too easy, forcing the host company to either “pull the plug” or create additional content (at great expense) to compensate.