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Weekly Column

The Wild Ones: The Best Way to Protect Sales of Virtual Goods Can Be Found Inside the Game, Itself

Status: [CLOSED]
By Robert X. Cringely

Nobody mentioned in last week's column on the buying and selling of virtual property liked what they read. Jonathan Yantis and Internet Gaming Entertainment felt attacked. PayPal felt misrepresented. Even the victims of the chargeback scam were unhappy, primarily because the FBI offered to help. The victims wanted my readers to know that such scams exist and to be wary, but they didn't want me to actually help them DO anything. Fortunately, there is lots to be learned from this experience, and I still get to present some good ideas for how to turn this problem into a business.

First there's Yantis, who called me soon after the column appeared. You'll recall he runs, one of the two big web sites for buying and selling virtual goods from online games like EverQuest. Mysupersales is now owned by Internet Gaming Entertainment, the other big buyer and seller of virtual stuff, and I also heard from the CEO of that company as well as its chief counsel. Yantis, with the support of his partners at IGE, claimed to be a victim too.

His version of the scam is that he buys and sells so much EverQuest paraphenalia that it is easy for some third-party scam artist to buy and sell a few lower-priced artifacts with Yantis to gain a good PayPal rating, then go out and perpetrate a much larger crime like the $2,300 one I described last week. That the Yantis price for EverQuest platinum dropped on the server where the scam took place didn't surprise him because the perp probably turned around and resold the stuff to Yantis. But since there is no way outside Sony to trace platinum, Yantis says there is no way he can tell whether any of the stuff he buys is earned or stolen. But the bit about e-mail records coming from the Yantis IP address range -- "I can't explain that," said Yantis, who also said he uses an outside e-mail provider.

The folks at IGE say simply that they are in a volume business, and scamming customers will just lose them business and slow them down. To their credit, both Yantis and IGE offered to "work something out" and "investigate the problem."

The lesson here is that the market in this stuff may not be limited, but it is contained. Most of the retail selling comes through the same outfit, IGE, which owns the top two virtual goods sites. Most of the third party auctions are through, and that, too, appears to either be a part of IGE or is about to become a part of IGE. The company would not confirm or deny the acquisition. The complaint that sellers have is that IGE simply doesn't pay enough so they go the auction route and reach different buyers but at greater risk. That's the way markets work and why there are junk bonds.

PayPal points out correctly that their buyer protection plan specifically says it doesn't cover virtual goods. PayPal also says their limit on accounts isn't one per customer, but two (one personal account and one business account), and they claim never to have told me that Jonathan Yantis has dozens of PayPal accounts (except the words that came through my telephone from the nice PayPal PR lady sure sounded like "dozens of accounts"). In fact, PayPal says, there are only five U.S. accounts for a Jonathan Yantis. You do the math.

But PayPal turns out to be the real victim in this particular crime, not the people who came to me originally or Yantis. That's because the nasty chargeback that this story is all about didn't actually happen. The seller's bank called him warning that the chargeback, was coming so he had enough time to empty the account and prevent the loss of funds. I need to switch my business to that bank immediately. The chargeback still happened, but as the merchant of record, so far PayPal has had to eat the loss.

There are just too many shades of gray here, so let's concentrate instead on how to make this problem not happen again.

Dozens of readers contributed ideas, but most of them involved some action on the part of Sony, like serializing platinum. Clearly, EverQuest platinum already has some kind of identifier to keep it straight who has what in the game, but Sony isn't sharing that and it is for a good reason -- the same reason why Sony and any other company in Sony's position won't want to get in the business of sanctioning a secondary market in virtual goods. As things stand right now, the actual owner of everything in EverQuest is Sony, and Sony declares that all goods, characters, weapons, magic devices and currency have no value, nothing. At most, what's being bought and sold by IGE and others is simply the use of this stuff, not true ownership, but it is very important for Sony to keep the par value at zero. This is a simple matter of liability. If all this stuff suddenly has value, then that value can be calculated and summed. Let's say the median value of an account is $200. Now say there are 50,000 accounts on a particular EverQuest server. Now say that something awful happens, and that server and its backup (if one exists) get toasted, taking with them those 50,000 accounts. Under the current system, Sony apologizes and attempts to restore what it can and the subscribers don't have much to say about it. But if Sony sanctions or participates in a secondary market that gives real-world value to virtual-world stuff, then Sony is suddenly on the hook for $200 x 50,000 -- $10 MILLION -- which is one expensive server crash. Sony's total liability under the current scenario is nothing, while it could easily rise into the billions if trading was sanctioned.

No wonder Sony wants to keep its corporate nose out of this.

So there is still a need for protecting these sales, but we know we can't count on any help from Sony. Most readers suggested some form of escrow. This is possible, but the average platinum sale is $50, and you just don't see escrow being used much on eBay for sales that small. Plus the escrow holder would actually have to be in the game, and the economics of that aren't good for the escrow company unless it can somehow script its escrow activities to make one EverQuest account do the work of 100.

PayPal has considered having a paper receipt just for virtual goods. Talk about retro.

One reader, a gamer/lawyer, offered to perform a different kind of escrow, acting as a virtual intermediary. The seller hands the platinum to the virtual lawyer who hands it to the buyer. This is a bit simpler, and what gives it power is not a formal escrow, but knowing that cheating means you'll be taken to court by a guy who can do so almost for free. I imagine some paralegal rushing around the game might actually be able to break even -- MIGHT be able to break even, so this is still not a real business.

A couple readers suggested that all you really need is a witness in the game to verify that the transaction took place. Not being an EverQuest gamer ,I have no idea if this is possible, but it sounds plausible. However, I think it would make the most sense if done informally rather than making it a business. Since gamers form guilds, why not go in groups to make the sale?

But one solution stood out from the others as practical, elegant, simple, and even consistent with the spirit of game in a way that no other suggested solution was. And it is even a pretty fair business. Forget about escrow and fair witnesses, forget about Sony. One very smart reader suggested (I wish I had been the one to think this up) starting a simple protection racket.

Here's how it would work. As a buyer or seller, I register my proposed virtual world transaction with a real world entity called The Wild Ones, and pay them in advance some percentage of the transaction price, say five percent. In exchange for this payment, The Wild Ones do not provide an escrow service nor do they witness the transaction. But if, after receiving payment for their services, The Wild Ones are informed that someone reneged on the deal, well, then all Hell breaks loose. You see, The Wild ones would be a guild of maybe 25 really, REALLY good gamers, folks who have lived so long in the game they dream as their character, folks who are so good at the game and so powerful with weapons and magic doodahs that nobody wants to mess with even one of them, much less all of them. It is a simple matter of announcing in advance that the transaction will be protected by The Wild Ones. That announcement alone would eliminate 95 percent of fraud and the other five percent would swiftly decline as The Wild Ones started kicking virtual butt and bodies began to litter the game. Who needs escrow when you can cut off a head, instead?

Some people claim the secondary market in EverQuest materials is several million dollars per year. I believe that. Five percent of, say, $5 million is $250,000 per year or $10,000 for each member of The Wild Ones. It's not a lot of money, but it also isn't a lot of work. And remember this is a hobby business for people doing what they like best, which is evidently beating the crap out of others, turning them into stone -- you know, all the fun stuff.

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