World of Warcraft: The Economy and You
The World of Warcraft economy is a virtual economy within the Massively Multiplayer Online Game (MMOG or simply MMO), World of Warcraft. Its fundamental unit of currency is nominally the gold piece, though we'll get into that below. As a player, there are many things that you should know about the economy. First and foremost is the fact that it's actually fairly stable for a virtual economy. This is an important feature in any market that you want to interact with for profit, and it has long been an assumption on the part of people like myself that such conditions would not exist within a video game market, especially when measured across multiple disconnected segments of the economy (e.g. faction and realm).
This article will seek to analyze the results of the work that the author put in to create Wowstreet, a pricing history and database site for World of Warcraft. The lessons learned there will likely help all players to more productively interact with the economy.
Warning: This is a work in progress, and new information and conclusions will be added as time permits.
Basics: The Shape of the Economy
The WoW economy is comprised of many elements, only one of which was analyzed here. The real-world analogue would be an analysis of the U.S. economy which gathered data only from public securities markets. There is quite a lot of information to be gained there, but it's important to understand the limitations of the data sampled. In order to understand that, let's look at what the whole economy is:
Sources and exchange
The fundamental unit of currency that players typically refer to is gold, however the truly fundamental unit is actually copper. All amounts and prices in the game are measured in integer units of copper. The exchange rate is constant and fixed at 100 silver per copper and 100 gold per silver, however gold and silver are virtual representations only. If you are paid 50 copper for one item and 50 copper for another, you will see a balance of 1 silver, not 100 copper. Thus gold and silver will never have any unique value or purchasing power on their own.
However, since the convention is to refer to currency generically as "gold" in the game world, we will do the same here, unless speaking about specific amounts.
Money in the game originates from 2 sources:
- Completing quests often yields gold
- Creatures which are killed often yield gold
- Most items can be sold to vendors for gold, and some items ("junk") are only intended for this purpose.
However, the local economy can be impacted by gold which arrives from other sources:
- Players who transfer from other servers (realms) can bring their bank balances with them
- The neutral auction house is often used as a means to move gold between characters on otherwise disconnected factions (Horde vs. Alliance)
Destruction of currency
Gold exits the economy completely (is effectively destroyed) in a number of ways:
- Items purchased from non-player character (NPC) vendors including vendors of services such as travel via flight paths
- Auction house deposits and fees
- Mail fees
Each of these actions acts as a constant drain on the economy, removing gold at a rate only slightly lower than it is added. The game developers maintain goals for characters that involve spending large amounts of gold so that money does not remain in the economy permanently.
Factions: Alliance and Horde
There are two factions in the game. When a player selects a race (such as Troll, Orc, Human or Dwarf) they are assigned to the faction that that race is a member of. They character cannot talk to, trade with or exchange mail with members of the opposing faction. They can only buy and sell items with the other faction through the neutral Auction House which is both more difficult to get to and charges a higher fee for items sold. For this reason, there is little commerce between the Alliance and Horde.
The Auction House
The Auction House is an in-game feature that allows players to list items for sale with a minimum bid and optional buyout price. It also provides a search interface for other players to browse and buy these items. Most items have a deposit fee which is deducted from the player's bank automatically when the list an item and is refunded only if the item sells. There are also fees assessed at a rate of 5% of the final sale value of an item (or 15% at the neutral Auction House). All transactions are performed by the game, and the items and payment are delivered via the in-game mail system.
Auctioneer is an add-on module which can be downloaded from a third party and used with World of Warcraft. Such add-ons are not only permitted, but actively encouraged and granted API access by the developers of the game. In this case, auctioneer modifies the user interface for the Auction House and item detail listings to gather and display pricing information for items that have been seen previously. Auctioneer provides most players with a baseline understanding of what the typical pricing for an item is, and is one of the primary reasons that the economy is so stable.
Many organizations provide the service (in violation of the game's Terms of Service) of selling gold in-game for an exchange of real-world currency. Typically the purchase is performed via a Web site, and then the in-game transfer of gold is performed through the mail system.
This creates a functional exchange rate between real-world economies and the virtual economy of the game. However, because Blizzard (the game vendor) actively seeks out and deletes the accounts of gold sellers, this exchange rate is subject to extreme volatility and is typically not practical for any but the smallest purchases of gold.
How we track the economy
Item prices were scanned periodically and saved to create Wowstreet's database. These prices were scanned on a representative sample of realms and factions including Player vs Player (PvP) realms, Roleplaying (RP) realms and normal realms. An attempt was also made to sample both high and low population servers.
On PvP servers, only one faction can be scanned per account, so PvP servers scanned were an even mix of Alliance and Horde. On RP and normal servers, characters were created for both factions and both auction houses were scanned.
The first pass of data collection performed is the gathering of raw prices. We look at the buyout price for an item only if there is one. If there is no buyout price, then the current maximum bid is used. If there is no current maximum bid, then the minimum bid is used. These prices are then divided by the number of items being sold (items such as ammunition and food can be stacked, and it is the value of a single item, not the stack, which we track).
Once the raw data is collected, we then summarize this pricing data for each day since we first saw the item. Mean, median, standard deviation, 25th percentile and 75th percentiles are calculated both for the day and for the week-long period leading up to that day. This data is then saved to summary tables by item, by faction, and by realm/faction combination. No data is saved on a realm-wide basis because of the disconnect between the two factions' economies.
Volatility is measured as the standard deviation divided by the mean for the one-week period leading up to the most recent price seen for an item. Volatility is only considered for items which have been seen at least 50 times. When narrowed by faction, only 20 data points are required. When narrowed by realm and faction only 5 are required. Only 5 data points are insufficient to generate a meaningful measure of volatility, but this low threshold was chosen because low population realms might not have any items which would appear for certain volatility-related queries. For meaningful discussion of volatility, however, we will constrain ourselves to discussion of the global pricing for items across realms and factions, and thus avoid the problems of statistically insignificant samples.
Some facts became immediately obvious in reviewing the data:
- Cloth is the most frequently auctioned item in the game. Specifically, Silk Cloth is auctioned 50% more often than any other single item.
- Cloth also tends to be the most volatile in terms of pricing. In one recently measured period Linen Cloth maintained the highest volatility for the week at 3300%.
- The most stable prices involve items which are typically player-created (such as the Swift Skyfire Diamond) and involve difficult to obtain or expensive ingredients.
- Most shockingly, the deviation between the economies on different realms was fairly low for sampled items, except for those items which had no real inherent value (e.g. those that are intended for selling to merchants).
I'll be placing more details on how data was gathered and the raw numbers that went into these calculations as time permits.
The World of Warcraft economy is much more stable than I would have predicted before beginning this work. Clearly, the Auction House system is well designed to create an efficient and stable marketplace. It is also clear that add-ons and Web sites that provide players with information about the economy aid in keeping prices stable over the long term. What will be most interesting, however, is analyzing how these markets react to changes in the future such as expansions and pressures from other games.