The Rise of Virtual Economies

As our lives become ever more virtual, retailers are betting there will be increasing demand for virtual goods as well. In the future, gaming and retail will be a fully integrated experience.


Thomas Jefferson envisioned America as a nation of small farmers. But today millions more Americans cultivate virtual farms in online games like FarmVille and Ranch Town than work in real cornfields. Over 200 million people around the globe play Facebook games each month, and millions more play online role playing games like World of Warcraft or interact in the virtual world Second Life. And as our social lives become more and more virtual, retailers and advertisers are betting there will be increasing demand for virtual goods as well. In the future, gaming and retail will be a fully integrated experience. 

The U.S. virtual goods market is expected to grow to $2.1 billion in 2011, about half of which are items purchased in popular Facebook games. With over 80 million active users, FarmVille is currently the most popular online game on Facebook, but it is just one of many online games in which thousands of players can interact and spend real money on virtual goods. In Farmville, players can buy seeds to plant in their farm; they can even give a cow or horse to a friend. In Sorority Life, another game from Farmville developers Zynga, players can spend money on formal wear, gifts for friends, and limited edition boyfriends. 

Jesse Schell, CEO of Schell Games, explains to Big Think that convincing people to spend real money inside video games is not naturally intuitive to video game designers—but they're getting better at it. "What you have to do is you have to create a situation where people are going to want to put money in," he says. "So you have to find a way that people are going to feel invested, and if you look at the way a lot of the successful online games are created—particularly the free ones—they create a situation where they work hard to get you psychologically invested, and then they find exactly the appropriate time to kind of say, 'You know, this game could be a little better if you would just put five bucks or if you would just put ten dollars in.'"

The prospect of paying real money for something that doesn't exist may sound like a waste of money, but Edward Castronova, a professor of telecommunications at Indiana University, says that virtual goods are not that different from real ones. People buy virtual goods for a variety of reasons: they can provide entertainment, indicate social status, or boost social capital through gifting. Aside from basic necessities, don't we buy real goods for similar reasons, he asks. With so much of what we consume, the value is essentially "virtual," not tied to any objective use, says Castronova. According to the Department of Labor, entertainment makes up only 5.49% of household expenditures, but much of the remaining 77% for housing, food, apparel, transportation, and miscellaneous expenditures is tied to social status. As more consumers begin to play online games, virtual goods will "unquestionably" take a chunk out of the market for these real goods, he believes.

Until recently, a major limitation of virtual purchases was that each online economy, whether FarmVille, World of Warcraft, or Second Life, had its own currency. But Facebook is looking to change all that with its new currency, Facebook Credits. The company plans to make Credits a universal virtual currency that can be used not only across all Facebook applications but also outside of Facebook. Currently, Facebook Credits aren't technically a currency; they are a commodity, like airline miles, that can be exchanged for virtual goods in many of the half-million Facebook applications. The next logical step is that Facebook would allow people to use this virtual commodity to purchase real goods and services in an online marketplace.

Facebook Credits won't become a "real" currency until they are tradable or until one can exchange them for cash. "There needs to be a mechanism for setting a value for Facebook Credits in the currency/foreign exchange market," says Brett King, author of "Bank 2.0." He is optimistic that "once speculators can trade on Facebook credits, then that is when we know that it is a real currency." But how exactly will this transaction occur? King envisions a company like Western Union offering a physical exchange office. "Bring USD, walk out with FB credits in your Facebook account, or vice-versa." Or the transaction could remain entirely online. "Imagine PayPal offering you the option to cash out Facebook Credits for a fixed fee of $1.00 or similar. Then if you need to pay your plumber, dog sitter, or cleaning lady, you could do it via Facebook. They could then transfer the money from Facebook to their bank account via PayPal."

Obviously there are reasons why nations wouldn't want a corporation to issue its own currency. If it were a country, Facebook would be the third largest in the world. So its currency could theoretically exert strong pressures on the dollar, the Euro, or other "real" currencies. "If people feel that Facebook Credits are going to rise in value, then they might take U.S. dollars and exchange them for Facebook Credits; if enough people do that then the value of the USD starts to decline against Facebook’s currency," says King. "Then it is just a matter of time before the reverse happens. Think about the fact that Facebook has a population of 500 million people. If even 10 per cent of those start trading Facebook Credits then it would potentially be a more powerful currency than say the Aussie, Hong Kong or Singapore dollars."

Something similar has already happened. In China in 2007, a virtual currency called the QQ coin made the jump from commodity to real currency. In rural areas of China, where the Internet is far more prevalent than credit cards, stores began to accept virtual QQ coins as payment for real goods and services. "QQ coins become so ubiquitous and were being traded with such volume and frequency that they did start to drag down the value of the Yuan," King says. "People were essentially cashing in their real Chinese currency (Yuan/RMB) to buy QQ coins. QQ coins were appreciating in value against the Yuan. Thus, within China the Yuan was starting to get devalued against a virtual currency, meaning you had more buying power with QQ coins than physical notes. This was pretty scary for the Chinese government—even the US couldn’t achieve this level of disruption to the Yuan."

Is it far-fetched to think that virtual goods and Facebook Credits could have such a large impact on the real economy in the U.S. or Europe? Stranger things have happened. Surely Jefferson couldn't have imagined a day when we would spend real money to plant digital seeds made up of ones and zeros. 

More Resources:

— Department of Labor infographic on American household expenditures.

— TechCrunch feature on the business of virtual goods.

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Political division is nothing new. Throughout American history there have been numerous flare ups in which the political arena was more than just tense but incideniary. In a letter addressed to William Hamilton in 1800, Thomas Jefferson once lamented about how an emotional fervor had swept over the populace in regards to a certain political issue at the time. It disturbed him greatly to see how these political issues seemed to seep into every area of life and even affect people's interpersonal relationships. At one point in the letter he states:

"I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend."

Today, we Americans find ourselves in a similar situation, with our political environment even more splintered due to a number of factors. The advent of mass digital media, siloed identity-driven political groups, and a societal lack of understanding of basic discursive fundamentals all contribute to the problem.

Civil discourse has fallen to an all time low.

The question that the American populace needs to ask itself now is: how do we fix it?


Discursive fundamentals need to be taught to preserve free expression

In a 2017 Free Speech and Tolerance Survey by Cato, it was found that 71% of Americans believe that political correctness had silenced important discussions necessary to our society. Many have pointed to draconian university policies regarding political correctness as a contributing factor to this phenomenon.

It's a great irony that, colleges, once true bastions of free-speech, counterculture and progressiveness, have now devolved into reactionary tribal politics.

Many years ago, one could count on the fact that universities would be the first places where you could espouse and debate any controversial idea without consequence. The decline of staple subjects that deal with the wisdom of the ancients, historical reference points, and civic discourse could be to blame for this exaggerated partisanship boiling on campuses.

Young people seeking an education are given a disservice when fed biased ideology, even if such ideology is presented with the best of intentions. Politics are but one small sliver for society and the human condition at large. Universities would do well to instead teach the principles of healthy discourse and engagement across the ideological spectrum.

The fundamentals of logic, debate and the rich artistic heritage of western civilization need to be the central focus of an education. They help to create a well-rounded citizen that can deal with controversial political issues.

It has been found that in the abstract, college students generally support and endorse the first amendment, but there's a catch when it comes to actually practicing it. This was explored in a Gallup survey titled: Free Expression on Campus: What college students think about First amendment issues.

In their findings the authors state:

"The vast majority say free speech is important to democracy and favor an open learning environment that promotes the airing of a wide variety of ideas. However, the actions of some students in recent years — from milder actions such as claiming to be threatened by messages written in chalk promoting Trump's candidacy to the most extreme acts of engaging in violence to stop attempted speeches — raise issues of just how committed college students are to
upholding First Amendment ideals.

Most college students do not condone more aggressive actions to squelch speech, like violence and shouting down speakers, although there are some who do. However, students do support many policies or actions that place limits on speech, including free speech zones, speech codes and campus prohibitions on hate speech, suggesting that their commitment to free speech has limits. As one example, barely a majority think handing out literature on controversial issues is "always acceptable."

With this in mind, the problems seen on college campuses are also being seen on a whole through other pockets of society and regular everyday civic discourse. Look no further than the dreaded and cliche prospect of political discussion at Thanksgiving dinner.

Talking politics at Thanksgiving dinner

As a result of this increased tribalization of views, it's becoming increasingly more difficult to engage in polite conversation with people possessing opposing viewpoints. The authors of a recent Hidden Tribes study broke down the political "tribes" in which many find themselves in:

  • Progressive Activists: younger, highly engaged, secular, cosmopolitan, angry.
  • Traditional Liberals: older, retired, open to compromise, rational, cautious.
  • Passive Liberals: unhappy, insecure, distrustful, disillusioned.
  • Politically Disengaged: young, low income, distrustful, detached, patriotic, conspiratorial
  • Moderates: engaged, civic-minded, middle-of-the-road, pessimistic, Protestant.
  • Traditional Conservatives: religious, middle class, patriotic, moralistic.
  • Devoted Conservatives: white, retired, highly engaged, uncompromising,
    Patriotic.

Understanding these different viewpoints and the hidden tribes we may belong to will be essential in having conversations with those we disagree with. This might just come to a head when it's Thanksgiving and you have a mix of many different personalities, ages, and viewpoints.

It's interesting to note the authors found that:

"Tribe membership shows strong reliability in predicting views across different political topics."

You'll find that depending on what group you identify with, that nearly 100 percent of the time you'll believe in the same way the rest of your group constituents do.

Here are some statistics on differing viewpoints according to political party:

  • 51% of staunch liberals say it's "morally acceptable" to punch Nazis.
  • 53% of Republicans favor stripping U.S. citizenship from people who burn the American flag.
  • 51% of Democrats support a law that requires Americans use transgender people's preferred gender pronouns.
  • 65% of Republicans say NFL players should be fired if they refuse to stand for the anthem.
  • 58% of Democrats say employers should punish employees for offensive Facebook posts.
  • 47% of Republicans favor bans on building new mosques.

Understanding the fact that tribal membership indicates what you believe, can help you return to the fundamentals for proper political engagement

Here are some guidelines for civic discourse that might come in handy:

  • Avoid logical fallacies. Essentially at the core, a logical fallacy is anything that detracts from the debate and seeks to attack the person rather than the idea and stray from the topic at hand.
  • Practice inclusion and listen to who you're speaking to.
  • Have the idea that there is nothing out of bounds for inquiry or conversation once you get down to an even stronger or new perspective of whatever you were discussing.
  • Keep in mind the maxim of : Do not listen with the intent to reply. But with the intent to understand.
  • We're not trying to proselytize nor shout others down with our rhetoric, but come to understand one another again.
  • If we're tied too closely to some in-group we no longer become an individual but a clone of someone else's ideology.

Civic discourse in the divisive age

Debate and civic discourse is inherently messy. Add into the mix an ignorance of history, rabid politicization and debased political discourse, you can see that it will be very difficult in mending this discursive staple of a functional civilization.

There is still hope that this great divide can be mended, because it has to be. The Hidden Tribes authors at one point state:

"In the era of social media and partisan news outlets, America's differences have become
dangerously tribal, fueled by a culture of outrage and taking offense. For the combatants,
the other side can no longer be tolerated, and no price is too high to defeat them.
These tensions are poisoning personal relationships, consuming our politics and
putting our democracy in peril.


Once a country has become tribalized, debates about contested issues from
immigration and trade to economic management, climate change and national security,
become shaped by larger tribal identities. Policy debate gives way to tribal conflicts.
Polarization and tribalism are self-reinforcing and will likely continue to accelerate.
The work of rebuilding our fragmented society needs to start now. It extends from
re-connecting people across the lines of division in local communities all the way to
building a renewed sense of national identity: a bigger story of us."

We need to start teaching people how to approach subjects from less of an emotional or baseless educational bias or identity, especially in the event that the subject matter could be construed to be controversial or uncomfortable.

This will be the beginning of a new era of understanding, inclusion and the defeat of regressive philosophies that threaten the core of our nation and civilization.