eBay of the Elves

You wouldn't expect a video game that features dungeons and dragons to be too long on reality, but there's an interesting departure from fantasy in Vivendi's (NYSE: V  ) massive multiplayer online role-playing game (MMORPG), World of Warcraft (WoW).

Hidden among the smiling, backstabbing gnomes, scuttling, giant spiders, and innumerable geeks who control said characters -- present writer included -- there are three virtual auction houses where fake beings can buy and sell fake property using fake money.

The in-game eBay (Nasdaq: EBAY  ) matches buyers and sellers, automates payment, and even features a type of buy-it-now option for those who don't want to wait. The game's virtual email system -- which characters access by finding virtual mailboxes in virtual towns -- carries the money to the seller and the goods to the lucky buyer. By journeying to the special, more expensive neutral auction house, even lethal enemies who cannot otherwise communicate may engage in free trade.

Geeky? You bet. But it's also a stroke of genius.

Foremost, it's a way of making more money for Vivendi. As with Sony's (NYSE: SNE  ) EverQuest, Blizzard Entertainment, the Vivendi division that produces WoW, gets a monthly fee. One of the best ways to ensure that millions of us suckers stick with the game is to allow us to accumulate large hordes of virtual wealth. Obviously, Blizzard thinks there's no better way of doing that than creating an efficient free market inside the game itself.

Other MMORPGs before this have produced robust economies -- notably EverQuest, Ultima Online, and Blizzard's Diablo 2 -- allowing characters to purchase and trade items within the game, but this usually involved cumbersome online meetings and barter.

Because of their inefficiencies, some argued, the marketplaces soon produced problems unforeseen by the first game designers: the sale of virtual property for real money. Though contrary to most games' user licenses, it's a common practice. Just try an eBay, Yahoo! (Nasdaq: YHOO  ) , or Google (Nasdaq: GOOG  ) search. You'll find plenty of items, though many of these offers will be from shady characters, and are likely to yield counterfeit virtual goods -- yes, there are such things -- produced by various exploitation techniques. Ironically, if Blizzard's virtual auction house succeeds on eBay's example, it will be at eBay's expense. Items sold for virtual gold won't make stockholders any money.

Whether the new in-game system can overcome the ex-game item market remains to be seen, but it certainly can't fare worse than some game publishers' previous policies of trying to shut down auctions and sale sites. The virtual world is the same as ours: If there's demand, and there's supply, a market will follow.

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Seth Jayson's noob Warcraft characters could really use some l337 itamz, but at the time of publication, he had positions in no firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.


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