Blog Post

Why Virtual Theft Should Matter to Real Life Tech Companies

habbo-hotel.jpgThe BBC recently reported that Holland police apprehended a teenager suspected of heisting nearly $6000 worth of furniture that does not, in the strictest sense, exist. That’s because he stole the goods from members of Sulake Corporation’s Habbo Hotel, the successful Finland-based MMO for older kids and teens. After Sulake suspected the Dutch kid had scammed password information off other users, the company reported him to the cops.

This might seem like one of those inconsequentially wacky news item, but it’s actually a significant harbinger of a problem that threatens not just the business of online worlds, but social networks and other Web 2.0 enterprises.

Why? Because as a service that doesn’t depend on subscriptions, Habbo Hotel relies in large part on selling virtual items (furniture, clothes, etc.) to its users for revenue. As a phenomenally popular online world (currently with about 8 million monthly active users) Habbo has inspired numerous other startups to adopt a similar revenue model. So now, many new and upcoming MMOs, especially those aimed at kids/teens, count on virtual goods. Looking at GigaOM’s Top Ten MMOs from June, a list that already needs revising, four of the largest, Habbo, RuneScape, Club Penguin, and Gaia Online, are primarily targeted at the under-18 market, and generate virtual item sales for some or all of the company’s revenue. According to some forecasts, the population of worlds like these is set to grow geometrically in coming years.

The inevitable problem, as the Holland arrest shows, is how much this revenue stands or falls on deeply serious real world constraints that no system can architect against. As Jane Pinckard noted last week, kids in avatar-based spaces have their guard down, and are thus especially vulnerable and easily manipulable, while some kids (and adults pretending to be kids) are good at exploiting this weakness with “phishing” schemes and other social hacks. Major “heists” could undermine them, either through a PR disaster (picture cute kids crying about their stolen virtual pets on CNN) or a sudden devaluation of their virtual economy, or both.

“The issue you touch upon– whether or not microtransactional business models are appropriate for and viable in kid-targeted properties– is a very meaningful one,” my friend Susan Wu e-mails me. Susan’s a partner with Charles River Ventures, which includes Raph Koster’s MMO platform company in its portfolio, and has been a longtime advocate of virtual goods as a business tool. “There’s the practical consideration of processing these transactions, when kids don’t usually own credit cards.” (When I talked with Gaia Online CEO Craig Sherman, he casually mentioned they had three staffers whose sole job was to open snail mail containing dollars and loose change from Gaia players who wanted to buy the latest virtual item they’d put on sale.)

“The other part of the problem,” Susan continues, “is around fraud and security. With regards to the case of Habbo Hotel, unfortunately the techniques the thieves used– phishing and social engineering– is not one that can be easily addressed. The right solution involves a mix of components including education, industry standards around virtual property rights, and technical solutions that both minimize a publisher’s exposure to fraud and maximize their ability to track/recover/restore assets quickly.”

Related to that, she tells me organizing an industry roundtable at next spring’s SXSW to address these issues on a broader level. “As the industry grows, we will need to move beyond the ‘Wild West’ mentality that exists in the space.” And as is often the case, what begins in the metaverse will probably influence the wider Web: Facebook and other social networks, along with other Web 2.0 sites , are rapidly introducing buyable virtual goods as third party widgets or central cash generators.

12 Responses to “Why Virtual Theft Should Matter to Real Life Tech Companies”

  1. Mike Beaudry

    As a former online game admin, I have a serious problems with a profit-making corporation expecting the real-world justice systtem to chase after “griefers” in their virtual worlds; exceptions made for cases of child predators or a person who makes irl (in real life) threats.

    The game makers keep logs and backups, and (should) have the means to restore stolen goods to original accounts and to close the accounts of offenders — call this part of their virtual justice- and victim-recompensation system for their virtual world.

    I’m absolutely certain its a chore to perform, but it is a real part of the real cost of running a virtual world from which they earn their real profits. And nothing stops the company from improving their admin tools to make such restitutions quicker and simpler — time is money.

    Theft is theft, but let’s keep track of jurisdiction, and use irl cops for irl crimes.

  2. For those that can’t understand that this is still theft, consider downloading game software – It’s not a tangible item you can hold (if downloaded); it’s just a compliation of code/3d-design/3d-animation/graphics/sound. But it took time to design, make and distribute and it’s the person’s time and skill you’re paying for.

    Game enhancements are just an extention to this, and although virtual furniture is a extreme/simple example, it’s fundamentally no different. Theft is theft. If somebody puts effort into making something that others are happy to pay for, and they depend on it as part/all their income, why should some people be allowed to steal it.

  3. What about content theft? Plagiarism from blogs is rampant and growing. (Here we were mistakenly believing that only graduate students plagiarised to appear more impressive in thesis than in reality!). Why is it that a virtual sofa is considered worthy of police attention whereas real expressions of ideas and thoughts are not?

  4. Kids are kids. Adults should be punshied, but not kids. Adults have intent and plan. Kids just dont have enough pocket money!

    Teenagers just do it to rebel and cause grief.

    The sites should have better security in place to deter the latter two

  5. I won’t let my kids become part of the revenue stream for companies selling them nothing but more time with their butts on chairs. I hope this security problem burgeons, and brings down the whole edifice of “kid-targeted properties”. The “virtual economy” is a scam in itself.

  6. The virtual economy is still very much in it’s infancy, think Gold Farmers etc… but to dismiss this episode a mere trivial news would be foolish – the burgeoning virtual economy as evinced by China’ massive private/public investment in a virtual server park is going to be the next industrial revolution promoting not only virtual working but the rise of virtual currency and with that the crime that will follow.

  7. i thought debate about Rape in Second Life [] is the most wacky news item i have seen but now there is theft also .
    While I agree with the general argument you gave but there are services like IP Anonymizer , being used for accessing Pandora out side of US , P2P driven Piracy which need more attention than someone stealing something virtual

  8. In most of the coverage of the issue (as it was covered around the blgosophere), most commenters were too busy being sarcastic and cute to think about the real issues.

    Anyway, back to vampire-bite-poking on Facebook before a deathmatch in Halo 3.

    Silly fake things.