It is interesting that Lohan is one of typical MMORPG based on fixed fee. But, as you already knew, there have been a lot of mini-games in MMORPGs. Part of them was invented unofficially by players, others were provided by developers to give small fun for players. In case of Lohan, they benefited unexpectedly from a mini-game, that was a Baccarat in reality (See this). It made a huge surge in players' activities and RMT, which was finally a helping hand for firm’s revenue. Lessons from this experience might be more profound than we think. This time, they intend to make players to charge more in-game currency in micro-payment fashion.

Anyway, recent rush to micro-payment also gives some inspiration to traditional MMORPGs. Like this case of Lohan, games in game may make a way to charge players additionally besides fixed fee. Actually, this type of pricing scheme is originally from theme park business. Under some assumptions, two-part tariff that consists of entry fee and price by usage enables the firm to extract more surpluses from consumers, and results in higher profits. In Korea, a mini-game of Lineage, dog race, has been popular contents among players. Weirdly some do heavy buying from RMT for this petite thing. Especially, in Korea, gamble-related mini-games tend to be pretty popular. In extreme case, MMORPG might serve as a platform for virtual gambling.

Plaync Japan, the Japanese portal of NCSoft, are now launching 'purchasable' items on Lineage II. It is intriguing in that Lineage II is originally traditional fixed-fee based game. As not so many items are on the shelve, change in NCSoft's strategy is more meaningful. Are micro-transactions able to be applied to fixed-fee based game? Do micro-transactions go well with typical MMORPG design?

According to a source unnamed, early sales record in Japan is impressive. Is this a symptom of a change in traditional business model by a Korean giant?

But, what about the moral hazard of middleman himself? This is one of classical problems in economics. "Who watch the watchman?" Moreover, recently the business of RMT mediation slides into stagnation. In Korea, this resulted from continual decline of Lineage series–Lineage I and II might consist of 60%+ market share in Korean unsanctioned (secondary) RMT market–, social and governmental pressure against RMT, and changing in strategy of publishers from the fix-fee based to micro-transactions.

A Korean news article (written in Korean language) reported that a staff of ItemBay, the top middleman in Korea, was arrested for appropriating the account of a customer in illegal way. News said that he made around 45 USD for this case, but is now suspected to commit similar crimes for many other cases.

This act of crime might be just an exceptional episode. Actaully, It may not a big deal. However, what if the trustfulness of middleman be put on the test? When the trust of a bank be on the doubt, bank-run would precipitates and system collapses. The time horizon of RMT mediation business might not be so long enough to be careful about their trust for ever. Hypothetically, when the ending time comes sooner or later, what happen to huge RMT secondary economy?

Abstract

This paper is to provide a theoretical investigation on real-money trading (RMT) observed frequently in online games. To overcome former studies focused much on description itself, economic incentives behind RMT are modeled and identified by reconsidering economic studies related. Firstly, RMT is analyzed by its modes of trading. It is shown that two modes of trading, the continuous and the discrete, have different consequences on the configuration of RMT market. Secondly, economic impacts of RMT are explored in the context of network externalities. Thirdly, two issues of RMT, gold farming and micro-payment, are shortly addressed as an application for the analysis.

Download latest revised version here.

Local experts, however, suspect that it was not a coincidence that all of them had same problems at the same time. A small middle-man, Itemria, confessed that there were threats from hackers due to vulnerable system security. An expert of internet security said, "there were some requests from RMT mediation companies to investigate sudden connection surge from China. It is highly probable that some groups of hackers planned this attack."

How do Korean online gamers response to this virtual 'financial' crisis? If trust is at danger, the system cannot go on. Those who had the remainder for their item trading is now hurrying to clear their accounts against system failure. It is just like the bank-run of real world.

UPDATE) One of big three, ItemPF, admitted that the connecting difficulty was from hackers' attacking. Now, it is obvious that the networks security infrastructure of middlemen is extremely fragile in comparison to their trade volume.

http://ssrn.com/abstract=975171

The cartoon by a Korean artist compounded these two social changes in imaginative way. It is both humorous and sarcastic. In a sense, it revealed a part of understanding on online gaming in Korea. I proudly introduce this cartoon with my translation. Enjoy it!

On July 25th, SK Communications(SK Comms.), the company behind the Cyworld, was merged to the Empas, the 3rd place search engine in Korea. Actually, this action was intended to do backdoor listing of SK Comms because Empas was already listed in Korean stock market, KOSDAQ. The meaning and the prospect of this merger is not the issue here. With this merger, more detail information about SK Comms. was finally uncovered. The interesting part for you may be the revenue proportion from selling virtual assets at Cyworld. See following table.

Selling virtual assets, as expected, is the largest part of the business of SK Comms. The Cyworld is a living proof for the potential that the micro-payment model has in many kinds of SNS services, not only in online games.

Following table shows financial performances of Korean Internet/online gaming companies. As you can see, in spite of big investment for overseas markets, most of companies didn’t get satisfactory results yet.

(unit: 1,000 KRW, () means net loss)

Some caveats
1. Original source in Korean is from here.
2. Data were taken from financial reports and business reports of individual companies.
3. Data of Nexon was not obtainable, because Nexon Korea has no obligation to submit the actual results of the parent company, Nexon Japan to the Financial Supervisory Service of Korea.

What made the results? One easy answer might be cultural differences among regions where services/games are being provided. This, however, cannot be fully explanatory in that the performances in regions with similar cultural background were not so good, either.

Another is the faster catch-up of foreign competitors than expected. What was once thought to be a big secret is a common sense of the business at now. A worldwide success of Blizzard is only the beginning of a huge following-up wave. Competitive edge that Korean companies have enjoyed is definitely waning out.

Anyway, is there any strategic failure in globalizing business at Korean side? For last few years, companies have been high for their spectacular successes. The obvious thing is that domestic market is not enough to support stable growth for all. So to speak, There is a symptom of saturation in Korean markets. The lag of Webzen, once one of champions at Korean online gaming, is just a part of the story. It might be time to wake up not to be left behind.

In this paper, I seek to explore culture and business of PC bang (PC room) in
South Korea (hence forth Korea). As an integral component in the culture of Ko-
rean online gaming, the PC bang has only recently gained academic interest. A
PC bang is distinctive from Internet cafe in that it puts much more emphasis on
online gaming. Evolved from a convenient spot for high-speed connection, the PC
bang has become a space for facilitating and nurturing online gaming cultures.
This paper addresses two cultural specificities of PC bang. Firstly, as a space that
nurtures the negotiation of offline and online relationships around online gaming
cultures in Korea and, secondly, as a site for the emergence of MMORPG play-
ers. In respect of business, the collaboration and coordination between PC bangs
and game publishers has been a key part for Korean online gaming. A specialized
pricing policy for PC bang different from an ordinary flat subscription had made a
better business environment both for game publishers and PC bangs. Recently, the
conflict caused by the micro-payment business model of free-to-play online games
made the former cooperative relationship disturbed.

For downloading full-text, go to http://ssrn.com/abstract=975171.