Investing in 1s and 0s
by Jessica Brown, April 25, 2012
If you heard that someone invested a whopping 2.5 million dollars into a video game, more than likely you'd suspect that they invested in buying either the rights to a small indie game or control over an indie game development studio. More often than not, this would actually be a safe bet - but in this case you'd be dead wrong.
For many years now, various MMORPGs have been offering players (even in subscription models) the option of spending money in a "cash shop" on optional items. These range from extra character slots to vanity items to potions that temporarily give you a boost in gained experience. Spending hundreds of dollars in cash shops is certainly not unheard of, but for someone to spend millions in one would be borderline insane.
Thankfully, though, we aren't talking about cash shop purchases. The money under discussion was actually invested in what could be described as a "social MMO." There are quite a few games that could be described in such a way, though two major player-driven universes often come to mind: Second Life and EVE Online. In this case, however, the investor actually spent their $2.5M on a lesser-known MMORPG called Entropia Universe.
Entropia Universe (formerly Project Entropia) has been around since January 2003 and is a space-age themed MMORPG that funds itself off of microtransactions. In fact, Entropia entered the Guinness World Records Book in both 2004 and 2008 under the category of "most expensive virtual world objects ever sold." In 2009, a virtual space station sold for a whopping $330,000 and then in November of 2010 a resort on Planet Calypso sold for $635,000, both making the record book. All of those purchases are massively eclipsed by this recent one from April 4th, which clocks in at about four times the 2010 record.
No doubt many people are wondering what exactly $2,500,000 would buy you in Entropia and, perhaps more interestingly, what would compel someone to spend that type of money in a virtual economy. Both are very valid questions. Back in November of 2011, Entropia started a program called the Citizenship System that allows players to purchase land deeds with in-game currency. On average, most land purchases have returned around 27% on the initial investment on an annual basis. So, the person who bought $2.5M in deeds could easily expect to see their investment turn into about $3,175,000 by April of 2013. With a gain of $675,000 that first year (and an additional 27% based off of that new figure to be seen in 2014) this seems to be a very sound investment and a rather large residual income for the investor to see each year.
According to official figures released by developer MindArk, user-to-user transactions come in at around $400M per fiscal year. Obviously, very large real-world purchases occur in games like Second Life as well, so this isn't entirely unheard of. But in this particular case what has people turning their heads and raising a curious eyebrow is the amount of money spent at a single time in the game's virtual economy. Back in 2003 and 2004, when games like Entropia and Second Life were just taking off, news like this was more of a surprising novelty. Now, in 2012, it's easy to wonder if virtual real estate will become a thing of the future that investment companies will actually consider steering their clients towards. Much like gold is considered for solid investment futures these days, perhaps real estate in virtual worlds like Entropia will be the "in" thing in coming years.
The opinions of Entropia fans are quite varied, though many call into question the sanity of such a purchase. "Insane. $2.5M is more than enough to invest in your own planet," wrote Entropia Planets staff member Tass on April 4. "If I had $2.5M and IF I wanted to invest in EU, I would have bought real shares of [MindArk]," wrote Razer that same day. On the topic of who the investor might have been, forumer GeorgeSkywalker wrote that it was "someone very smart and with money."
The identity of the investor has been kept private for the time being, but perhaps Skywalker is right. It still begs the question as to whether it was just a very dedicated player or someone who was simply a savvy investor...or maybe it's both? Personally, I could see it going either way, although I do agree with Razer. If I was going to invest a sum of money that significant, I'd rather invest in shares of MindArk itself than in virtual real estate. After all, Entropia Universe might not be around forever but MindArk will no doubt continue to develop other awesome MMOs along a similar vein.
What are your thoughts on this? Do you think it's silly or do you think it's actually a rather sound investment? Head on over to the WhatMMORPG forums and share your thoughts with us!