Frequently, I hear stories about open marketplaces, worlds, and games that paint a picture of a consumer who feels ‘locked in’ and unable to break free of a particular economy. In these stories, you will hear about users wanting to trade items outside of in-game marketplaces, buying and selling their in-game currency, or even using their loyalty points in different contexts. I think this comes from a consumer’s frustration with a product instead of an actual grievance over something additive - but that’s beside the point.
First, I’m a fan of the idea of in-game and in-app economies being a bit more flexible and offering more consumer choice. For example, could an app take another platform’s points and incentives and provide more in return for migrating? Or let’s say a user earns something in a game: why should they be limited in what they can do with that asset? I think it’s entirely possible in new and emerging markets to take a cross-platform approach in the name of taking on incumbents.
The operative word here is “emerging” because I don’t see it happening for established games, marketplaces, and loyalty programs. To paint it as a problem and as users' one true grievance seems disingenuous. It is more likely that a lousy platform is the primary concern rather than a marketplace not being ‘open’ enough.
Cross-platform incentives for users in established markets are tricky for various reasons, but mainly because organizations wish to be the gravity well that moves their economy.
If you establish an economy that benefits users somehow, you want to sit at the center of it and not have unexpected forces dethrone any defined exchange rates, encounter third parties that may threaten market safety, or have issues with congestion. It’s the same reason why airline loyalty programs introduce points partners in different verticals (that they define) or game developers keep tight controls over their marketplaces.
Healthy established markets are fully incentivized to avoid participants gaming the system as it leads to their eventual unraveling. In this case, both sides of a transaction are interacting on asymmetric information influenced by outside rates and dark markets. To keep market health going, established markets will want to control everything from how both sides enter the market to how they interact. This is all reinforced by the two most common responses to open market activity: active economic controls and reactive economic controls.
Active Controls
Active controls fall under well-established economies that seek to maintain market health in the face of any adverse events. An example of this would be an airline loyalty program that determines everything from unit economics, to redemption partners, to curating earning activities. Airline loyalty programs shape travel decisions and act as a way to keep customers interested in brand – but there are a few active controls in place to reinforce a few systems.
Let’s start with the unit economics of airline loyalty programs. These are tightly controlled in terms of what they’re “worth” first and foremost to manage capacity across flights. For example, if an airline is managing capacity across several routes and there are seats to fill, the ‘value’ of the points will be bent to encourage that particular flight as a redemption option. This impacts the vacation habits of users, but at the same time, it’s a constant way for airlines to ‘increase’ the value of the points by using them to discount the cost of capacity they may not sell.
Additionally, airline loyalty programs make a lot of money through partnership programs where partners effectively ‘buy’ points to reward their customers. This happens often with credit card providers that allow you to use your miles to offset your bills or redeem them for credit through their program. However, it’s the airline controlling the exchange rate here with an agreement with a partner, and they can also be highly selective about who they allow in these partner programs (on purpose).
Airlines keep extremely active controls on their partners so as not to allow competition to poison their tightly controlled economies. Airlines will ensure they partner with organizations that are either complementary or not within the same industry (for example, food partners) but never another airline. That’s why there’s no option for consumers to directly exchange one airline’s points for another—it would intrinsically tie an exchange rate between the two and be an outside force that would sabotage already existing economic controls.
Finally, curated earning from the airline activities influence the float of points. Airlines will typically make all purchases eligible for earning points, but just enough so that it would take plenty of time and increased loyalty to hit a redemption moment. This enables plenty of airline points to float without being burned, and if airlines ever need to tip the scales, they can lower the price of redemption options on a whim.
Airlines will tip the scales as they sit fit for their ends, and continue to keep incentives in their court. They will continue to control their economy actively, as it impacts a massive chunk of their bottom line. These are all active controls, but sometimes organizations must be reactive when something unexpected impacts their marketplace economics.
Reactive Controls
Reactive economic controls deal with tightening an existing market that has spilled over into the real world outside of the auspices of an original creator. A great example of this is illegal gold markets in Runescape, a popular MMORPG. In these cases, people would typically buy gold in these markets, which usually consisted of individuals in South American countries such as Venezuela making a living through the game.
Jagex found that 40-50% of their player base at a given time was buying gold and items in this way, and it was so influential at a certain point that when Venezuela went through power outages in 2019 it caused a small in-game economic crisis. All of the items being botted by these sellers were going through massive price increases due to a lack of activity on the supply side. To this day, Jagex hasn’t entirely curbed some of the botting problems to keep the in-game economy stable, but they have figured out a solution to users buying and selling gold.
Runescape has always dealt with real-world trading (RWT) with bans and has buffed its anti-cheating capabilities over the years to better track and trace it. With the sheer volume of bots and gold sellers, Jagex continued to try to be reactive toward this moving target, with one move consisting of a way to fix the price of gold in-game and be the largest legal dealer.
Before mentioning this, it’s important to note why an organization like Jagex would be employing these reactive controls. It’s primarily to avoid a pay-to-win problem in-game and to cut any price-gouging activity. But really, Jagex wanted a piece of the action, as would any game creator.
Their approach to curb gold trading came from membership bonds in 2015. Membership bonds were an in-game item purchaseable by Jagex that allowed the holder to redeem the item for a fixed amount of days of member’s content (their paid version of the game). Bonds were attractive from a few different angles:
Bonds acted as a deflationary mechanism, as gold was required to make a bond tradable, and that gold never was reintroduced into the game.
A fixed price point for gold was established through a legal channel, as whatever bonds were being traded for in-game could now be fixed to Jagex’s pricing. Instead of going through an unregulated and trust-based model, you could buy the assets directly through Jagex.
Jagex could now begin selling memberships almost as bearer instruments, directly to users to redeem them in the game as they wish at a significant markup. Their monthly membership price was cheaper than bonds.
It also now enabled players to ‘pay’ for membership through their work in the game, opening up membership for users in places that may not have had the opportunity to purchase it for real-world currency.
But again, Jagex is now an authority on the exchange rate of gold to real-world currency because it introduced this. Although some markets may try to undercut them, there’s an inherent risk to using them instead of Jagex. Jagex knew they couldn’t control outside markets - but were incentivized to do as much as possible to capitalize on the existing economic activity.
All this to say - existing game and marketplace economies love their controls.
Your new marketplace or game would benefit from an open economy in the face of incumbents, but focus first on creating something worth using. You're going to face an uphill battle from existing large marketplaces and games that aren't looking for open economies, and that's a tough enough challenge in and of itself.
