Part 2: In-game items are a $50 Billion market, why am I missing out?

Secondary Markets for In-game Items are a Gray Market… Dark Gray! And that needs to change.

*This is the 2nd post in a 3 part series. You can find Part 1 HERE.

In our last post, we talked about the exciting opportunity that in-game items pose for developers. However, largely due to a lack of available tools and resources, it’s usually only large publishers that are able to take advantage of this market. In this post, we’ll focus on the secondary market (and the unauthorized websites built to power these transactions) and how it’s in desperate need of a cleanup.

Challenge #2: The Secondary Market Needs to Come Out of the Shadows

Over the last 7-10 years, publishers have begun to embrace in-game items as a way to build their core business. However, as this part of the business has grown, so too has the number of unauthorized secondary market websites angling to take advantage of gamer-to-gamer resale of these items. Juniper research estimated the total listed value of in-game items listed on secondary markets in 2019 to be $16.7B. In many cases, these secondary markets have become a vital component of a game’s long-term, continued success and play an important role in how gamers interact with them. In games like CS:GO, the secondary market for in-game items dwarfs the primary market by a factor of 3x.

These secondary markets, however, are not without their issues. They are fraught with risk for both gamer and developer — highly disorganized at best, and, in extreme cases, often downright fraudulent. The issues described below have forced secondary markets deeper into the “gray market,” leaving gamers without any meaningful protections and developers without access to additional revenue streams built around their own IP. Many of these “gray market” transactions occur on blatantly shady websites you shouldn’t even trust with your throw-away, only-use-it-for-random-sign-ups email addresses, much less your personal credit card information. Yet, not only do these sites exist … many thrive on a demand for the unique service they provide.

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Current Secondary Market Issues:

For the gamer, secondary markets may represent a crucial time-saver (we’ll avoid wading into the pay-to-win debate for now… more to follow on that topic in the coming weeks), or a chance to obtain rare or limited edition items from a prior season or collection. Often, to obtain these items via the secondary market, the gamer bravely risks losing their money in a risky upfront, “no-refunds” transaction.

How many gamers have lost money with these shady transactions or a sketchy loot farm? Or worse, lost all of their inventory after sending login credentials for a raid or account boost, only to have a shady provider pillage their account. Many will face the ultimate frustration: experiencing the dreaded account freeze/termination when the publisher identifies a violation of its terms of service.

For the developer, the risk is equally high. At a basic level, they’re missing out on massive revenue potential — having built the game and items within it, but never seeing any revenue as these items get resold on the secondary market. They’re also missing out on the opportunity to engage with their gamers on a deeper level, allowing them to buy/sell coveted items with each other or using the secondary market to learn which items are valuable to their players. Additionally, these unsanctioned transactions can create an unfair advantage over those gamers who don’t participate in this market — disrupting the delicate gameplay the developer has worked so hard to create. Rather than seeing secondary markets as a threat, what if the developer could understand the data associated with these transactions and use it to inform future game design and development?

The brand and regulatory risk of these secondary markets also impacts the developer whether they sanction the transactions or not. If a young gamer has all his items stolen during a shady account boost, it negatively affects that gamer’s relationship to the game and their overall experience with the title/developer. For all of these reasons, it’s no wonder publishers have strict rules prohibiting secondary market trading.

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Now, some of you anti-establishment, stick-it-to-the-man enthusiasts might be saying “the greedy publisher has no right to the money in secondary market transactions.” Yet, don’t all of us play games because we’re excited about the world the developer creates? (And yes, the publisher helps fund and create this world too)

Here’s an easy AAA example: we played Assassin’s Creed Odyssey because we loved Origins. We paid $60 to purchase the game, and that helped ensure investment in the next Assassin’s title. Shouldn’t the same paradigm exist for free-to-play games with in-game items too? Or… maybe a better example: the entire indie game market is built on passionate fans who demonstrate zealot-like loyalty to small shops that make kick-ass games. Ask any indie gamer what titles they’re currently playing and you’ll see the smile and pride on their face as they name not only their favorite title, but also the developer who made it. At their core, gamers are fans and they want to support a developer who makes great games.

We envision a world that offers a win-win solution for both gamers and developers. A world where gamers can support their favorite games through both primary and secondary market transactions, and a world where developers have incentive to embrace the secondary market and foster the trading of their items between gamers. This removes the need for “gray” secondary markets and increases the security of their games while instilling greater confidence in the long-term success of their business.

Click HERE for part 3 where we explore solutions to these challenges and the gaming world as we’d love to see it!

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Raleigh Harbour is CEO of Contact Systems in Manhattan Beach, CA.

Raleigh has +15 years of startup experience in gaming, SaaS software, online media, digital advertising, and ecommerce. In 2012, he advised a game streaming company called GxStream and has had a passion for the industry ever since. He’s currently playing Call of Duty Modern Warfare, Gears 5, Pokeworld, and taking turns on Agar.io and Angry Birds with his 6-year old son.

Learn more about Contact Systems at ContactSystems.io