This is an exploratory piece of writing, just trying to put together some ideas. There will be mistakes, dumb statements, etcetera.

Platforms and Monetization

The principle of platform control is an important discovery in the history of games, the internet, and business. Nintendo understood it intuitively and immediately; they made the hardware so they could control what software ended up on the NES, and demand whatever they wanted from developers. Even before Nintendo, Atari understood it. Game recognizes game, that’s why Atari pursued Nintendo so furiously.

The concept of a platform became ethereal with the internet. While the NES was a physical hardware-firmware platform, now ROBLOX is a platform. Fortnite is a platform. Twitter is a platform. Steam is a platform.

Fees are a powerful form of exploitation. They are invisible on the individual scale, but the systems that produce fees scale easily, and they require very little capital investment after the initial one. CS:GO cases ate Valve Software, because they’re too damn profitable. “Platform” really means “market.”

Collection of fees requires the ownership of a market or distribution channel. Markets are driven by their popularity, and they are perpetual motion machines: a popular market will only attract more people. So Steam becomes the de facto publishing monopoly. This relationship is symbiotic if game creators deem the fees to be reasonable, it is parasitic if Steam takes more than what it is “owed.” The dynamic is an invented one; really Steam is not owed anything beyond its server costs, and with CS:GO’s enduring popularity Valve could drop its developer fees to 0% and be fine.

But this is about consumer monetization, so we are dealing with a smaller concept of platforms. Take Fortnite as an example, and let’s strip away the bullshit about it being a Metaverse platform. It is a game with a shop attached to it. It becomes a market through the use of its proxy currency, V-Bucks. However, in Fortnite and any other proxy currency game, the supply of money is controlled by the market owners. Exchange rates and commodity prices are not set by market competition. Instead, all of the market dynamics (really, they’re very static) are synthetic, invented by Epic themselves and benefitting Epic.

Economics of Fortnite

The Value of Fortnite Skins

In earlier drafts, I made the mistake of assuming that the value of Fortnite skins was near zero. I looked at Fortnite skins subjectively, through how useful they would be to me. It is better to consider Fortnite’s economics from the perspective of the people who run it. We have to face the fact that Fortnite skins have a use-value; children and strange adults use them to indicate status.

It is tempting to say that the value of the skin is simply how much work was done to create a single copy. We could then extrapolate that every subsequent copy “divides” the value of the first, as if taking a piece of it. This is a mistake because it subjects digital commodities to the limitations of physical ones. A single “piece” of work can yield ridiculous amounts of surplus value.

So a high-level model of the profit/value yielded from a skin would look like:

(eq 1a)

{s}{\left({t}\right)}={\left({v}-{V}_{{{r}{e}{p}{r}{o}{d}{u}{c}{t}{i}{o}{n}}}\right)}\cdot{c}{\left({t}\right)}\approx{v}\cdot{c}{\left({t}\right)}

The value yielded at a given time is the unit-value (the value of e.g. one sale of one skin), v, minus the cost of copying the skin, times the number of copies sold at this specific time, c(t). It is analogous to the profit made from sales happening at time t. The cost of copying a file is nearly zero, and we know this is true because Fortnite lets you preview skins. It copies them for you for free, and you must pay for access. We can model the surplus value as an integral over s(t) from the time of the skin’s release, t0, to its permanent removal from the store, T. The two values being subtracted are the employee wages and the value of the equipment which is “used up” in the creation of the skin.

{S}={\int_{{{t}_{{0}}}}^{{T}}}{s}{\left({t}\right)}{\left.{d}{t}\right.}={v}{\int_{{{t}_{{0}}}}^{{T}}}{c}{\left({t}\right)}{\left.{d}{t}\right.}-{V}_{{{w}{a}{g}{e}{s}}}-{V}_{{{e}{q}{u}{i}{p}{m}{e}{n}{t}}}

c(t) is a function that is equal to 1 at time t if one skin is sold, 2 if two skins are sold, and so on. So:

{\int_{{{t}_{{0}}}}^{{T}}}{c}{\left({t}\right)}{\left.{d}{t}\right.}={\sum_{{{t}={t}_{{0}}}}^{{T}}}{c}{\left({t}\right)}

Finally:

{S}={v}{\sum_{{{t}={t}_{{0}}}}^{{T}}}{c}{\left({t}\right)}-{V}_{{{w}{a}{g}{e}{s}}}-{V}_{{{e}{q}{u}{i}{p}{m}{e}{n}{t}}}

Again, this assumes v is constant but adapting it for a changing unit-value is trivial. Fortnite has many, many players, so even a small amount of work (represented by its value v) is reproduced for ridiculous profits. If we assume the employee who made the skin is paid, for example, V_wages = 100v, the number of sales quickly dwarfs the wages. The constant capital input, V_equipment, also vanishes on the scale of many sales. Obviously, very little of the computer’s total productive power is used up in the creation of a skin. So, for a very popular or long-running skin:

eq(1b)

{S}\approx{v}{\sum_{{{t}={t}_{{0}}}}^{{T}}}{c}{\left({t}\right)}

It is fair to assume that practically every skin produces enough surplus to dwarf employee wages. The employee’s labour is multiplied to an incredible degree, offering a profit margin that physical production can only dream of.

This model is descriptive, not predictive. The conclusions is somewhat banal, but the process of getting there is helpful. The main take away here is that the costs drop out of the equations. At scale, platforms are practically money printers.

Limited-Time Offer

Fortnite’s shop works on a system of panic timers. The shop refreshes every day, and players do not know what comes next, what will stay, or what will leave. This incentivizes buying a skin immediately, with minimal thought. The 24-hour refresh model is meant to give kids enough time to bug their parents but not enough time to lose interest in the skin they want. Skins that are regularly rotated in and out will eventually model equation 2b. However, some skins are limited time only, and they will appreciate in perceived value after they are removed from circulation. Their status goes up.

As long as they are available through the game, these skins follow equation 1a. Once they are removed from sale, supply is fixed and the skins accrue a sort of interest. We now take the perspective of a player selling their account. Assume for simplicity that there is one skin on the account, and it has been out of circulation for some time.

{P}={v}\cdot{i}{\left({t}\right)}

Where P is the account’s price, and i(t) is a factor representing the interest. This interest would depend on the number sold, how old the skin is, and how popular it is. A more realistic expression of it would look like:

{P}={v}{\left({1}+\frac{{r}}{{n}}\right)}^{{{n}{t}}}

Which is just a normal compound interest equation with letters you may not be used to for the variables. I chose a compound interest expression here because, anecdotally, exceptionally rare skins explode in value. My experience is mainly with ROBLOX, CS:GO, and Diablo 2. The latter has an upper limit because D2 characters reset periodically. Diablo 2’s ladder has the biggest market for rare items.

My ROBLOX account was deemed valuable enough at some point to have its password guessed and all my items sold for ROBUX then exchanged for money.

Although the specifics are not filled in here, and individual skins or emotes are subject to fluctuations, practically all skins stay in circulation. The high status of these rare skins translates to high prices, a further incentive for players to buy skins in the game’s shop. CS:GO has much more infrastructure for rare skin trading, but Fortnite does have some limited grey-market circulation.

The Value of V-Bucks

So where does this leave Fortnite’s proxy currency? In the old days, producers would trade commodities for other commodities through barter. This is obviously inconvenient, because if the brewer does not want to buy my linen, I can’t get drunk. Money solves the problem by acting as a universal equivalent commodity; it is valuable to everyone because it is socially accepted that you can exchange money for any commodity, and both sides of the transaction know this. Thankfully, V-Bucks don’t function quite like money so a simpler analysis will serve us well.

We could treat V-Bucks more like Chuck-E-Cheese tokens than money, but that is myopic. It would lead us to say that V-Bucks have no real exchange rate, since converting V-Bucks back to money is impossible within the game. However, if you type “fortnite account” into eBay, you will find that V-Bucks and skins have a very real exchange rate. V-Bucks have an infinite supply, but almost all of the skin market is controlled by Epic so their purchasing power is also fairly constant. They are free from the dynamics of real money.

There are two forces pulling the exchange rate: Epic’s set prices and grey-market sellers undercutting one another. Epic’s prices are intended to obfuscate the value of V-Bucks; different quantities can be purchased at different prices.

Package	Full Price (CAD)	V-Bucks per Dollar
1000VB	$10.79	92.68
2800VB	$26.79	104.52
5000VB	$42.79	116.85
13500VB	$106.79	126.42

The variation is smaller than you might expect, but remember that these are per dollar amounts. If we take the best VB to $ value, the $10.79 pack would give 1364VB, a significant difference from the actual 1000VB. Skins are also valued arbitrarily. The only principle is that they are priced to be just above or below the amount of V-Bucks you can purchase at once. If the player only needs fifty more, they might buy more to get them over the line. If a player has fifty left over, it is easier to rationalize purchasing more so as to not “waste” them.

The several layers of arbitrary and nonsensical pricing do not give resellers firm ground to start from. They might multiply the number of items in their inventory by what they believe is the average VB cost of one of those items, then work out the dollar price from the VB price. If they have a sought-after skin they may price their account differently, but this will always be an estimate.

Further complicating matters, regular players who have lost interest in the game may sell their inventories below market value to make some quick money. However, in general, the market will tend to stabilize around the lowest viable pricing on a given marketplace. This depends on audience, fees, and competition. EBay may have higher prices because sellers believe they can filch children, while PlayerAuctions may have sales aimed at adults, with more reasonable prices.

Owning the Platform

The real money maker here is what equation 1b expresses. Specifically, the ability to multiply a given unit-value over many sales. That’s free money. Epic does it by creating all of the content its platform sells, and by controlling the currency you use to buy it, but it does not need to be so totalizing.

Nintendo’s model with the NES was a primitive example, because it still relied on physical goods, but it is still instructive. They owned the hardware platform, and they enforced a monopoly on the software. If you didn’t pay Nintendo, you would be thwarted by the lockout chip.

If you had the resources to buy in, you had to pay Nintendo to put your game on cartridges, and then buy the cartridges from them. They controlled every step of the process, and took a cut at every step. Games that failed were largely subsidized by the developers, games that succeeded made Nintendo boatloads of money.

Nintendo already had a process in place to make cartridges, and it was probably an efficient one relative to any cartridge bootleggers out there.

Online marketplaces are another huge money maker, that’s why Epic made its own. A fee structure is not quite like equation 1b, but let’s take on the perspective of Epic games again. They take, say 12% from every game sale. For a given game, represented by its exchange value v (potentially much larger than a Fortnite skin’s value), the value yielded at a given time is:

(eq 2a)

{s}{\left({t}\right)}={f}\cdot{v}\cdot{c}{\left({t}\right)}

Our fee is f. Again, we are ignoring the tiny cost of copying the game. f is a constant so, clearly:

(eq 2b)

{S}\approx{f}{v}{\sum_{{{t}={t}_{{0}}}}^{{T}}}{c}{\left({t}\right)}

This is the lifetime surplus produced by a game (for Epic). Since f is quite a bit less than 1, this blows up slowly compared to Fortnite skins. But keep in mind, Epic Games Store does not pay developers wages, it just hosts their games for them. This is practically free for a big company like Epic, so every bit of surplus extracted here is profit that Epic can use to promote its store and make exclusivity deals.

In a future thing I will to connect these dead equations to our experience using these marketplaces.

About Utility

The prevailing economic theory is that price is the same as value, and prices are set entirely by subjective demand i.e. how much I want a given object. Marginal utility may have some use as a theory of price, but it is not a theory of value. It abstracts away all work and production costs, to boil economy down to market dynamics and nothing else. It is no coincidence that this theory took hold in nations that outsourced all of their physical labour, because such a simplistic theory does not hold up if you have to deal with actual production.

Take a canonical example: eating a cake. I want to eat slices of cake, so it has some utility or benefit for me. In other words I have a demand for some cake. But the utility I get from eating slices of cake will decrease over time until I get sick. If our “unit” of consumption is a slice of cake, the marginal utility estimates how much better or worse I feel after eating this slice. My horizons are expanded by some amount for consuming some commodity.

Slices Eaten	Total Utility	Marginal Utility
1	10	10
2	19	9
3	27	8
4	31	4
5	31	0
6	27	-4
7	-23	-50

I puked after seven, that’s why the marginal utility is so low. This is a simplistic model, of course, but it exposes the fundamental flaw of any subjective theory of value. The cake is undergoing a magical transformation here: if we take marginal utility as a measure of value, the cake got less valuable as I ate more of it. Does the seventh slice contain fewer atoms than the fifth? Was it made with a different recipe? Did it take less work to produce? Of course not!

If we ignore this and take utility theory as given, then we are faced with another problem: utility and desire are not actually quantifiable. The nonsense-unit of utils is standard, although this unitlessness is not a problem in and of itself; utility deals with making choices and relative magnitudes serve well enough for that. The issue is that no one in the real world is working out the relative values of every possible choice. They are certainly not doing so rationally.

Any basic economics text will discuss decision-making pitfalls that almost everyone is subject to, essentially admitting that utility lacks predictive power. Firms also try to exploit consumers using techniques of advertising and design, which make rational choice even more difficult. Microeconomics is the study of what people should do, detached from their actual activity. Like psychology, it is a cage for humanity, an attempt to speciate all behaviour. Economics cannot accommodate the idea that individual behaviour is not really subject to cost-benefit analysis. What’s the marginal cost of pulling the plug on grandpa?

The popular idea that economic reasoning should be applied everywhere and at all times follows naturally from a vague, all-engulfing, subjective theory of value. Anything can be quantified and compared in utils, and since economic logic is rational everything should be reasoned on economically. The existential significance of a perfectly efficient economy is that there is no room for people in it. If economics, as it is understood today, were truly a set of natural laws, then this is the same as saying that emotions and personalities are aberrations, or inefficiencies. This is obvious at work–any personal shit you’re going through hurts the company’s bottom line–but it is true in consumption as well: the rational diner should only consider the nutritional information whether the protein comes from meat, soy, or insects.

It is easy to criticize consumerism on the individual side, because it is easy to sneer at gross fat people who scream at Walmart employees. But they are simply channeling the ideology of western democracy: consumption should be abundant, frictionless, and individuated. In English: people should consume as much as possible and be totally catered to so long as they can pay. Subjective value theories conflate goodness with consumption; an ascetic cannot be placed on the marginal value/slices of caked table, so they are invisible, a black hole in consumer society unable to forge an identity out of which Cinnamon Toast Crunch variation they like. This is very 1995 AdBusters, sorry.

Efficiency is blind and amoral. We optimize toward the production of capital, so we are building a world for capital, not people. Profit should not be an end in itself, that will “naturally” give rise to the societal structure we live in now where even the state’s power is dwarfed by corporate power, and all wealth is concentrated with a few people. We are trapped in a world that is not for us. We are baking the Earth because Shell has to perpetuate itself forever. Any quality of life increases due to our wealth creation were a side benefit, and can be revoked at any time. We could optimize for quality of life. It wouldn’t have to look that different–start scaling down extractive industries, slow rates of production, shorten working time. Pay overseas workers what they’re owed, instead of the smallest wage they will take.

If our goals are in any way tied to the continuation and ennoblement of human life, then capitalist production is full of inefficiencies. Most clothing that is returned to online retailers is destroyed. People could wear those, you could give them away for free. “Unskilled” workers (this is a misnomer. There is no unskilled labour as anyone who has smashed their thumb with a hammer knows) are now paid less than they need to renew themselves for their next shift. Perhaps the largest inefficiency is automakers and petrochemical firms’ plan to just keep going until everyone on Earth drowns or burns to death. Efficiency needs to be directed if we want to survive.

Whether economic laws are “natrual” or not is irrelevant: the purpose of society is to raise us above nature. We should be above the stupid animal struggles, or we should at least strive for that. A world of individuals competing for scarce resources is not a society, it’s an ecosystem. The natural state of things is what we have been fighting against for thousands of years, often with great success.

The experts say: don’t trust your eyes or your experience, trust this theory that contradicts material reality. But it’s bullshit. The fact that utility theory dresses itself up with some 1000-level calculus doesn’t change that. It has some power to describe pricing, but it is an all-embracing theory, too weak to have any criticism of pricing. Fortnite skins are priced the way they are because rubes will pay for them, and marginal utility says “yeah, isn’t that great.”

Utility theory’s “explanations” are tautological. It pats itself on the back for solving the water-diamond paradox, but this is only called a paradox because other backward theories of value fail to explain it. Water is cheaper than diamonds because it is cheaper to produce and normal people all intuit that it is good and necessary to give water freely. Diamonds are a luxury that takes massive amounts of work to mine, transport, and cut. Not to mention all the PR you have to do to make people think they’re ethically sourced.

A market in equilibrium leaves no unexploited opportunities for individuals but may not exploit all gains achievable through collective action.

-Ben Bernanke, chair of the Federal Reserve when the housing crisis happened, writing in his Principles of economics. Emphasis mine.