The Death of a Virtual Currency
Tuesday, December 19, 2006
By Alexandra Berzon
http://www.redherring.com/Article.aspx?a=20351&hed=The+Death+of+a+Virtual+Currency§or=Industries&subsector=InternetAndServices
May we all mourn the loss of the “Peerbux.” The online currency has gone the way of the Franc and the Deutsche Mark. And apparently it’s outlived its usefulness for goods-swapping site Peerflix, which has transferred its DVD exchange to cold hard cash.
The move occurs in an era when online players of the virtual reality game Second Life make dubious claims that their “Linden Dollar” real estate is worth a million real U.S. dollars, virtual inflation in multiplayer video games is skyrocketing and Yahoo Answers answerers work diligently to rack up points that are worth exactly nothing in the real world economy.
Economists have perhaps had a fun time coming up with theories on the “virtual economies” that have emerged online and in video games. But, as the recent demise of Peerbux shows, creating a new economy is not so easy.
With 250,000 members, Peerflix launched a year ago as a sort-of Netflix-eBay hybrid. Members make a list of DVDs that they own and a list of DVDs that they want to own. With 37,000 titles in the network, the recently patented system automatically matches buyers and sellers. Members swap movies using printable, pre-post marked envelopes.
While U.S. dollars emerged in the 18th century to correlate with the price for gold, Peerbux were tied to something a bit more relatable to the average consumer, but also a bit more limited in value– DVDs. Peerflix assigned a Peerbux amount to each DVD a member wanted to trade, based on how old the movie was. Members could trade for other movies on their wish list according to the number of Peerbux they accrued.
But, say Peerflix executives, that system could be confusing.
“It was just another hurdle for people to understand when they sign up,” said Barnaby Dorfman, vice president of products. “People understand cash. It's just something we all deal with in our day-to-day lives.”
Another problem was that the Peerbux economy was too small. At some point, Peerflix may expand their marketplace to include other easily swapped goods. But for now, it’s a DVD-only universe. And in the real world, people want to exchange one type of good for another, or at least for the ability to buy another in the future. “People who wanted to get rid of a large DVD collection weren't able to pursue that profit motive,” said Mr. Dorfman. “They didn't have a way of cashing out.”
Under the new system, announced Monday, Peerflix assigns each DVD a U.S. dollar value based on both the retail price of the movie and supply and demand within the network. Members can use the money they earn shipping DVDs either to buy DVDs from other members, or they can have money electronically transferred into their bank accounts.
Mr. Dorfman expects that to bring in a lot of new members who perhaps don’t want more DVDs, but just want to get rid of all those plastic boxes that are beginning to take over the living room.
“Six billion DVDs have been sold in the United States, and most of those are just sitting around in people's shelves,” said Mr. Dorfman.
Now those DVDs can be exchanged for something pretty much everyone wants: dollars.