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technological sophistication among the general populace (very high levels of penetra-
tion of computers at work, school and home, and over 55% of the population accessing
the Internet from home), only around 38% of U.S. Internet users say they purchase
products from the Net fairly or very often, and 55% buy occasionally. Fundamental
changes, both in the way Chinese banks operate, and the way the Chinese society views
consumerism and commercial activity need to be instituted over time to overcome these
major barriers. However, as China opens up to the outside world and becomes a more
integral part of the world community (evidenced by China™s entry and full membership
in WTO, 2008 Olympics in Beijing, and 2010 World Expo in Shanghai), changes will take
place, starting with the banking reforms, which in return will promote fundamental
cultural changes in the Chinese society.




Conclusions
While the infrastructural and cultural impediments identified above will get resolved over
time, Chinese business establishments and their professional groups can play a signifi-


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284 Efendioglu & Yip


cant role in providing interim solutions and services that address the infrastructure
issues and help society in its efforts to become a truly consumer society, within which
many different business models can develop and flourish, including e-commerce. One of
these approaches is to utilize a combination (virtual storefront and physical distribution
center) business model that can address many of the issues we have identified and may
be the only way for businesses to participate in e-commerce in China in the short run.
Chinese companies are socio-economic entities and not just pure economic ones and
there is a strong individual relationship and long-term association between the parties
(buyer and the seller), which provides a sense of community and enhances social
bonding. Since most of the business is conducted through small enterprises and is local,
the success of doing business in China depends heavily on the quality and sometimes
the quantity (number of customers that have this special relationship with the business
owner) of personal relationships. These local, smaller enterprises can use a system that
is similar to the franchising system in the U.S. to exploit this characteristic in their efforts
to transition to large-scale, e-commerce systems. Businesses that sell similar products
can form alliances with businesses in other cities and towns, even establishing loosely
aligned franchises, and utilize the services of existing Internet Service Providers (ISP),
acting as intermediaries, to develop national electronic storefronts with local distribution
systems. Through these alliances, they can provide credit (issue local or alliance-wide
credit cards) or continue to provide “cash-and-carry” services to the consumers who
prefer to pay cash (aversive to debt), overcome the local distribution problems (by
transferring products among themselves) and surmount customer concerns related to the
“touch-and-feel” issues (counterfeit and below par products, problems with product
returns, online merchants are not trustworthy, and Internet is not secure). These newly
formed e-commerce businesses can overcome some of these customer concerns by
forming organizations that encourage, validate, and publicize establishments that have
instituted product policies that condemn piracy and counterfeiting, and distribute
quality products. Furthermore, these businesses can and should develop more consumer
favorable return policies and extensively publicize their policies and efforts. These types
of practices will give them additional competitive advantages while appealing to another
cultural characteristic of the Chinese people, “moral obligation to return a favor.” Chinese
customers feel bad and think they have a “moral obligation” to buy again from the same
merchant to make up for the “loss of face” on both sides, caused by the rejected purchase.
These same recommendations apply to foreign firms, which are even at a greater cultural
disadvantage, as they try to conduct domestic business. Foreign firms that want to
participate in e-commerce in China will have to find ways to overcome the cultural barriers
and will have to utilize similar approaches by creating a local presence (through
associations with local vendors) and use the “guanxi” developed by these local
businesses. However, they do have some competitive advantages, such as brand
recognition and e-commerce infrastructure (web servers, computer-based transaction
systems, and telecommunication infrastructure) which they can exploit and use to
support local businesses.




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permission of Idea Group Inc. is prohibited.
Technology and Culture 285


References
Business Software Association: Most US Internet Users have bought online. (2002).
Retrieved November 25, 2002 from the World Wide Web: http://www.nua.com.
China mulls E-Commerce. (1999, March). Retrieved November 2, 2002 from the World
Wide Web: http://asia.internet.com/asia-news/print/0,,161_646921,00.html.
China™s Home Web Use Soars. (2002, April 23). BBC News. Retrieved November 2, 2002
from the World Wide Web: http://news.bbc.co.uk/1/hi/world/asia-pacific/
1945275.stm accessed on 11/2/2002.
Consumer E-Commerce in China (2000). BDA (China) Limited. Retrieved September 16,
2002 from the World Wide Web: http://www.bdaconnect.com.
Davies, H. and Lsung, H. (1995). The Benefits of Guanxi: The Value of Relationships.
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Internet Users in Shenzhen. (2002, October 8). Shenzhen Economics Daily, 1.
Semiannual Survey Report on the Development of China™s Internet (1997-2002). (2002).
China Internet Network Information Center. Retrieved September 11, 2002 from
the World Wide Web: http://www.cnnic.net.ch/develst/2002-7e/5.shtml.
StatMarket: China has the second largest online population. Retrieved August 30,
2002 from the World Wide Web: http://www.nua.com.
Travica, B. (2002). Diffusion of electronic commerce in developing countries: The case
of Costa Rica. Journal of Global Information Technology Management, 5(1), 4-
24.
Wolcott, P., Press, L., McHenry, W., Goodman, S. E. & Foster, W. (2001). A framework
for assessing the global diffusion of the Internet. Journal of the Association for
Information Systems, 2(6).
Zwass, V. (1996). Electronic commerce: Structure and issues. International Journal of
Electronic Commerce, 1(1), 3-23.




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permission of Idea Group Inc. is prohibited.
286 Park




Chapter XV



Internet Economy of
the Online Game
Business in
South Korea:
The Case of
NCsoft™s Lineage
Kyonghwan Park
University of Kentucky, USA




Abstract
This chapter attempts to lay the groundwork for in-depth discussions on the economic,
social and cultural dimensions of the online game business as one of the most successful
forms of the contemporary digital contents industry using the Internet. As a form of the
digital economy, the online game has evolved both “through” and “within” the space
of the Internet. I suggest that the broadband Internet infrastructure and the construction
of the game users™ community in cyberspace constitute two necessary conditions for the
economic success of the online game business. Conceptualizing such a socio-cultural
economy of the Internet business as the economy of a “third space,” I argue that the
online game business contains emerging forms of new economic space not only in-
between the real space and the virtual space, but also between the production and the
consumption of those games produced.




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Internet Economy of the Online Game Business in South Korea 287


Introduction
The Internet is one of the most significant technological innovations that capitalism has
achieved, having a wide range of influences across different scales and scopes of
economic realms. Instead of focusing on the accumulation of conventional inputs such
as labor and capital, many contemporary macroeconomists along with economic histo-
rians have recently emphasized the significance of technological innovation in overall
economic growth (Romer, 1990; Grossman and Helpman, 1991; Aghion and Howitt, 1992;
Helpman, 1998). Some of these studies use a specific term called “general-purpose
technology” (GPT) to describe a drastic “enabling technology” involving “innovational
complementarities” (IC) that increases the productivity in a downstream sector (Bresnahan
and Trajtenberg, 1995; Helpman, 1998; Malecki, 2002). Distinct from incremental and
secondary technological innovations, GPTs such as printing, writing, electricity, factory
systems and automobiles are considered revivals of an historical technological tradition
instead of a total “discontinuous newness.” Malecki (2002), for example, argues that the
Internet generally reiterates past technological traditions, especially since the invention
of the telegraph, in terms of its strong initial ties with financial institutions, and invisible
commodities like financial tallies, a systematically networked economy, and private-
owned telecommunications networks.
In this vein, economic geographic studies on the Internet since the early 1990s have
contributed considerably to the understanding of recent telecommunications technolo-
gies within the context of specific geo-economic scales and the conventional physical
flows of capital, labor and goods. Pioneering works in urban and economic geography
devoted themselves to the significance of emerging telecommunications and their
impacts on the economic, social and spatial dimensions in postindustrial economies
(Moss, 1987; Langdale, 1989; Hepworth, 1990; Brunn and Leinbach, 1991). Recent
geographic studies are also interested in the multifarious interactions between the
spaces of networking flows and real urban places (Graham, 1994; Mitchell, 1995; Graham,
1997; Adams, 1998; Graham and Marvin, 1996; Graham and Marvin, 2001), the utopian and
dystopian visions of cyberspace as a public space and related cultural dimensions
(Rheingold, 1993; Shields, 1996; Adams, 1997; Kitchin, 1998; Crang M., Crang P. and May,
1999; Crang, 2000; Dodge and Kitchin, 2000), and the geopolitics of global Internet
diffusion, connection, and “digital divide” (Brunn and Cottle, 1997; Warf and Grimes,
1997; O™Lear, 1997; Warf, 2001). More recent geo-economic studies focus on diverse
constraints and possibilities of the Internet-based e-commerce and its geographic
dimensions (Leinbach and Brunn, 2001; Zook, 2000, 2002). Instead of arguing for the end
of geography by technological space-time convergence to create a “space of flows”
(Castells, 1996), many of the above studies have implied that e-commerce is not bringing
about the destruction of economic regions and places, but is providing the impetus to
reorganize and differentiate the economic space in which business operates.
Theorizing the Internet as a GPT is a useful framework to elucidate its “complementary”
role in commerce and telecommunication sectors, and its “general-purpose” diffusion in
social and cultural spheres. At the same time, however, the framework has an overall
danger in downplaying the significant “discontinuity” of the emerging Internet economy,
an economy that not only appropriates the Internet for complementary telecommunica-



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288 Park


tion infrastructure, but also takes the Internet “network” itself as a core, as an alternative
economic resource, and a social space of economic activities (i.e., Liebowitz, 2002;
McKeown, 2002). Especially is this observation apparent in the realm of the digital
contents industry, with its low barrier to market entry and differentials in transaction
costs that form the complex geographies of cyberspace (Kenney and Curry, 2001). Within
this context, this chapter attempts to lay the groundwork for in-depth discussions on the
economic, social and cultural dimensions of the online game business as one of the most
successful forms of the contemporary digital contents industry using the Internet. The
central queries in this chapter are: “what are the salient characteristics of the online game
business as a form of digital economy?”, “why has it been one of the most consistently
profitable and stable forms of dot.com business?”, “what factors are significant in the
success and growth of the online game business?”, and finally “how is the operation of
the online game business associated with game users™ social and cultural spheres?”
Entangled with other forms of the digital economy, answering these questions requires
us to examine scrupulously the cultural economy of contemporary Internet businesses
and its societal implications.
This chapter begins by examining some of unique characteristics of the online game
business as one of the most exemplary forms of the Internet contents industry. The online
game business not only utilizes the digital space of the Internet to make stable profits,
but also creates social spatiality through technology-intensive visualization and
rhizomatic connections of the game users. It is a frontier form of the digital economy
evolving both “through” and “within” the space of the Internet. I suggest that the
broadband Internet infrastructure and the construction of the cyber game community
constitute two necessary conditions for the economic success of the online game
business (and possibly other forms of the Internet business). Especially, drawing on Jean
Baudrillard™s (1983; 1988; 1998) critical discussion on simulacrum and simulation, I will
illuminate the ways in which the simulated hyper-reality of the online game produces
certain “spatiality” in the online game, evokes a sense of community among game players,
and consequently generates a “third” socioeconomic space in-between (or overarching)
the real and the virtual. For an empirical analysis, I specifically investigate the case of
the South Korean online game company NCsoft™s Lineage: the bloodpledge. This game
had over 3.2 million registrations and 11 million accumulative registrations in 2002. The
latter figure accounts for almost one-fourth of the country™s total population. The
company generated 44.2 million U.S. dollars of net profit from game players in 20021, and
has opened operations in Taiwan, Hong Kong, Japan and the United States. The U.S.-
based investment bank JP Morgan upgraded the company™s shares in 2001, signaling it
as the most valuable stock in the South Korean high-tech stock market KOSDAQ (Korea
Securities Dealers Automated Quotation System) in 20012. Overall, NCsoft™s Lineage
would be an archetypal online game, featured by massive game players, transnational
scope of operation, and stable and high profitability.




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Internet Economy of the Online Game Business in South Korea 289


The Online Game Business as Digital
Economy
The term “online game” is usually distinguished from the network game and the Internet
game. The characteristics of online games, such as Ultima Online and Everquest in the
United States can be summarized as an infinity of game participants and exquisite
audiovisual technology for digital representation of real space and life. A network game
such as the Blizzard™s Starcraft lacks the former characteristic of an online game while
an Internet game such as the MSN™s Gaming Zone lacks the latter. The differences
between the Internet game and the online game are also significant: online games create
a simulated “cyber-world” through realistic representations of space, while Internet
games are related to simple cyber-games such as billiards, card games, car-racing,
checkers, etc.
The online game business, rapidly emerging in a digital economy, has become one of the
fascinating Internet contents businesses, including an Internet portal service, e-broad-
casting, e-education, e-business solution, and e-security. Because many online game
companies maintain their profit models based on “retail game package with online fee”
(i.e., Everquest and Ultima Online) or “free game package with online fee (i.e., Lineage),”
they have been quite successful in securing continuity and consistency in making profits
(Costikyan, 1998; 2000). The online game has actually evolved from the textual structure
like MUD (Multiple User Domains) to more elaborately represent graphic networks like
MUG (Multiple User Graphics) and currently, MMPOG (Massively Multiple Player
Online Game). Usually, MMPOG is played by 50,000 ˜ 200,000 multiple Internet users who
construct a virtual community in cyberspace through their access to the host computers
of the game company (Lee, 2001). It is different from a PC-based network game in which
usually 2˜20 players can play game at the same time, whereas the online game is played
by an infinite number of players in many different places (Lee, 2001). For this reason, most
of the online game players consider the cyberspace elements of the game not only as
virtual, but also as “real” society. Table 1 shows that the online game industry is generally
small, but growing faster than other types of games. Note that arcade and video games
still dominate the global game market.
More specifically, there are at least three significant features of the online game business.
First, as a form of the contents industry of Internet e-business, the success of the online
game heavily depends on users™ accessibility to a broadband Internet infrastructure,
including xDSLs and cable modems, for it simultaneously inter-connects 50,000 ˜ 150,000
game players who rhizomatically communicate large capacities of textual and audio-
visual data. Hence, the online game business is one of the most accurate, efficient and
inclusive measurements to evaluate the digital economy in association with the Internet
and telecommunication infrastructure. Furthermore, the online game technologically
depends on a meticulous graphic design, 3-D visualization, and a delicate user-network-
ing structure. It has stimulated a variety of innovations including artificial intelligence
techniques, image-processing software and hardware, and super-speed Internet infra-
structures.




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290 Park


Table 1. Global market of game businesses

1998 1999 2000 2001 2002
Market Growth Market Growth Market Growth Market Growth Market
(billion rate (billion rate (billion rate (billion rate (billion
dollars) (%) dollars) (%) dollars) (%) dollars) (%) dollars)
PC 5.0 14 6.7 34 9.3 39 13.9 49 20.7
Video 39.8 35 43.0 8 49.0 14 55.4 13 62.0
Arcade 60.5 21 75.6 25 98.2 30 129.0 31 170.0
Online 3.3 18 4.5 36 6.5 44 10.2 57 16.0
Total 1,086 25 1,298 19 1,630 26 2,085 28 2,687


Source: http://stat.nic.or.kr (Korean Network Information Center); http://www.gameinfinity.or.kr
(Korean Game Promotion Center); http://www.game.or.kr (Korean Entertainment System Industry
Association)




Second, as a form of a non-material, information-based business, the online game
business does not necessarily require the conventional processes of production,
storage, and distribution of material goods, all of which require physical facilities and
management systems. Thus, the profit model of the online game business is substantially
different from other forms of e-commerce, such as e-shopping, e-auction, and e-
bookstore, in which the conventional system of storage and distribution remains one of
the most influential factors in their profit models.
Third, an analysis of the online game business is crucial in understanding the contem-
porary cultural economy in the information age. Playing multiplayer online games not
only means it is a game, but it also implies that the game users socialize with other real
time players in the game™s virtual community. Online game users share similar socio-
cultural codes and bonds, and experience a sense of belonging. Therefore, an online game
company™s role is often not only to create machinic algorithms, rules, and plots for a
specific game, but to provide game users with a comfortable cyberspace in which they
can enjoy their social associations with one another. In this sense, an analysis of the
online game is instructive in investigating the cultural and economic implications of a
cyber-community, in which the conventional economic binarism of producer and con-
sumers is often blurred, contested and negotiated.




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Internet Economy of the Online Game Business in South Korea 291


The Conditions for the Success of the
Online Game Business

Broadband Internet Infrastructure

The first significant condition essential for the growth of the online game business is
being associated with the development of the broadband Internet infrastructure. The
Internet infrastructure is increasingly based on broadband networks that allow hundreds
of thousands of Internet users to log on the server at a time and to exchange large-sized
date files. While Internet games are played through executing small-sized files and
exchanging small data between players, online games usually depend on executing large-
sized (10˜200 MB) program files and exchanging large data files among real-time players.
Furthermore, the online game business requires intensive high-tech innovations for
image processing and server management. For this reason, while playing an online game,
a large quantity of data flows simultaneously among players, i.e., texts, images, 3D-
graphics, sounds, and video clips. Further, not only is broadband a prerequisite for the
success of multiplayer online games, but the online game industry itself promotes a
greater market demand of broadband.
The U.S. Federal Communications Commission (FCC) defines the term “broadband” as
a new generation of high-speed transmission services, which allows users to access the
Internet and Internet-related services at significantly higher speeds than dial-up modems
(narrowband). The FCC uses the term “advanced telecommunications capability” to
describe services and facilities with upstream (customer-to-provider) and downstream
(provider-to-customer) transmission speeds exceeding 200 kbps (FCC, 2000). Many
professionals use the term “broadband” to describe any of various high speed, always-
on Internet connections, including xDSL (x-Digital Subscriber Line), HFC (Hybrid Fiber
Coaxial), FTTH/O (Fiber To The Home/Office), PAN (Power Area Network), PLC (Power
Line Communication), and B-WILL (Broadband Wireless Local Loop) (Yun et al., 2001).
Generally speaking, high-speed broadband refers to a high-capacity, two-way link
between an end-user and an access network supplier capable of supporting real-time data
rates in megabits per second (Broadband Task Force of Canada, 2002; Adamson, 2003).
Today, successful deployment of broadband Internet connections has become one of
the most urgent and significant components in the development of an “information
society” for many countries (U.S. Department of Commerce, 2002; Belson and Richtel,
2003). Many contemporary electronic applications require broadband to work “prop-
erly.” Figure 1 from the Broadband Task Force of Canada (2002) shows the minimum and
ideal speeds necessary for some of the more popular applications. The minimum
bandwidth for tele-working, video-conferencing, and tele-medicine is above 100 kilobits
per second, an almost impossible data-transfer speed for conventional modem users.
Furthermore, such applications as movies-on-demand and digital TV require 1,000
kilobits per second for the minimum requirement and 7,000 kilobits per second for getting
“suitable operation.” Beyond exchanging e-mail, documents and reading e-newspapers,
contemporary Internet content providers increasingly deliver a variety of forms of



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292 Park


Figure 1. Bandwidth requirements for selected applications




Reprinted from the National Broadband Task Force of Canada (2002).




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