Gaia Online and how management destroyed a virtual economy and caused the downfall of the site aka GAIA ONLINE AND THE TALE OF GOLDEMORT
Gaia Online is an avatar forum-based website founded in 2003. The site was most known for roleplaying and anime fandom, but other subjects could be discussed in the forums as well. You can use virtual currency (gold) to buy clothes for your avatar. There are in-game stores, and a user marketplace. The site does events where users play minigames or post in forums to earn event-exclusive items. Early on, the only items you could buy for real cash were Monthly Collectibles, two exclusive items released once a month and were promised to never be rereleased in large numbers again. (though a handful could be given away as prizes for events and such) In 2007 the Cash Shop was introduced. The Cash Shop featured more items that users could buy for cash and was updated about once a week. This bothered a lot of users, who feared the site was getting too money-hungry, but most people understood that the site cost money to run, even if getting that once a week cash shop announcement was super annoying. (boy, we didn't know what we were in for) Cash Shop updates became more frequent, users continued to express concerns but generally tolerated it.
So about the virtual currency: Gaia Online understood the importance of the virtual economy and did its best to keep it viable. They would try to avoid having features reward too much gold, since that would devalue the gold and cause inflation. They had features (such as the shops and a marketplace tax) to get gold out of circulation and prevent inflation. They would have the occasional misstep but they were otherwise pretty good. And they always promised that they would NEVER allow users to buy gold with cash, since that would not only cause inflation but also give cash-paying users too much of an advantage and making the site feel pay-to-play.
In 2013, the site got a new COO and CEO. They not only amped up Cash Shop releases, they released the dreaded Gold Generators. For 99 cents, users could buy one and receive a random amount of gold. You're probably thinking that these would use the usual gambling mechanics, where you only had a small chance of getting a significant amount of gold. Nope. These items would always give out a very high (at the time) amount of gold, for a small cash price. It didn't just cause inflation, it caused hyperinflation. Within a few days, prices on the user marketplace doubled. Users got upset and wanted the gold generator gone forever. The inflation was really bad, but things could still be salvaged if they didn't do it again. But they kept releasing gold generators, and each time, they had to up the amount of gold that was rewarded to keep up with inflation, so things got worse and worse. In a few years, items that were once sold for thousands of gold were being sold for billions. Yes, with a b!
Users made a HUGE fuss about it, complaining constantly in the Site Feedback and Petitions forums. A few months in, the site released one of those "we understand your concerns but we'll keep releasing these anyway" announcements. Gold generators continued, much to the dismay of the userbase. Users did some digging on the COO (who they lovingly nicknamed Goldemort) and found that he had done a business presentation on gamification, using the gold generators as an example, compared people to lab rats, and straight up talked about
how to get people addicted (
archived here). Yikes. "Dopamine, Baby!" became a meme among the userbase.
In December 2016, the CEO and COO left and the original creator of the site returned in his position. He got rid of gold generators right away, promising to fix the economy and make the site fun again... But the damage had already been done. The hyperinflation had driven away much of the userbase, not helped by the fact that forum sites had been waning in popularity. Previous management had pretty much drained the site funds before he left, leaving nothing to keep the site running, so Cash Shop production amped up, with new items being released daily. They attempted some external projects (such as games) to try and reach new audiences and make more money, but after their long-planned, expensive, 18+ Tumblr knockoff failed after a few months, they decided to focus on Gaia Online itself. But they still struggle to release new features and attract new users. Site is still going along, still has a userbase, but it's nowhere near as active as it once was and users fear more than ever that the death of the site is near. The site probably would have lost users even without the bad management (as I said, forum sites aren't as popular as they used to be) but he definitely sped things up.
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