FileBlog Archive

« Previous Entry | Next Entry »

A Second to Talk About Second Life

January 25, 2007

Throughout the last year, the virtual world Second Life has been all over the news -- the kind of media blitz that, to me at least, makes it look like the company is trying to get acquired. Howabout that huge spread in Wired? To date I haven't really blogged about Second Life all that much because a lot of the hype was empty. While over two million users have signed up to check it out, only around 25,000 log in every day, and Second Life creator Linden Labs estimates only around 10% of the users are regulars. That's a substantial community, but it's hardly the next big virtual frontier that we've been promised since we read Neuromancer and Snow Crash. Personally, I think Second Life is a little too awkward to use to crack the mainstream, and if you ever log on, it's too hard for a new player to find the good content. Download the Client from FilePlanet and see if you agree.

All that said, I really support what the guys at Linden Labs are doing. Second Life is a trailblazer! It's tackling issues here in 2007 that virtual worlds will be facing for the rest of the century. It's built a community from scratch, allowed its members to retain the rights to the content they create, and it's even developed its own economy. My hope is that Second Life spawns a number of imitators, each better than the last, until one day something 'clicks' and a single virtual world explodes onto the scene and achieves a critical mass of mainstream users.

So I felt I had to step in and say something about the latest not-so-flattering Second Life story circulating. Silicon Valley gossip site Valleywag posted a story comparing Second Life to a Pyramid Scheme, based on the experiences of economist Randolph Harrison, which triggered off a debate on Slashdot. It gets a little technical but Harrison's work is a fantastic read -- here's a number-crunching egghead really testing, tweaking, and pulling at the core of the Second Life economy. I have to take issue with his conclusions, however.

Making Money in a Virtual Economy

Harrison asserts that vast numbers of users can be 'duped' into spending cash into the game with the expectations of returns. (A quick Google brings up articles like this one, posted just this week in a mainstream news outlet). However, the cash isn't very liquid: Harrison claims it's hard to pull money out of the system in large amounts. He then concludes that a small number of major players in the world, who control the majority of the in-game currency, are the only ones who can see any returns -- that they all but control the value of the currency. He goes on to compare Second Life to a Pyramid scheme or Ponzi scheme, where only the people at the top see any real returns.

It's a fun read, but a little divorced from the reality of Second Life. Despite the media hype, this virtual world is still a relatively small community. The exchange rate between the Linden (the in-game currency) and the Dollar is pretty flexible -- anyone dumping a lot of cash into the system or pulling a lot out will destabilize it. Take Anshe Chung, the virtual real-estate tycoon who was featured on the cover of Businessweek. At the current exchange rate, she has enough virtual cash to be a millionaire if she sold it all for real-world Dollars. But she can't -- if she started dumping her holdings that fast, the value of the Linden would plummet. My point is that the exchange rate is real, but it's based on the supply and demand of a relatively small system. That system breaks down if you, say, throw tons of money into Second Life hoping to make huge returns. (If that's why you signed up, it sounds like you joined Second Life for all the wrong reasons.)

But the reality is that Second Life can support small businesses. A close friend of my brother's is an artist who runs a real-life tee-shirt printing business. She started making shirts in-game and discovered a couple of things: 1. Her artistic talent translated into the virtual world with just a little effort 2. Not many people in-game have the skills to create a shirt that looks good when wrapped around a model and 3. running a virtual shirt business is hella-easier than a real-world one. In the real-world she'd have to set up a screen press for limited shirt runs, guessing the colors that would sell well. If she was wrong, she was stuck with excess inventory. But in Second Life, she can custom-create shirts on demand in whatever color the player wants, and sell it for a premium. Cost of goods? Well, virtually zero -- it's all digital. It's a great business.

To wrap it all up: Second Life may not be the paradigm-shifting ubiquitous virtual world we all want. But it sure as hell isn't a pyramid scheme. What it is is one of the most interesting things going on on the 'net right now, a massive experiment giving gamers a taste of what's to come. Download the Client from FilePlanet if you want to check it out. Be patient -- it's hard to settle into the world when you start.

What do YOU think? Mail me!