The phony economics of Second Life

What the business press didn't tell you

Second Life also claims it has not just a passive population, but an active community of entrepeneurs.

To become an entrepreneur in Second Life - to fulfil the business press's predictions for the virtual economy - a user needs a premium account. These start at $9.95 a month. They grant the user a plot of virtual land and the permanent presence necessary to start an "in world" business.

Unsurprisingly, with the level of traction so low, Linden Lab says it expects to gain most of its revenue, around 70 per cent, from virtual land sales and maintenance fees.

Some real estate developers like the Graefs, Second Life's first virtual "millionaires", have brought large amounts of virtual land to parcel up and sell on. And many of the existing businesses in Second Life sell things like scripts and 3D textures that are essential to newcomers looking to start a business there. All rely on a supply of new users entering Second Life, not as tourists but as budding entrepreneurs. And these new entrants are expected to ignore the role of scarcity as the source of value. They have to defy Mark Twain's advice and buy "land" while Linden Lab is still making it.

The latest figures show that there are less than 50,000 of these premium accounts. So, only a fifth of Second Life's returning users have a premium account that lets them fully participate in its economy. With around 15,000 concurrent logins, it is possible to speculate that there may be as few as 3,000 paying customers online at any one time (although this figure would rise if they logged on more frequently and for longer than those with free accounts).

Linden Lab itself estimates the number of "in world business owners" by counting those with a positive monthly cashflow. There were over 21,000 of these last month. For more than 11,000 of them, however, their positive cashflow came to less than US$10. And this is before Linden Lab's charges were applied to their account.

So, from the three million residents who, we are told, are living the dream of a virtual economy, we arrive at a figure of around 3,000 economically active users at any one time - most of whom are turning over only a token sum.

This is a far cry from the predictions of the business journalists.

"Residents spend...a total of nearly 23,000 hours a day creating things," raved Business Week's Hof. "It would take a paid 4,100-person software team to do all that, says Linden Lab... Think of it: the company charges customers anywhere from $6 to thousands of dollars a month for the privilege of doing most of the work... In other words, your next cubicle could well be inside a virtual world."

There's no there, there

We can only speculate on why business journalists have inflated Second Life's importance. Perhaps it fulfills their predictions that commerce will become "weightless" and move beyond government control. Or, it's simply a great place to have a mid-life crisis - certainly a safer one than the saddle of a Harley or the au pair's bed. But what is not in doubt is that they haven't let the facts poop their party.

But, what of those ordinary users drawn to Second Life by the promise of a new economy where new millionaires will be created? They are expected to invest real money and then conduct their "in world" transactions in Linden Dollars.

Linden Lab also has been careless with enforcing property rights, the foundation of a typical capitalist economy, as entrepreneurs have seen their work cloned within seconds. Jennifer Granick, of the Stanford Law School, has written that Second Life users' rights are unenforceable without the expense of a federal lawsuit.

Finally, after the US's recent crackdown on internet gambling, in a Linden Lab statement on the legality of Second Life's many casinos, the status of Linden Dollars was at last explained:

"Linden Dollars are not money, they are neither funds nor credit for funds. Linden Dollars represent a limited license right to use a feature of the simulated environment. Linden Lab does not offer any right of redemption for any sum of money, or any other guarantee of monetary value, for Linden Dollars."

Second Life's "virtual economy" with "real money" has yet to be visited by the Feds. If it is, then Linden Lab will reserve the right to say that Second Life is only a game. ®

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