We got an e-mail the other day from a certain Sara in Chicago. She had a question about the virtual world Second Life, but it could be asked of many pursuits, virtual and otherwise. (Even though I’ve never visited Second Life, I have been thinking about this issue lately since I have become a gold farmer for my own kids, on Webkinz — although frankly, they are better than me at earning KinzCash.)
I like Sara’s question because, on some dimensions, the answer/s may seem obvious; but as we all know, open-ended questions like this one often yield answers that aren’t obvious at all.
Here’s her question. What do you have to say?
I’m wondering what the economic benefit is for users of Second Life. Businesses and entrepreneurs who advertise or set up shop on Second Life have the economic goal of transferring that to real-life means. But what economic gain do users get from it? All I can figure out is that they spend a lot of real money for intangible things in a made-up world.
What am I missing?
From 1 to 25 of 42 Comments
I would ask the question back in the manor of what economic gain does a person receive by watching a movie / tv show?
I guess if you consider the personal pleasure gained by being entertained of economic value, then why not transpose this to an online fantasy life where the fantasy is its own entertainment?
— middlepatYep.
.lermit
— lermitFirstly it is a recreation activity it’s well established that people value that.
Secondly it is a type of outlet for fantasy that isn’t available in other places. I’m not merely talking about sexual fantasy, but the fantasy of being someone else or trying something new that you can’t do in your own life. In this case, in some sense, you actually ARE that other person, rather than just play acting.
This one is my own theory: it seems to me that people are capable of setting up or connecting with “a sociology” just about anywhere — that is, a social context into which they are invested. I played WoW (World of Warcraft) for a long time and saw the same thing over and over again: people _start_ playing because its shiny or they have a friend involved or they just want to try something new, but most people _keep_ playing because they have friends they don’t want to leave. Nearly everyone I knew well (30+ people) in-game kept playing way beyond losing interest in the game simply because they didn’t want to lose track of their new friends.
— ShaunYeah, it is a purely entertainment activity, with no economic rational. Like watching a movie, or reading a book, or going to a sporting match. I guess it would fall into the expense side of an economy, the output as it were.
After all an economy is a means to a goal. The goal is providing for needs (food etc) and wants (entertainment, ‘luxuries’ etc)
I suspect that if these goals could be met through other means, most people would be happy to let the economy die away.
— jhopWhat economic gains are derived from joining social groups? None until someone finds value in it.
As an example if a small group of people gathered every week to mingle, share their weekly activities with each other and that group slowly began to grow someone might begin to see the value in the collective power of information about these people. Or see the value of having a small and growing group of people in one location, perhaps the ability to sell them things (art, music, movies, books, food, drink, clothes etc.) Perhaps the mere desire of joining this group has become valuable (exclusivity, access to powerful or influential people, etc).
So the economic gain comes from offering people a social environment to gather (Second Life provides the gathering place and monetizes the customization of the environment). It is up to the members of the group to determine what items are valuable to them. Or simply put there is economic gain in something if someone finds value in it.
— allogeneThe previous comment about the economic value of entertainment is certainly right on the money here. There are many other similar activities that happen in the non-virtual world, but perhaps one of the easiest examples is that of a nightclub since there are so many parallels.
Patrons are willing to pay a cover charge, buy fashion items specifically for use at the club and overpay for other standard fare like food and drinks. Many of the same activities you’ll see in SecondLife (assumption from reading as I’ve yet to visit) are present outside it, underscoring that humans are humans no matter where you put them. At the end of the day, humans don’t always need an ‘economic’ reason to do something, particularly if the non-economic incentives (social, personal, etc.) are strong.
I think the more interesting question for virtual worlds is that of non-economic incentives. They offer fascinating case studies since the characters are human, but many of the non-economic incentives present in daily life are absent or dramatically changed in polarity and/or intensity.
These worlds offer a glimpse into what might happen in the non-virtual world if incentives were changed, although virtual worlds at this time are not quite at the level that would allow for relevant comparison at anything but the more basic levels of analysis, (although I would include monetary behavior due to the link to legal tender).
This may be a stretch, but imagine how much fascinating information could be gleaned from studies of behavior under altered incentives in a virtual world on par with “Matrix” of the movies, where users believe they are in a non-virtual world. One could conceivably study incentives on some of the most complex and large scale decisions, like crime and government.
— jklundeThere was an article in BusinessWeek that explored the economies of virtual worlds, namely Second Life, and they concluded that only a few people really make money in the game. The author likened it to a pyramid scheme. They also mentioned counterparty risk was extremely high in the virtual world. Actually getting money from the party you are dealing with is extremely difficult. More often than not, banks just disappear and you’re virtually powerless to do anything. So, as one of the comments suggested, it is more like a social networking site that people essentially pay for. You can read a little bit about it here: http://valleywag.com/tech/second-life/virtual-worlds-supposed-economy-is-a-pyramid-scheme-230813.php
— CrispusAttickusThey’re simply investing in a commodity that they don’t physically own. I suppose it would be similar investing in the commodity futures market. Of course, I’m not an investment specialist, so someone correct me if I’m wrong.
— prometheusMany employers (especially in the Interactive realm, although Bain is also following suit) conduct first-round interviews in Second Life!
knock the interview out of the park with your sweet avatar and you will be well on your way to an awesome new job… and more mullah (real $$, no KinzCash)…
Talk about first “impressions”…!
— razzmatazzIt’s entertainment folks. Since when did economic gain become involved in entertainment. You sped real life money for video games, there’s nothing tangible there, is there?
— vinodThere seems to be a misconception that Second Life is not REAL. That can be said of no world, virtual or physical, that has real people within it.
Splurging a bit in Second Life to impress your peer group is not much different than splurging in First Life; and there is real potential for transferring any elan gained back and forth between the lives.
If I were still single, I’m pretty sure I would have already lined up a few dates that way.
— jensfiedererWell, as some people spend a lot of their time on Second Life, I infer that there are benefits from doing so or they wouldn’t otherwise engage in the activity. Whether the benefits are economic in nature I’m not sure. But for sure the benefits gained must exceed the costs incurred or Second Life would be history…
— PanhaLet’s just say one life is sometimes not enough for all wishes & dreams
— Yahti (www.yahti.com)For real world companies that set up in Second Life it is a marketing oppportunity.
For politicians who enter Second Life it is a campaign opportunity.
For professors currently conducting lectures in Second Like it is an educational opportunity.
For people who just enjoy playing the game it is a form of entertainment.
Sunday Times Magazine actually had a video recently about foreigners (I think Malays) who do nothing but mine gold in Warcraft for Americans. So for some it is a pure business opportunity.
— CPolit’s a straight up barter- boredom in exchange for vicarious thrills
— frankendufI’ve commented frequently on Second Life on my own blog (http://lubetkinsotherblog.blogspot.com), particularly my concern about Linden Labs’ total control over SL inhabitants’ economic lives. They have the ability, according to their Terms of Service, to change the rules at any time. That means, like a sovereign government, Linden could arbitrarily change the exchange rates for Linden Dollars vs. US Dollars, and people who think they have lots of real money earned there might see it evaporate like tulip bulb fortunes in an earlier age. The woman in Hong Kong who claimed to have earned a real million dollars in Second Life probably hasn’t asked to withdraw it all at once…nor could she if she wanted to…
Treat SL like a game, and it won’t disappoint. Treat it like First Life, and it will.
— Steven L. LubetkinI haven´t read all comments because time is restricted, but is clear to me that as our society has big problens, which one of them is violence, other is prejudice, proud,and people is pushed to virtual interaction. Few people interact on the streets, and I´m saying this from brazil, where the high society is each time more caged into their own houses.
I won´t criticise second life users, but in my life phisical interaction is the way that brings me feelings, and I´m gonna to persist.
Vitor
— VitorI published a on my blog, The Strategy Fox (”The Hollow Echo of Second Life”), just yesterday that actually addresses at least a part of this question. Check it out: (http://www.thestrategyfox.com/2007/08/the-hollow-echo-of-second-life/)
I too write from a position of ignorance on the subject, but an interesting new article from the Columbia Journalism Review speaks about how Second Life has become a media feeding frenzy. In my opinion, it means that Second Life is a spectacle for spectacle’s sake.
Thus, the only reason most people are spending any time there, is to enjoy the spectacle. Does that mean it’s a place worth the kind of investments that advertisers are spending to develop a presence in the site? Perhaps. But perhaps not.
For the user, it seems to come down almost to be a matter of virtual people-watching.
-Mitch
— Mitchell FoxMany of the commentors to this point are not familiar with Second Life. I myself am not a user, but I have read up on this vs. other persistent world simulations.
Unlike other simulations (Warcraft and Webkinz among them), Second Life is just that — a fully functioning second reality, which real commerce takes place alongside recreation, social interaction, etc.
People have made thousands just buying and selling the virtual real estate in this online world. Prominent legal trade magazines run stories on lawyers (real, serious practitioners) who develop business online, etc.
If anything, I think the attraction to Second Life is different from other MMORPGs (Massively Multiplayer Online Role Playing Games). This is not meant to be simply entertainment, so the value proposition is far different.
— AlonThe interesting thing is even advertisers don’t seem to be making money on Second Life…
http://www.wired.com/techbiz/media/magazine/15-08/ff_sheep?currentPage=all
— LauraNew friends. The excitement of creating items, clothes, buildings, landscapes just by thinking them up. Old friends. The fun of becoming someone else entirely, or becoming more of a you than you were. Games. Partying you don’t have to (physically) dress up for. Sex. Activism. The wonder of being able to wander through someone else’s artwork.
In short, the same reasons anyone spends time on MySpace, Facebook, the local book club, your weekly poker game, or any other event where the actual activity is often secondary to the social benefits gained.
— C. A. BridgesI am constantly reminded of certain questions about the early http://WWW. Will it be used by the masses? Is it commercially viable? In time, all these questions were answered quite resoundingly pro-WWW. Now the same questions come up for VR like Secondlife.
The issues are palpable: too steep a learning curve; the technological demands are too high; there’s minimal commercial benefit. The list goes on. VR will never deliver content like the browser-based WWW, but will can the browser offer the rich interactive world of VR? No, but in the years to come, both technologies will ebb towards the center with the browser becoming more “rich” and VR becoming more ubiquitous.
The VR platforms of 2010 will be as different from their present-day counterparts as Firefox and IE7 are from the CERN/NCSA Mosaic browser, which is to say similar on the surface but miles apart under the hood. It mustn’t be forgotten that end-user VR is still in its infancy. With the advancement in technology, adoption will increase, as will the viability of VR as an economic platform.
— warren (theback40.com)Underlying Second Life is some form of recreation or pride of ownership. How different is it to have an island in Second Life thant to pay millions for paintings and sculpture. Once there is that underlying demand, for rare tulips for example, the possibility of speculation and using the items as a medium of exchange making it of interest to people not at all interested in the activity. An example of this is the roll that cigarettes played in prisoner of war camps.
Second Life creates the speculation possibilities and the medium of exchange to the nth degree. The company maintains an auction market for Linden dollars giving liquidity to holders of Linden dollars and a chance to speculate to buyers.
The possibilities of money laundering are rife.
Also the tax status of the transactions is up in the air. Superficially at least Linden dollars meet the defintion of functional currency in the Internal Revenue Code. On the other hand they do not meet the definition of collectible meaning, again in principle, could use your IRA money to invest in virtual real estate.
— Peter ReillyI am glad to know I am not the only one working as a second shift gold farmer for Webkinz. To quote my daughter- “Dad, earn me some money.” The worst is when you lose a game of Air Hockey to a robot and she starts complaining.
Second Life is lame/gimmicky in my experience. Maybe when there is real time voice conversation with everyone in earshot it will have something that makes it substantially different from any other virtual interaction. The whole “it’s not about anything” thing makes it eminently copyable/beatable by something even more open ended.
— matt mI blogged about this back in October 2004 (http://connectme.typepad.com/news/2004/10/news_from_web_2.html) …from the outside, you’re not going to understand the appeal nor the benefits, economic or otherwise. As people get older, they lack the amount of time investment required to get payback.
Young people invest time and energy into MySpace and Facebook, and they find their efforts pay off in spades. People who are, say, in their 30s and reasonably settled in their own lives are simply not going to be able to “plug in” and get going.
Another factor limiting generational appeal is that these environments are chock full of people who are in the same age cohort. I would be suspicious of an adult without kids, and not involved in youth marketing, who is enthusiastic about their day-to-day experiences with WebKinz.
In the real world, studies have shown people are not generally willing to travel more than 3 city blocks away from their hotel. This limits the opportunity to discover new places or experiences. While not an economic benefit per se, these virtual worlds redefine to what lengths people are willing to go to discover something new.
Perhaps taking the baton from the traditional shopping center, these virtual environments provide a terrific sampling environment, enabling brands to establish key aspects of their brand personas to young people who have not yet developed their own personal preferences. Many young people cruise the mall, not to earn cash, but to feel more worldly.
The cost of Second Life? $9.95.
The feeling that comes from feeling smarter about the world? Priceless.
You do the math.
— Brian Hayashi