Property Speculation

Although I have in theory bought my little patch of heaven outright (for the princely sum of L$3725 or about US$16), what I have in fact purchased is an indefinite leasehold. The landholding system in Second Life is effectively feudal – possession of land is dependent on keeping up payment of tribute to the feudal superior, in my case Linden Labs themselves. It’s true that my monthly membership fee covers the first 512 square metres, but the costs escalate as the amount of land held grows – a 65,536 square meter estate incurs a monthly charge of US$195. I have no idea how close this is to the cost of the hardware and electricity that is required to host that amount of virtual real estate, but I suspect L-Labs are making a healthy profit.

Instead of buying land myself I could have rented a plot from one of the so-called “Land Barons”. This can be rather more expensive than dealing directly with L-Labs, but has one big advantage; regulation. L-Labs impose practically no restrictions on what can be done with land; my neighbours are free to build big ugly buildings right next to my property, or, even more annoyingly, start up a popular business that would suck up all the server resources for the sector. Big landlords can enforce planning regulations, so tenants can feel secure that they won’t wake up one morning to find their quiet beach house overshadowed by a six-storey strip club.

Renting out premium land does seem to be a reliable way of making money, reliable by Second Life standards at least. A big attraction is the fact that it’s not very capital-intensive – US$1675 will buy you a whole island – which makes it easier to get into than real-life property investment. However it also means that you would need to look after an area the size of Antarctica to make any worthwhile return in absolute terms. The associated administration would be a full-time job, and a dull one at that. Not quite the escape from the rat race that Second Life promises.

How to make money on Second Life

It doesn’t surprise me that someone has figured out that the best way to make money out of Second Life is to sell people a book that promises to reveal how to make money on Second Life.

To be fair to the author, Daniel Terdiman, he is upfront about the fact that not many people are getting rich on the grid, but I’m sure his book will sell to a lot of hopeful entrepreneurs. And there’s a chapter on how to profit from a Second Life blog …

The thousand natural shocks

Here’s a picture of me at the Three Lions Pub, a popular virtual hostelry.

Apart from getting a new shirt and trousers I haven’t customised my avatar at all, so my appearance is exactly the same as about a million other guys wandering around the grid. I look nothing like this in real life of course – what would be the point in recreating my current less than perfect physique when I can revert to the svelte frame I last enjoyed 20 years ago? The pose reminds me of those days too – when I was a student I rented a flat across the road from a pub with a beer garden, and spent many a happy summer afternoon passed out on the tables.

Three points to note:

1. The Three Lions seems to be one of the better-known destinations in Second Life. I’ve read about in in several online guides, and I vaguely remember seeing it mentioned in a newspaper article a few months ago too. Despite this it was pretty much deserted when I was there on Friday afternoon. Maybe all the regulars were out at a real bar.
2. That pint of lager on the table is for decoration only. As far as I could tell there was no way to buy alcohol at this establishment, which must be bad for business in a pub. Obviously virtual intoxication isn’t as appealing a concept as the real thing, but even so it must be possible to write a script that would produce some comedy “drunk” effects, like staggering around, increased aggression and other avatars looking strangely attractive. I’d buy that for a dollar.
3. I am wearing no shoes. In keeping with the whole “recreate my youth” theme I’ve been trying to find some footwear that resembles Converse All-Stars, thus far without success, so I’m going around barefoot. This has no adverse effect on my feet at all, whatever type of terrain I traverse.

The last point is the most important, since it illustrates what I think is the fatal flaw in the Second Life economic system: the cost of living is essentially zero. Residents can exist indefinitely without eating, drinking, buying new clothes or paying for somewhere to sleep. All spending is discretionary. The whole layer of productive economic activity supplying the staples of life just doesn’t exist, and without it there is nothing to support the flimsy service economy that passes for commerce on the grid.

What is needed is some sort of tamagotchi-style feeding and nurturing system, where neglecting your avatar has negative consequences. Failing to spend enough money on food would lead to emaciation and eventual death, clothes would wear out and fall apart, and not buying or renting a place to live would get you busted for vagrancy. Avatars would get old and sick, and ultimately die.

Recreating real life to this extent might seem to undermine the whole point of Second Life, which is to get away from the frustrations of this mortal coil. I can’t help thinking though that a life without pain and misery wouldn’t be very interesting at all. Maybe that’s why I’m such a fun guy to be around.

More on the economy

Further to my last post, although the Second Life introductory pages claim that “thousands of residents are making part or all of their real life income from their Second Life Businesses”, their own statistics put this into perspective. In the month just past, out of 987,958 residents who logged in, 49,156 had a positive cashflow, but only 950 made more than US$1000, and a mere 157 took home over US$5000. 24,132 residents earned less than US$10, which I guess is part of their income, but about as big a part as the money they find down the back of the sofa.

There just isn’t enough big spending going on. The total transaction count for October might be an impressive 7,880,293, but 94% of those deals were worth less than US$2, or the price of a (cheap) cup of coffee. Only 101 trades topped US$2000, in an economy with nearly a million residents. That’s like a hundred used car sales being the most notable economic activity in a city the size of San Francisco.

I’m going on a bit about this, because I’m interested in the idea that it is possible to slip the chains of the dull everyday world and prosper purely through virtual activity. It has an almost religious quality to it. I’d like to meet some people who truly believe, to see what sets them apart from sceptics like myself, and to find out how they deal with the disappointments they must experience.

Working for the Linden Dollar

It may be a slightly unfair to describe Second Life as a community of people who are trying to make a living by the precarious business of buying each other’s fetish gear, but I’m struggling to see how anybody could hope to make any serious money from in-world commerce. At the current exchange rate (US$1 = L$250) a business would have to be taking in nearly L$300,000 a month to pay its owner the full-time minimum wage, and it would need an annual turnover of tens of millions of Linden dollars to match a professional salary. Fashion items seem to be retailing at anything between L$50 and L$500, so a store would have to sell a lot of shoes to turn a decent profit. It’s true that design and manufacturing costs are practically zero, and retail overheads are low, but that just means that there are effectively no barriers to getting into the market, ensuring plenty of competition and undermining prices. There are thousands of shops offering wares of various types, and every one I have visited so far has offered goods that are rarely distinctive and usually ugly, and has been completely deserted.

Despite this I regularly read stories in the popular media featuring people who claim to be making their livelihood by selling virtual clothes, or shoes, or jewellery, or something, in Second Life. I could just about believe that it was possible to make some money if you had a unique product that could command a premium price – music is probably the best example, possibly art, maybe quality branded clothing if you could deter counterfeiting – but not a decent living, and not by selling the cheap crap that fills most of the stores. I can only conclude that these tales are based on wishful thinking, or perhaps are fabricated with the intention of boosting the virtual land market.

Real-estate speculation might seem a more promising route to riches, but most land packages seems to be on offer for under L$1000 (about US$4), and no one is going to become a virtual Donald Trump doing nickel and dime deals like that. Anyway there is always the risk that your investment could be seriously diluted if Linden Labs decide to plug in a few new servers and create new tranches of land overnight.

So that just leaves the personal services industry, especially that mainstay of online commerce, adult-themed entertainment. There are more than a few strip clubs dotted around the grid, but the few I visited (strictly for research purposes of course) aren’t charging enough to make them lucrative enterprises, even if they can attract the punters, which, when I was there, they were failing to do. I can see a couple of possible flaws in the business model anyway. The level of detail in Second Life, while impressive, is a long way short of photo-realism, and in an industry where image quality is crucial, that makes it hard to compete with established media, let alone real-life venues. The possibilities for interaction and a personalised experience, and the anonymity, might make up for this a bit I guess. The really big problem though is that there are plenty of people around who are more than willing to give the product away for free, so I can’t see why anyone would feel the need to pay for it.

These are first impressions of course. Maybe I’m just too old-fashioned in my outlook, and I’m not really understanding the new paradigm of the Second Life economy. There might be some way to make good money on the grid that I’m overlooking. I’ll try to keep an open mind, but I won’t be quitting my day job any time soon.