Second Life’s Conflicted & Challenged Economy


It’s obvious Second Life’s  economy is both conflicted and challenged.  A quick review of Second Life (SL) history and Group Tools reveals the Linden Labs (LL) founders had an egalitarian, quasi-socialist vision for the SL economy.

SL would be a pastoral wonderland of equality, governed by the benign royalty of the Lindens.  The Lindens would provide this “nirvana” of creativity and “commerce” in exchange for “token” tribute, paid in the form of premium memberships and tier.

What happened next was a classic example of free market economics run a muck.  The virtual pimps, sex peddlers, gambling interests, hustlers and crooks moved in and began making/taking money out of the system as fast as it came in.

Linden Labs laissez-faire attitude towards these commercial uses of the platform, along with ZERO zoning regulations, generated rapid short term growth, but sowed the seeds for many of the problems faced by the SL economy today.  Many of those making profits during the SL boom had little/no concern for the long-term stability of the economy, virtual quality of life or the welfare of SL’s citizens.

Without the vigorish profits associated with gambling and faced with a rapidly deteriorating real estate economy, the  glut of freebie products that stifle legitimate sales and the burden of unprofitable (free) accounts, LL faces serious fiscal challenges.  Add to these economic challenges the overall instability of the platform and the capricious behavior of LL regarding land pricing and it makes SL a tough sell for business.

It’s widely believed there are people in SL who have made money in virtual Real Estate.  How many actually did or continue to make money is a matter of pure conjecture.  Like so many other aspects of SL, there is no solid data from which to draw informed conclusions.  The most thorough and some say daming analysis of Second Life’s economy, titled “Second Life: Revolutionary Virtual Market or Ponzi Scheme?,” was written almost two years ago, when hype surrounding SL’s use as a business platform was nearing its peak.

wrote in “the Coming Second Life Business Cycle,” “If Linden’s goal is to create a setting for a stable, growing economy that will provide the most satisfaction to the most residents, it must avoid the pitfalls of interventionism that plague real-world economies.”

Real business people, as opposed to hobbyists, who want/need to generate a true Return On Investment (ROI), will NOT look at SL as a serious business platform, until it offers the following:

  1. A truly “Free-market” economy with L$ tied to negotiable assets and free from artificial manipulation by LL.
  2. Timely and accurate statistical data on all facets of the economy, including land holdings & sales, transaction volumes, etc.
  3. A system of positive identification and fraud prevention, similar to eBay/PayPal, for all those who wish to sell goods or services within SL.  This must be coupled to a procedural mechanism that allows LL to freeze and/or force the forfeiture of monies associated with illegal activities, including content (IP) theft.
  4. A “business-class” infrastructure that provides a stable and reliable platform for conducting business.

Without these elements in place, SL’s future will likely mirror the demise of AOL.  A community filled with a steadily dwindling number of users who have difficulty “letting go,” despite having better options elsewhere.  The rest of us will take our quest for a Virtual World that can be used as a platform for REAL business plans elsewhere.


3 Responses to “Second Life’s Conflicted & Challenged Economy”

  1. Good perspective, but still an opinion of what will be useful to the growth of SL. I think that a lively and interactive population will draw businesses into SL who want to connect with a literate population that makes their online time as vital as their real life time.

    The population is STILL growing and the time online per user is still increasing – that’s a far cry from the doom and gloom you suggest.

  2. Terry Toland Says:

    I think another factor to consider is that SL isn’t just for businesses or organizations, but is a social platform. But this is a business piece, so I’ll leave it at that.

    ‘Literate population’ is also questionable, considering many people create an account for cyber sex or pure ‘gaming’.

    If LL wants to be taken seriously, it really needs to evaluate it’s communication methods and stabilize the actual program. Once they have a solid cornerstone, then they can start adding things and investigating new issues.

  3. “…virtual quality of life…” should be “…quality of virtual life…” since the quality of the virtual life is real, whether bad or good.

    “illegal activities, including content (IP) theft” needs clarifying, do you mean the copying of an object and selling it as one’s own work or taking the idea and making a better/faster/more-reliable implementation of your own and selling it. If you’re looking for patents in SL you’re opening an already open can of worms even further. Is an SL object a virtual ‘physical’ thing or entirely software (which is always virtual even in RL) or a mix (assuming it contains a script). You’ll be fighting in virtual courts for a century and still not resolve that one, imho.

    A good article nonetheless!

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