This article was originally published on Sept. 16, 2008, and is brought to you as part of our Best of ECT News series.
Social media may be hailed as the savior of sagging sales these days, but few have figured out what social media are, much less how to wield them. Even fewer realize that games are the first, and arguably the most viable and sustainable, social medium in the mix. Unlike newcomers MySpace, Facebook, LinkedIn and — gasp — even Twitter, the gaming communities are solid and stable, the camaraderie real and rooted deep, and the cash flow is, well, flowing.
“The in-world economy fueled by unprecedented levels of virtual content creation is what makes Second Life not just another chat room,” Robert Galland, owner of Galland Homes, told LinuxInsider. In the real world his first name is Rob, but he asked us to keep his last name private so his real-world boss won’t be clued in to his moonlighting. On Second Life, Rob sells prefab homes.
Millions of Linden dollars in Second Life, and WOW gold, silver and copper in “World of Warcraft,” change hands every month. Both worlds have official exchanges — and a smattering of third-party exchanges — that convert the currency into real world cash. It is the prevailing formula of success in social media as game creators, investors and participants can and do make money.
“Now that SL has gained some exposure as a valid source of income, there seems to be a bit of a paradigm shift. A lot of new content developers are entering the market with the sole purpose of turning a profit,” Jeremy Pippin; avatar name Luc Aubret, told LinuxInsider. Pippin owns aubreTEC Labs, a Second Life development and consulting company that retails “mostly scripted gadgets” and is best known for in-world weapons for MMO combat enthusiasts. The company also sells a variety of business and casual use tools, such as form survey systems, language translation solutions, and heads-up displays.
The Second Life economy was undeniably birthed by gamers, aka “residents,” sometimes on purpose but usually quite by accident.
“I was an SL resident, admittedly attracted to the concept of a virtual economy, but I did not realize my ability for creating,” explains Galland. His business began out of an interest in learning what Second Life had to offer. The exploration led him to experiment with creating virtual products for his own delight. “I taught myself to build a small house, which soon had an expansion. Friends were impressed and told me I should sell it,” he recounts. He did and then built another. “As a child I had wanted to build houses or be an architect. My real life career is really nothing like that,” says Galland. “SL awakened something in me.” A great many SL merchants share a similar story with an equally happy ending. “I can say that it has been one of the most rewarding experiences of my life,” says Galland.
In Business by Accident
About 90 percent of SL merchants are residents who just decide one day to try to create something, said Jay Geeseman, whose Second Life avatar is Apotheus Silverman, owner of SL Exchange, a premier Second Life-integrated commerce Web site featuring real-time shopping, real estate listings, and currency exchange. They find out that the work is fun and they can make a few Linden dollars on the side and end up doing it as a hobby. Others have a certain drive and end up more successful. “Then there are those who have real-world business experience and come to Second Life with the intention of making money,” Geeseman told LinuxInsider.
Profit-motivated content developers are indeed changing the game. “They see that a clothing designer makes money selling a certain kind of shoe, and figure they can make money by producing and selling the exact same kind of shoe, so they’re flooding the market with often identical products, which makes it more difficult for inventive designers to capture their fair market share,” explains Pippin.
“Fresh content is still being made, but it’s getting harder to find it in the throng of re-hashed content,” he says.
On the other end of the scale are the real-world retail giants out to profit from a new channel. IBM, Starwood, Toyota, Sony and BMG have opened shop in the Second Life world, where they each use new media tools to engage customers, grow brand loyalty and develop new products.
“As to whether or not a real-world product being introduced to SL increases its popularity, yes, it can, but it needs to be done right,” says Pippin. “Simply populating SL with a real-life product won’t do much good, and it’s a waste of both resources and Second Life’s potential.”
The trick, according to Pippin, is to use Second Life for what it is — a way to create, manage, and explore communities. “If you can find a way to use Second Life to enrich a community’s understanding of your product, you can harness that community to market your product effectively,” he says. “I’d seriously advise any company thinking of using SL as a marketing tool to allow experienced users and developers to consult with you on how to use SL effectively.”
Ignoring the virtual realm of gamers can be expensive to real-world retailers in more ways than one. “There’s a tendency for in-world content developers to adopt an ‘it’s only a game’ attitude towards honoring real-life trademarks, and it’s going to start to cause problems as real-world companies get a closer look at the growing virtual worlds market,” explains Pippin.
However, some die-hard fans try hard to play by real world rules and ethics. “As a rule, SL Exchange disables any trademarked content that is reported to us unless we have proof that the creator owns the trademark or has permission to use it. A few merchants have permission to use some companies’ trademarks, but most do not,” explains Geeseman. “As far as I’m aware this policy is very similar to that of Linden Lab.”
Most companies don’t want people creating virtual copies of their products because that content can dilute their trademarks, Geeseman said. In these situations, trademark law favors the companies who own the trademarks, and they have the right to have that content disabled if they wish. “Others, however, such as Coca-Cola, encourage people to create content with their brands,” he says. “It all depends on each company’s vision for their respective brands.”
The virtual and real worlds connect in other economic ways as well. For one thing, both are suffering a downturn and neither dip is easily explainable.
“Since we have a large number of transactions, we have unique insight into the Second Life economy. As a whole, the economy is steadily growing, just as Linden Lab has stated,” says Geeseman. “However, most individual businesses have seen a downturn in the past few months. From what I can see, it looks like this perceived downturn is because there are more and more people starting businesses in Second Life so there’s more competition.”
Just as in the real world, not all competitors play fair. “It’s a double-edged sword. On one hand, it’s great to see SL gaining such exposure, but on the other hand the market is becoming more difficult for designers who take the time to innovate to stay economically viable. I can’t easily compete with knockoff competitors, since I have to invest the development time to come up with something inventive and they don’t,” bemoans Pippin.
Natural limitations can jack up the price of things in both worlds. “Just like the real world, real estate tends to affect the economy to a certain extent. Linden Lab has control of the amount of land available for purchase in Second Life,” explains Geeseman. “This could also be a contributing factor for the perceived downturn at the individual business level.”
And, just like the real world, not every merchant perceives a downturn.
“Business is great. I have followed trends as the months have passed and have not found a great deal of fluctuation, even given how the U.S.’s economy has fared as of late,” says Galland. “I have seen steady growth in SL. In fact, if I notice downturns, it often has more to do with issues within Second Life that are usually corrected within a few days.”
However, real world economic troubles do affect many SL residents. “Consumer content — that is, content bought by casual players for personal use — seems to have been aversely effected by overall real-world economic torpor,” says Pippin. “When money is tight, it’s usually the impulse buys and entertainment expenses that are the first to go, so many content developers are not seeing the same robust business we were seeing less than six months ago.”
Still, SL can be a relatively cheap way to find entertainment. “Virtual shopping is an incredibly popular pastime within Second Life,” says Galland. “Where else can you buy a luxurious house for (US)$30 or less or shoes for $3?”
All told, the virtual economy mirrors the real economy in many ways.
“The upshot is this: It’s a wildly disparate economy that’s affected differently by real world economic stresses. Some markets are growing, some are in decline,” says Pippin. And there’s nothing surreal about that.