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Aviators, Moguls, Fashionistas and Barons: Economics and Ownership in Second Life Come Fly With Me In Second Life, everyone can fly. Despite (or perhaps because of) this, wings and flying vehicles have generally been on the cutting edge of user development from early in Second Life's Alpha. Although vehicles of all types have been created, flying vehicles have always been dominant, from the early jetpacks and wings, through the hot-air balloon races, to the current high performance aerobatic and dog fighting aircraft. Residents with a passion for flying have taken great advantage of the new economic system as it allows them to build airports and aerodromes. Recently, a skydiving craze has swept though Second Life [Au04b]. The owners of "Abbotts Aerodrome" have created one of the most complete experiences within Second Life, allowing other residents to take skydiving classes, join groups for multi-person jumps, compete in contests, purchase upgraded equipment, look at screen shots of jumps, and even buy a jump plane to take up their own groups. The skydiving equipment utilized the skills of scripters, modelers, texture artists and animators, as well as in-world jumpmasters, teachers, and community organizers. Even more importantly, skydiving is just part of the experience of visiting the Aerodrome. New vehicles appear almost daily and the owners are usually around to talk about flying, scripting, or how to make something new. Capitalism at Play With a healthy and stable market for L$, many Second Life residents are actively trying to generate real-world profits. Some are using those profits to augment or replace their real-world jobs. Unfortunately, markets also offer opportunities that range from unpopular to illegal. Like all other online services, Second Life has to deal with credit card fraud, identity theft, and, of course, the PayPal chargeback. This last happens when the thief purchases digital goods using PayPal and then, exploiting a quirk in their chargeback policy, reverses the payment. This leaves the thief with both the digital goods and his original money, while the victim has neither. Even worse, the victim generally has no recourse [Dibbell03c]. This particular exploit has been documented [Cringely04] and it is likely that eBay and PayPal, in conjunction with digital world operators, will find an appropriate solution. Land Barons Land in Second Life is a scarce resource and is released to residents via auction. Some residents quickly determined that they could purchase land, subdivide it, and resell it in world for a profit. Land barons have proven to be unpopular with the other residents and discussion threads about the problem have shown up regularly in game forums. The problem is both one of perception and of fact. The reality is that the speculators are so efficient and motivated to win auctions that other residents have been largely squeezed out of the auction system. For example, over a recent 30-day period, only 5% of those residents who purchased land had purchased it from the auction system. The other 95% buy land from the land speculators. This gives rise to the perceptual problem. Although many speculators spend time and effort subdividing the land, performing small terraforming tasks, and generally preparing to sell the subdivided parcels, most residents don't feel that any value is added in this process and that the new land is exorbitantly expensive. In reality, the price increase is only about 10% above the auction price. More importantly, the smaller parcels are cheap enough to be purchased by a much larger percentage of the residents. Second Life recently added a "First Land" feature that greatly simplified land purchases for new users. As a result, speculators are changing their approaches to land resale. Going forward, it seems certain that virtual real estate agents within Second Life will have to compete with each other for business. As in the real world, agents who add value by correctly staging property, doing research about the property's location, and who actively manage their client lists, will be able to charge a premium for their services. As the world continues to grow, the ability to connect buyer and seller will be increasingly valuable. Bringing on the Lag Second Life's open-ended building and scripting tools provide residents with ample opportunities to stress both the client rendering and server simulation. These stresses are broadly classified as "lag," where the client's frame rate drops or updates from the server are delayed or blocked. As in other MMOGs, properly timed lag can be used to gain an advantage over other players or to interfere with their businesses. Second Life does allow residents more opportunities to generate lag than any other MMOG, but it isn't possible to eliminate this without greatly damaging the flexibility and culture of experimentation so critical to growth. Instead, creations within Second Life always indicate both their creator and current owner, generally allowing residents to quickly determine the source of problems. In addition, malicious use of the system is a serious violation of the Community Standards. Much like the real world, an arms race exists between business owners and criminals, and much of the continuing development effort in Second Life is focused on ensuring that businesses are free to operate. Timeshifting The average person has a very full schedule. For the average American, television, work and sleep, are enough to take most of the hours in the week. While people have begun to exchange television viewing for game playing [Loftus04], the high time cost of MMOG play is still a significant problem for many. The very real possibility of generating an income within Second Life can change that. As Julian Dibbell can attest, it is possible to make a living selling digital goods [Dibbell03b]. Several of Second Life's more successful creators are using their profits to pay for tuition or as income while unemployed [Au04a]. For many of these digital entrepreneurs, the ability to make money doing something that they enjoy is a new experience. Residents often join Second Life with no idea that they possessed the creative skills or business acumen needed to make and sell digital items, but the ease of experimentation and readily available in-world educational resources lead them to explore the possibilities. Some have even setup databases in the real world, tracking inventory, sales, and customer data from their multiple stores within Second Life. Using this data, they adjust product lines, prices, and advertising, acquiring skills and knowledge that would be acquired at far greater financial risk in the real world. For example, residents have discovered that Sunday is the largest shopping day in Second Life and that attractive but simple displays generate more sales. Undoubtedly, some will eventually transfer their newfound business acumen back into the real world. Conclusion Second Life's transition from a simple subscription model to one based on land and intellectual property ownership has profoundly changed creation within the world. Residents are able to create on a larger scale, to explore new ways to earn real-world profits, and to leverage their early successes into more land and opportunities. Trade with the real world, in the form of currency exchanges on 3rd party sites, has increased steadily and the L$ has appreciated in value against the US$. On the other hand, economic temptations have also increased as more residents supplement their income via Second Life, and both unpopular and fraudulent behaviors have been observed. Most importantly, the primary goal of the change, increased quantity and quality of user-created content, has been conclusively observed. Second Life is proving that users truly can create a world, as well as compelling experiences within that world. Leveraging user-creation is far more than simply providing users with the correct tools. A complex set of economic and legal choices exist and any project that expects quality output needs to carefully consider the interaction of all of them. Economic factors provide a powerful selection pressure for high quality content while property rights provide creators with the incentives to work on large projects over significant periods of time. Filtering and search functionality required to separate the wheat from the chaff becomes increasingly important as the content creation scales up with the world population.
As the world of Second Life grows and new functionality improves the experience for all residents, its markets and connections to the real world will also grow and strengthen. This is a different path than conventional MMOGs, but an absolutely necessary one for building a truly user-created place. Further Reading For more information on law, economics, and digital worlds, the references provide a wealth of information. In addition, the following websites and mailing lists are excellent sources of data and debate:
References [Au04a]
Au, Wagner James, "Post War Reconstruction, Part 1" available
online,
April 26, 2004.
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