Crazy Business Ideas That Actually Worked: Virtual Product Sales
Selling make-believe goods for real-life money has become big business.
- Stainless Steel Stove: L$50
- Roadster Cruiser: L$30
- Mood Cloud: L$590
But what's a mood cloud? Or an "L" dollar, for that matter?
Ask that person in your office who's most likely to have spent time in the online world of Second Life and they'll explain that some avatars (animated representations of people) use "mood clouds" (illustrated bubbles that hover above an avatar's head) to communicate their state of mind (or, presumably, the emotions of the living, breathing person controlling the avatar) as they wander around the multi-user fantasyland that has almost replaced real life for hundreds of thousands of people.
The "L"? That stands for Linden, as in Linden Lab, the San Francisco-based company that created Second Life and the currency used in its very deep and active marketplace. These days you can buy close to L$267 for US$1.
When Second Life was created in 2003, its rudimentary programming allowed basic functions; users could meet and interact online but there was no "game" involved. The virtual economy was there from the beginning, however, and experts say that it was key to Second Life's tremendous growth. It helped the site become a massive meta-universe of elaborate fake islands and villages, which in turn attracted more users. Membership rates once soared into the millions but have now settled at close to 800,000 repeat users. In the first quarter of 2010, "in world" user-to-user transactions totaled more than US$160 million, and for all of 2009, that figure topped US$560 million.
Impossible, you say. Who's spending real money on pictures of objects, on non-existent goods? And in this troubled economy, to boot. The better question is, who isn't?
According to recent reports, 13% of Internet users bought virtual goods in 2009, spending a little more than $90 on average. The estimated global revenues from all 2009 virtual good transactions was said to be more than $10 billion, a figure that includes exchanges on sites like Facebook, which has launched Facebook credits, and World of Warcraft, where, for example, a $25 flying "celestial steed" garnered sales of more than US$2 million earlier this spring. (Virtual world experts say that some of the 2009 boom can be credited to the popularity of James Cameron's blockbuster film Avatar.)
So how does this vapor economy work? "Well, let's say you're an avatar," begins Wagner James Au, author of the book The Making of Second Life and editor of the blog Second Life: New World Notes. "One of the first things you might buy is new skin. Many people change the very color and texture of their body," he tells Minyanville.
Lita Complete Rockstar Avatar Skin: L$380.
You'll probably want to get dressed, too. Fashion, and specifically shoes, are among the biggest sellers on Second Life, according to Au, who spent three years as an embedded journalist in Second Life and still does some development work for the company.
Alice in Wonderland Dress: L$199.
Sculpted Foot and Shoes: L$99.
At some point you're going to need to stop drunkenly wandering around other people's islands and find a crash pad of your own. For that, you'll have to buy some real estate from Linden Lab, or from another user who has become a landlord.
Tuscany "Multi-animated" house: L$399.
Next, you need to outfit your virtual home. Yes, Second Life members shop for sofas, bedroom sets, lawns, place mats, water fountains, and plants. An undetermined but highly visible percentage of users also buy sex toys and bizarre equipment to help play out fantasies that might get them hard time in the flesh-and-blood world.
You get the picture (in fact, it's all you really get): Avatars like to shop.
Second Life users purchase goods from each other, finding products and services created by other residents on "XstreetSL," formerly a third-party company that Linden recently purchased and brought in-house as "Second Life Marketplace." The exchange has allowed many residents to use the magic of computer programming to open shops and become the hairdressers, architects, or fashion designers -- or let's face it, sex slaves -- they were never able to be in real life -- and charge other users for their goods and services.
If a virtual merchant becomes popular, they'll start making real-life money. That's the innovation Linden Lab added to the virtual economy model, says Au. Although other games have allowed users to buy and sell goods, members were never able to transfer their credits back into real-life currency and thus earn pocket change, or the equivalent of a salary.
Another turning point in the market's evolution was an event Au compares to the Boston Tea Party. In its first few months operating Second Life, Linden Lab charged a fee for any online transaction between members. That led to a tax revolt, complete with a militia that polluted the site with giant tea crates and Linden loyalists, who lost the battle. Linden removed the tax and online sales flourished.
Now, says Au, several Second Life users cash out with riches of US$1 million every year. In 2009, the highest-grossing earner made $1.7 million. The top earners are land barons and shoe or fashion designers, though many thousands of more users make spare change, he adds, or "beer money" with other products or performances. In January, Au's blog reported surprising stats about 2009 merchants:
- Gross Resident Earnings totaled US$55 million
- More than 50 accounts earned more than US$100,000 each
- The top 25 accounts, as a group, earned about US$12 million
Keep in mind that some of the members have formed their own companies, and hired real staff, to keep their Second Life businesses going.
Some real world charities have waded into Second Life, hoping that avatars will be as willing to donate Linden dollars as they are to spend them. In 2006, for example, the American Cancer Society raised money in a Second Life event by auctioning virtual items, including a limited-edition virtual car called the Dominus, created by a popular resident. One anonymous user bid nearly US$2,000 to win the item. As Au pointed out:
Now the Dominus is a spectacular vehicle, capable of amazing burnouts and skids, with the only possible drawback being that it doesn't exist. So why would someone pay close to US$2000 to own it?
After some discrete inquiries (the donor refused to have their name published) RFL volunteer Moo Money introduced me to the person who did.
"Well," the auction winner tells me, "in 1986, my grandmother died of cancer. Last year my mom had a cancer scare which thankfully did not turn out to be cancer. Earlier this year I was having health issues and cancer was one of the concerns -- I was having major chest pains, back aches, and other symptoms." (Luckily this turned out to be a false alarm, too, but scary enough.)
Recent headlines have highlighted Second Life's real world financial troubles. According to the Wall Street Journal, the company is laying off 30% of its 300-person staff and closing a development office in Singapore. Au says rumors of a forthcoming IPO have quieted now that everyone is wondering what the company will do to find its next wave of innovation. One research firm recently valued Linden Lab at $383 million, a relatively low figure for a widely known and established tech company.
One of the growing side businesses on the site is called Second Life Work, created for meetings, events, and training. Several major companies and schools, including the University of California, San Diego and Idaho State University have used the platform to set up virtual situations (hospital emergency rooms, for example) for training purposes. Defense contractor Northrop Grumman has used Second Life to give employees the opportunity to practice disabling a virtual bomb.
It remains to be seen whether this will be a promising new direction for Linden Lab. One thing Au doesn't doubt is that more and more Americans, and companies, will come to embrace the use of avatars for all sorts of purposes. "It has not become a mainstream thing, yet, but it will, in a very big way, in the next year or two," he says. So pull out your virtual pocketbook.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter