Randolph Harrison is back, with another detailed post questioning SL’s economic viability. This one has even more graphs.
You may recall that his last article alleged that Second Life is a Ponzi scheme (I discussed it here). This time, he moderates the rhetoric a little bit, considering it instead a HYIP, or high-yield investment program. In theory not all HYIPs are necessarily Ponzi schemes. But in practice, they tend to be.
I haven’t dug into the numbers he presented very much, but I’d caution very strongly against using the standard population metrics of registered users as any sort of unit by which to divide or multiply. Unique users will serve as a better baseline.
In any case, the real thing I want to respond to is his tone of outrage over his reception by the virtual world blogosphere. The thing that I, at least, responded to negatively is his accusation that in effect Linden Lab is knowingly conning users out of money. Calling an entire product a Ponzi scheme is effectively that accusation. I don’t think that is the case.
That doesn’t mean that I, or indeed many observers, think that it’s wise to sink your money into any virtual world and expect to cash out a profit. For better or worse, central-server worlds run as businesses are about operators making money off of users — there’s lots of ways to do it and means of indirection, but that’s the bottom line. Whether or not users can transact amongst themselves is almost beside the point; all the worlds mint digital assets (currencies, etc) and they all persuade users to cough up cash in order to acquire more of these digital assets. In fact, in all the worlds, users do transact amongst themselves — it’s just approved of or not by the management.
When users transact amongst themselves, it’s always the exchange of one user’s labor for something the other user considers of value. Basic economics here. One guy gold-farms, the other gets some plat/adena/whatever. One guy raids endlessly, and eventually another guy gets a nice sword. One guy labors over the prim forge and produces a cool chair or avatar or set of pixelated genitals, and the other guy gets another pile of bits in their database record. Whether or not the labor is “creative” is really beside the point; indeed, whether or not the user retains ownership of the digital bits is also kinda beside the point, as far as a macro-level analysis goes.
Fundamentally, the value of all this stuff is propped up by the value that the buyers attach to their presence in the virtual world. It doesn’t matter whether it’s a game world or a social world. The only thing that matters is whether the buyers find it emotionally satisfying. In that sense, Randolph is exactly right when he says Second Life is a game — if the users aren’t finding it sufficiently entertaining in some fashion, they will depart, and the accumulated value they have acquired will plummet. This is why departing users are so often willing to sell or give away stuff worth theoretical thousands on the open market.
In this sense, all virtual worlds are “Ponzi schemes.” If you assume that no world will grow eternally, then any world you buy into is going to be a losing proposition. You will eventually get bored of it. If you are late to the party, there will almost always be fewer people there to buy what you want to sell. The increased richness of the world over time will mean that most early-acquired digital goods will be of less value than the latest and greatest.
The mistake here is to see the value as an investment. It is, but it’s not an investment intended to provide a monetary return. We’re dealing in the currency of attachment, the investment of emotion. Bottom line, that’s where the lasting value lies. Trying to make a buck off it on the side — enh, possible but not likely, and also not the point.
That’s why posts like this one are far more of a risk to Second Life than currency collapse.